September 27, 2021
On December 2, 2020, the Centers for Medicare & Medicaid Services (“CMS”) published the Final Rule, “Modernizing and Clarifying the Physician Self-Referral Regulations” that included several revisions and updates for group practices under the Stark Law. CMS delayed the effectiveness of the changes related to group practices until January 1, 2022 to ensure physician practices have the opportunity to make any needed changes in order to meet all of the new requirements.
Physicians in a group practice may be paid a share of the overall profits of the group. In the Final Rule, CMS revised the definition of “overall profits” to emphasize that profits from all the designated health services (“DHS”) must be aggregated before distributing. The group must either aggregate profits from all DHS of the entire group, or aggregate profits from all DHS of a component of the group consisting of at least five physicians.
Overall profits can be divided among one or more group practice component(s) consisting of at least five physicians. All profits arising from all DHS referred by physicians in that component must be aggregated before distributing. CMS clarified that a group cannot compensate its physicians based on profits from one type of DHS, and a group cannot pool and distribute profits from DHS on a service-by-service basis. For example, a group practice that provides two types of DHS—imaging and laboratory services—cannot distribute the profits from laboratory services to one subset of physicians and distribute profits from diagnostic imaging to a different subset. A group practice that distributes profits from different categories of DHS would not qualify as a group practice under the Stark Law regulations.
CMS revised the regulations to highlight that overall profits must be divided in a reasonable and verifiable manner. Certain methodologies of sharing overall profits outlined in the regulations are deemed not to directly relate to the volume or value of referrals. CMS finalized revisions to use the term “overall profits” in the first two deeming provisions in order to articulate more clearly that the deeming provisions related to methods for distributing a share of overall profits, not profits or revenues. Effective January 1, 2022, the share of overall profits will be deemed not to directly relate to the volume or value of referrals if one of the following conditions is met:
- Overall profits are divided per capita or per physician in the group;
- Overall profits are distributed based on the group’s revenues attributed to services that are not DHS and would not be considered DHS if they were payable by Medicare; or
- Revenues derived from DHS constitute less than 5% of the group’s total revenues and the portion distributed to each physician constitutes 5% or less of the physician’s total compensation.
Eligibility Standards and Retaining Profits
CMS clarified that practices may distribute a share of overall profits but are not required to do so. If the group practice wishes to distribute a share of overall profits, the group practice may determine how much of the overall profit to share and which physicians are entitled to receive a share.
In comments to the Final Rule, CMS stated that there is nothing in the regulation that prohibits using standards to determine who is eligible for a share of profits. For example, a group practice could use eligibility standards based on full-time versus part-time or length of service with the group, as long as the eligibility standard does not result in the payment of a profit share that is determined in a manner that is directly related to the volume or value of a physician’s referrals. Similarly, the group practice is not required to distribute all profits from DHS. Once aggregated, the group practice may choose to retain some of the profits or distribute all profits.
CMS also explained that a group practice may utilize different distribution methodologies to distribute shares of overall profits to physicians in a component of the group consisting of at least five physicians. After aggregating the profits from all DHS referred by physicians in the component, the group may divide profits within that component according to one permissible methodology. The group must utilize the same methodology for every physician in that component; however the group can use a different methodology to divide profits for another component. For example, the group practice could distribute profits to one component using a per-capita methodology and distribute to another component using a personal productivity methodology.
The Final Rule also provides an exception for certain group practice profits related to value-based arrangements. Profits from DHS that are directly attributable to a physician’s participation in a value-based enterprise (“VBE”) may be distributed to the physician participating in the VBE. CMS clarified that only profits from DHS can be distributed and not revenues. Group profits from DHS derived from a physician participating in a VBE could be distributed directly to the participating physician, including profits from DHS referred by the physician.