The Executive Suite: Reminder: Important Stark Effective Date and Physician Group Practices

January 1, 2022 is just around the corner. On December 2, 2020, the Centers for Medicare and Medicaid Services (CMS) published new provisions and exemptions related to the Stark Law (85 Fed. Reg. 77492) and simultaneously, the Department of Health and Human Services – Office of the Inspector (HHS-OIG) published new provisions and safe harbors related to the Anti-Kickback Statute (AKS) (85 Fed. Reg. 77684). Having detailed several of the changes in a three-part series for Physicians Practice, there is one item that was not included in the January 19, 2021 effective date, which demands attention.

Before delving into the specifics of the new changes to the Stark Law, which become effective on January 1, 2022, there are a couple of important reminders concerning the Stark Law. First, unlike the AKS, Stark is not a law with both civil and criminal penalties. Stark is a civil statute. Second, it is important to appreciate what goods and services come under the umbrella of designated health services (DHS) – a term that is specific to the Stark Law. Finally, while there have been modifications to the writing requirement, they are specific and should be read closely. Bottom line is that they are still required – it’s the timing that is at issue. Having said that, I would never have a verbal agreement because of the potential compliance and litigation issues down the road.

By way of background, “[p]hysician group practices commonly rely on the in-office ancillary services exception (IOAS) to protect referrals for DHS among physicians within the practice or for ancillary services provided by the practice.” Practically speaking, so long as the practice satisfies the strict and nuanced requirements to be considered a “group practice” (42 C.F.R. §411.352), both the physicians’ ownership and compensation arrangements may be compliant with the Stark Law. As stated in 66 Fed. Reg. at 876 (Jan. 4, 2001),

Accordingly, the Congress permitted group practice members (and independent contractors who qualify as ‘‘physicians in the group practice’’) to receive shares of the overall profits of the group, so long as those shares do not directly correlate to the volume or value of referrals generated by the member or ‘‘physician in the group practice’’ for DHS performed by someone else. (emphasis added).

Subsequently, on 66 Fed. Reg. at 957 (Jan. 4, 2001), “overall profits” is defined to mean:
the group’s entire profits derived from DHS payable by Medicare or Medicaid or the profits derived from DHS payable by Medicare or Medicaid of any component of the group practice that consists of at least five physicians. The share of overall profits will be deemed not to relate directly to the volume or value of referrals if one of the following conditions is met:

(i) The group’s profits are divided per capita (for example, per member of the group or per physician in the group).

(ii) Revenues derived from DHS are distributed based on the distribution of the group practice’s revenues attributed to services that are not DHS payable by any Federal health care program or private payer.

(iii) Revenues derived from DHS constitute less than 5 percent of the group practice’s total revenues, and the allocated portion of those revenues to each physician in the group practice constitutes 5 percent or less of his or her total compensation from the group.

(iv) Overall profits are divided in a reasonable and verifiable manner that is not directly related to the volume or value of the physician’s referrals of DHS.

The changes in the definition of “overall profits”, which become effective January 1, 2022, are critical to a group’s ongoing compliance with the Stark Law’s permissible compensation models, as well as potentially avoiding a False Claims Act case. As of January 2022, “overall profits” was clarified to mean the profits derived from all DHS of any component of the group that consists of at least five physicians. “Split pooling” – the distribution of profits from DHS on a service-by-service basis – is expressly prohibited. The concern voiced by CMS on page 77563 of the Dec. 2, 2020 Final Rule related to comments received on “split pooling” was that “service-by-services profit shares would allow physicians to receive profits shares more closely related to the services they referred, their specialty, the services they provide, or the expenses they have personally incurred.”

Thus, beginning January 1, 2022, the “split pool” method of allocating DHS profits will no longer meet an exception. “Groups may segregate and allocate DHS profits generated by sub-pools or "pods" of at least five physicians and are permitted to use different profit allocation methodologies among the pods. However, within each pod, groups must use the same compliant methodology. Some examples of permissible methodologies include allocating DHS profits on a per capita basis or based on personal professional productivity (excluding DHS revenues).” Pursuant to the Stark Law’s Final Rule all revenue and expenses from all DHS service lines need to be aggregated and then distributed using the same methodology.