DO NOT PASS GO
GO DIRECTLY TO YOUR COMPENSATION POLICY
By W. Darrell Armer and Rachel O. Poynter, Gray Reed
As part of its efforts to accelerate
the transformation
of the healthcare system, the
U.S. Department of Health
and Human Services (“HHS”)
launched its “Regulatory Sprint to Coordinated
Care” and the Centers for Medicare
& Medicaid Services (“CMS”) released a
number of final rules, including rules that
changed the Physician Self-Referral Law
(the “Stark Law”) regulations. While the
bulk of the final rules were focused on
removing regulatory barriers to coordinated
and value-based care, an important
revision was made to the definition of
“group practice,” which directly impacts
the compensation methodology that can
be adopted by physician practices.
To qualify as a group practice under
the Stark Law, there are nine detailed
requirements that must be met. One of
these requirements – profit shares and
productivity bonuses – was significantly
modified by CMS’ regulations that went
into effect on January 1, 2022. Satisfying
these requirements is important because
a physician practice that is a “group
practice” may avail itself of certain exceptions
to the Stark Law – most notably, the
“in-office ancillary services” exception
(the “IOAS Exception”), which allows group
practices to provide and receive payment
for the provision of designated health
services (“DHS”). If a physician practice no
longer satisfies the nine requirements to
be considered a group practice, then the
physician practice’s receipt of payment for
a physician’s referrals of DHS to the practice
are no longer protected. As such, if a
group practice has not done so already, it
must immediately ensure that its current
compensation methodology does not run
afoul of the Stark Law.
It has long been the rule that a group
practice may pay a physician in the group
a share of the “overall profits” so long as
the payment is not directly related to the
volume or value of the physician’s referrals.
However, CMS has now deviated from its
previous definition of overall profits in a
way that significantly impacts how profits
may be distributed in a group practice.
Specifically, overall profits now means
the profits derived from all the DHS of any
component of the group that consists of
at least five physicians or, if there are less
than five physicians in the group, the profits
derived from all the DHS of the group.
This change (i.e., the use of the phrase “all
the DHS”) is notable because CMS has
10 | DALLAS MEDICAL JOURNAL • April 2022
made clear that a group practice may no
longer pool and distribute profits from DHS
on a service-by-service basis (also referred
to as “split pooling”). The profits from all
the DHS of any component of the group
that consists of at least five physicians
must be aggregated before distribution.
In rulemaking, CMS provided the
example of a physician practice that provides
both clinical laboratory services and
diagnostic imaging services (both of which
are DHS) to its patients in a centralized
building. If the practice wishes to qualify
as a group practice for purposes of the
Stark Law, it may not distribute the profits
from the clinical laboratory services to one
subset of its physicians and distribute the
profits from diagnostic imaging to another
subset of physicians. Separate and apart
from the aggregation requirement, CMS
indicates that sharing profits on a serviceby
service basis could also call into question
whether a physician practice could
satisfy other requirements of the group
practice definition (for example, could the
group practice still claim to be a unified
business?).
Through this updated definition to
overall profits, CMS has also clarified that
a group practice is not required to treat all
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