On December 2, 2020, the Centers for Medicare and Medicaid Services (“CMS”) published historic changes to the federal Stark law. This federal civil penalty law regulates a physician’s financial relationships with an entity where the physician refers Medicare or Medicaid patients for “designated health services” which include, but are not limited to, laboratory services, diagnostic imaging, physical therapy services, durable medical equipment, outpatient prescription drugs and inpatient and outpatient hospital services. The Stark law regulates how a physician practice can pay its owner(s), and employed and contracted physicians if that practice provides any “designated health services” to Medicare and Medicaid patients. Specifically, a practice of more than one physician must comply with the detailed “group practice” rules that are part of the In Office Ancillary Services Exception to the Stark law. These rules have specific prohibitions and prescriptions on how productivity and profit shares can be shared with physicians working for the practice.
Violations of the Stark law can be very expensive, with fines and civil penalties for each referral that violates the law, plus repayment of the Medicare or Medicaid claims unlawfully referred and potential exclusion from participation in federal health care programs. Violations also could be the basis of a whistleblower False Claims Act (Qui Tam) lawsuit. As a result, financial arrangements that implicate the Stark law require precise compliance with all applicable exception requirements to avoid a repayment, penalty, or other liability.
These changes to the Stark law recognize that the focus of Medicare payments has changed from volume to value and, more specifically, to the quality and coordination of care. For example, the revised Stark law adds new exceptions for value-based arrangements for legitimate activities that coordinate and improve the quality of care for patients. The revisions provide additional guidance on key exceptions to the Stark law and finalize exceptions for non-abusive beneficial arrangements that apply whether the providers are on a fee-for-service or value-based arrangement.
In its updates, the CMS makes many changes that will be effective within 60 days. The changes to the Stark law’s group practice payment rules will not be effective until January 1, 2022, however, which will give physician practices more than a year to learn the new requirements and possibly modify their physician compensation to comply with the additional flexibility for physician compensation.
Important changes to the Stark rule on how a group practice can share profits and productivity bonuses with physicians in the group has been revised for clarity and an important new exception for value-based enterprise participation has been added that creates more flexibility in how a group practice can compensate physicians. Since this exception, laid out in section in 42 CFR § 411.352(i), is a common area for Stark violations, group practices must review the technical requirements on how a group practice can pay its physicians in a compliant manner.
A group practice can pay a physician a share of the overall profits of the group that is not directly related to the volume or value of the physician’s referrals. Overall profits is specifically defined in the revised regulations and clarified to mean: “[The] profits derived from all the designated health services of any component of the group that consists of at least five physicians which, which may include all the physicians in the group. If there are fewer than five physicians it means the profits derived from all the designated health services of the group.”
Overall profits must be divided in a reasonable and verifiable manner. Although the rule still does not say that the profits must be divided in a certain way, it lists ways that profits can be divided that will not be deemed to directly relate to the volume or value of the physician’s referrals.
In relevant part, the rule lists the following ways that profits can be divided. First, overall profits can be divided per capita. For example, if a group has three physicians, each physician can be paid one-third of the revenues of the designated health services. Overall profits may also be distributed based on the distribution of the group’s revenues attributed to services that are not designated health services. In service of this manner of calculation, the language of the new rule adds the section: “and that are not considered designated health services if they were payable by Medicare.” Although profits can be distributed based on revenues from services that are not designated health services, this revised language is designed to prevent group practices from distributing designated health services revenues based on the percentage of total non-Medicare or Medicaid paid diagnostic imaging services ordered by a physician within the group. This is because diagnostic imaging services are designated health services if they are covered by Medicare. Another way to divide profits would be to rank the physician’s total revenues from patient examinations and give the physicians with the most personal production a larger share of the designated health services profits.
Although not specifically listed in the regulation, the profits from designated health services could also be shared pursuant to a physician’s percentage of ownership in the group, provided that that percentage of ownership is not directly related to the physician’s referrals of designated health services. For example, if a physician owns 40% of the group practice, then the physician may be paid 40% of the overall profits related to designated health services. Often in this instance the profits from designated health services are not shared with physicians in the group practice until they become owners.
Another permitted manner of compensation for a physician in a group practice under the Stark law is for a physician to be paid a productivity bonus based upon services that the physician has personally performed or services “incident to” the physician’s personally performed services. For example, a physician may be paid based on relative value units (RVUs) personally performed by the physician. This compensation method is common with hospital employed physicians., As in the profit method discussed above, however, under the revised rule the productivity bonus cannot be based on services that would be payable by Medicare. So, for example, no productivity bonus can be based upon the referrals a physician makes to physical therapy services even if they are not billed to Medicare.
Note that under the existing and revised Stark rule a group actually can pay a physician a share of the overall profits or a productivity bonus that do derive directly from the physician’s direct referrals for those designated health services, but only if the compensation from designated health services is so small that it does not matter to regulators. Under these de minimus exceptions the revenues derived from designated health services must comprise less than 5% of the group practice’s total revenues and the portion of those revenues distributed to each physician in the group must constitute 5% or less of the physician’s compensation from the group.
Finally, the Stark rule update adds another exception that allows physicians to be paid profits from designated health services that relate directly to a physician’s participation in a value-based enterprise. A “value based enterprise” (VBE) means two or more physicians collaborating to achieve at least one value-based purpose (for example, coordinating and managing or improving the care of a target patient population, or appropriately reducing costs without reducing the quality of care for a target patient population, transitioning healthcare delivery from volume to quality. Each participant must be a party to a VBE with at least one other participant. There must be an accountable body or person responsible for the financial and operational oversight of the VBE. Also, there must be a governing document to describe the VBE and how the VBE participants intend to achieve their value-based purposes. Such VBEs may include, but are not limited to, ACOs, capitated risk payments, shared savings programs and other arrangements.
Now is the time for physician group practices to examine their current compliance with these technical payment rules. Physician groups should also examine new methods of payment they are participating in or contemplating participating in, so that they can assess now whether they can modify physician compensation in 2021 both to be compliant and to further attract and incentivize excellent health care providers.
