Physician Group Practice Alert: New Stark Requirements on Compensation Models Take Effect January 1, 2022

On December 2, 2020, the Centers for Medicare & Medicaid Services (CMS) published the final "Sprint Regulations," reinterpreting key aspects of the federal physician self-referral or "Stark" law.¹ Most of the Sprint Regulations took effect January 19, 2021.²

However, the effective date for certain changes to the Stark law's "group practice" rules was deferred to January 1, 2022, in order to allow physician groups time to adjust their compensation models to align with the new requirements. If your group has not already addressed these issues, now is the time.

The Stark law prohibits a physician from referring Medicare patients for specified "designated health services" (DHS) to an entity with which the physician (or a member of the physician's immediate family) has a financial relationship unless an exception applies.³ Many medical groups rely on the Stark law's in-office ancillary services (IOAS) exception to permit their physicians to refer DHS for which the group bills Medicare.⁴

To take advantage of the IOAS exception, a medical group must qualify as a Stark "group practice," which requires, among other things, restrictions on the allocation of DHS profits.⁵ The Sprint Regulations provided a number of clarifications to the group practice profit allocation rules, including:

• Confirming that profit allocations and productivity bonuses may indirectly take into account the volume or value of referrals.
• Revising the definition of "overall profits" to mean the profits derived from all DHS of any component of the group that consists of at least five physicians.
• Clarifying that the profits from all of the DHS of the group (or a subset of at least five physicians in the group) must be aggregated and then distributed. A group practice cannot distribute profits from DHS on a service-by-service basis (also known as "split pooling").
• Removing the reference to Medicaid from the provision deeming certain methods for distributing profit shares to be permissible. Revenues derived from DHS can be distributed based on the distribution methodology used for revenue attributed to services that are not Medicare DHS and will not be considered DHS if they were payable by Medicare.
• Harmonizing the requirements for paying productivity bonuses with the provisions addressing the distribution of overall profits.⁶

The new prohibition on "split pooling" merits special attention. The group practice rules prohibit group practices from distributing DHS profits in a manner directly tied to DHS referrals. To satisfy this requirement, some group practices allocate DHS profits on a service-by-service basis, segregating profits by service line and adopting a unique allocation methodology for each pool of profits.

Starting January 1, 2022, this method of allocating DHS profits will no longer be Stark compliant. The Sprint Regulations require all revenue and expenses from all DHS service lines to be aggregated and then distributed using the same methodology.

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).

Now is the time for medical group practices to revisit their physician compensation plans to ensure compliance with the Sprint Regulations by January 1, 2022. The Stark law's group practice rules require profit allocation methodologies used by group practices to be set in advance of receipt of payment for services underlying the profits.⁷ Failure to take action in the coming months could result in serious financial consequences for your practice.

Please contact the authors or any member of Davis Wright Tremaine's healthcare regulatory practice group with any questions.

FOOTNOTES

1   85 Fed. Reg. 77,492 (December 2, 2020).
2  The Sprint Regulations were drafted to take effect January 19, 2021. However, the incoming Biden Administration discovered that their implementation timeline violates the Congressional Review Act's requirement that major administrative rules take effect 60 days after publication in the Federal Register or after Congress receives them, whichever comes later. This may result in new effective dates.
3  42 U.S.C. § 1395nn.
4  42 C.F.R. § 411.355(b).
5  42 C.F.R. § 411.352.
6  See 85 Fed. Reg. 77,492 at 77,561–62.
7  42 C.F.R. § 411.352(e).