January 8, 2021 | By David Glaser
In early December, the Centers for Medicare and Medicaid Services (CMS) issued new rules that dramatically revise the Physician Self-Referral Law, commonly called the “Stark law” after Pete Stark, the Congressman credited with introducing it. While many of the changes loosen the law’s restrictions, focused particularly on creating more flexibility for value-based payment arrangements, and allowing hospitals to subsidize electronic health records and assist with cybersecurity, there are some changes that add new restrictions. In particular, the new regulations eliminate some of the flexibility that existed for physician compensation within a group practice.
One of the most significant changes is that as of January 1, 2022, to qualify as a group practice, a practice must use the same allocation methodology for all designated health services (DHS). Historically, it was possible to treat each designated health service independently. A clinic could choose to split imaging revenue based on physician productivity while dividing revenue from lab or physical therapy evenly among the group. But starting next year, the compensation formula will need to treat all designated health services uniformly. Most of the new Stark changes are effective January 19, 2021, but recognizing that it takes time to change compensation formulas, CMS delayed the effective date of those changes. In essence, the revenue from all designated health services must be aggregated and divided pursuant to one formula. You can still choose to use productivity, an even split, some other fixed allocation, seniority, or any other method that doesn’t take into account referrals for designated health services. However, whatever methodology you adopt, it must be applied to all designated health service revenue.
A second change is that Stark will now apply to all revenue from designated health services, even if the service is billed to a private payor. Historically, a group was prohibited from compensating physicians for ordering designated health services only if the patent was enrolled in the Medicare or Medicaid programs (Stark’s applicability to Medicaid is not entirely clear, but it is safer to assume it applied to Medicaid). Under the new rules, effective January 1, 2022, it will be improper to credit physicians for laboratory, X-ray, therapy, prosthetics and orthotics, and other designated health services even when the service is billed to a private payor.
The regulations will continue to permit you to divide ancillary profits among subgroups of the physician as long as the subgroup contains at least five physicians. If you choose to divide the group into subgroups, you are not required to use the same allocation methodology for each of the different subgroups. A group can choose to use an equal division of DHS revenue for the first sub-group of five or more physicians and use productivity for the second sub-group while a third sub-group divides DHS revenue based on seniority and a fourth on patient satisfaction scores. However, as outlined above, within each sub-group, all designated health services must be allocated the same way.
The key takeaway is that physician groups will want to review their compensation formula to be sure that it is consistent with the new Stark rules. That review should happen with sufficient time to implement any changes before January 1, 2022.