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How Group Practices Can Divide Income From Designated Health Services Under Stark

How Group Practices Can Divide Income From Designated Health Services Under Stark
Hendershot, Cannon & Hisey, P.C.

The Stark Law creates an abundance of concern for many physicians and medical practices that bill Medicare and Medicaid for designated health services (DHS). That includes both vigilant practitioners conscious about self-referrals, and unsuspecting providers who commit accidental violations.

No matter the case, Stark violations can come with steep penalties – especially when it they concern group compensation arrangements.

Group Practice Compensation & The Stark Law

The Stark Law, which is part of the federal Social Security Act, has two general components related to physician self-referrals. The law:

  1. Prohibits physicians from referring certain designated health services (DHS) paid by Medicare to an individual or entity with whom they have a “financial relationship.”
  2. Permits referrals where financial relationships exist if those relationships are structured to fit within a statutory exception.

The Stark Law applies to designed health service referrals made within a group practice, so any practice which serves the Medicare and Medicaid population, and which intends to have group physicians make referrals within the group, must take steps to ensure compliance and reduce exposure to violations.

Without structuring compensation agreements accordingly, and ensuring they fit compliantly within an exception, the group may not bill for improper referrals, and could potentially be on the hook for recoupment repayments for improperly paid amounts as well as other civil penalities. It may also open the door to further civil penalties, Medicare disciplinary action, criminal penalties, and risks of liability under the False Claims Act or other health care laws.

Avoiding Stark Consequences: Shared Profits in a Group Practice

There are ways group practices can avoid violations and consequences under the Stark Law. Some of the most common safe harbors used to protect intra-group referrals include:

In addition to various requirements for each exception, these and other applicable Stark exceptions require as a prerequisite that practices meet the law’s definition of “group practice.” That generally requires billing DHS services under the group’s billing number, at its physical location, and under the supervision of the referring physician or group member, among other criteria. Groups must also determine and utilize compliant compensation arrangements.

Though intra-group compensation is generally prohibited under Stark, the law does permit group practices to pay member physicians bonuses for services they personally perform, as well as a share of the group’s overall profits. There’s a significant hitch, however:

  • The share of profits / productivity bonus cannot be directly based on value or volume of a physician’s referrals (and must be reasonable and verifiable).

So how does a group work around that when trying to determine a compliant way to divide income? There are some options for profit sharing methodologies permitted by the Stark Law:

  • Dividing a group practice’s profits per capita (i.e. income is divided per group member / physician);
  • DHS-derived proceeds are divided in the same manner the group’s non-DHS, federally paid proceeds are divided;
  • DHS-derived proceeds account for less than 5% of the group’s practice total revenue, and the distribution of that revenue to each group member / physician is no more than 5% of the total compensation they receive from the group.

Profit sharing is not mandatory, and the methodologies group practices may employ are not exclusive. Depending on the circumstances, group practices may structure other compensation arrangements, provided they don’t base compensation on DHS referral volume or value. Other options groups may explore can include:

  • Physician employment arrangements which: (1) are for identifiable services; (2) meet fair market value and are not based on referral volume or value (with the exception of productivity bonuses for personal services); (3) are commercially reasonable; and (4) set compensation in advance, and can be amended any time.
  • For groups which pay members as independent contractors, compensation agreements must comply with the Fair Market Value or Personal Services exceptions, which generally require arrangements to: (1) cover specified identifiable services and items, be in writing, and signed by parties; (2) not be modified / able to be terminated within the first year; (3) specify compensation provided under the arrangement (set in advance, not based on value or volume, etc.); and (4) be commercially reasonable.

Compliance with the Stark Law, as well as other health care laws which may be implicated when group practices provide DHS services, can be a complex and convoluted task. With the assistance of highly experienced health and medial law attorneys familiar with the many intricacies of federal health care regulations, the requirements of various exceptions / safe harbors, and the most appropriate pathways to compliance based on the unique situation involved, our attorneys guide physicians and medical groups step-by-step through the process of ensuring, and maintaining, regulatory compliance.

To speak with a Houston health care compliance attorney from Hendershot, Cannon & Hisey, P.C. about your group practice, the Stark Law, or any other health and medical law matter, call (713) 909-7323 or contact us online. Our team serves physicians and groups across Texas and beyond.

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