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Revisions to Stark Law Rules Covering Physician Profit Sharing and Bonuses

Supporting CMS's Transition to a Value-Based Healthcare Delivery and Payment System
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The Centers for Medicare & Medicaid Services (CMS) published a Final Rule in the Federal Register on December 2, 2020, overhauling the regulations governing the federal Physician Self-Referral Law (Stark Law). These far-reaching changes and clarifications affect, among many other matters, profit sharing and productivity bonuses. Although other portions of the Final Rule go into effect January 1, 2021, the profit sharing and productivity bonus provisions do not go into effect until January 1, 2022.

*This is the fourth article in a series analyzing recent updates to the Stark Law and Anti-Kickback Statute and their effects on health care providers. To request a copy of the entire series, click here.

Broadly, the Stark Law prohibits a physician from making a referral for designated health services (DHS) covered by Medicare to an entity with which the physician has a financial interest, including compensation and ownership or investment interests. There are, however, certain exceptions, including services provided by the physician or a member of the physician's group practice, provided certain criteria have been met. Moreover, a physician can be paid a share of overall profits of a group practice derived from the provision of DHS provided that the share is not related to the volume or value of referrals of DHS. A physician in a group practice can be paid a productivity bonus if the bonus is not related to the volume or value of referrals of DHS.

As noted in the Arent Fox Alert, New Stark Law and Anti-Kickback Reforms Aimed at Value-Based Care, while the rules provide broad updates and revisions to the Stark regulatory schemes, a central focus is to facilitate value-based arrangements in health care delivery. This is reflected in a new provision under Stark for value-based activities and arrangements by physicians in group practices. The new provision allows a member of a group practice to receive profits from DHS directly attributable to the physician's participation in a value-based enterprise. CMS clearly has made the determination that participation in such enterprises is so essential that it is allowing a direct tie between a physician's participation and the profits derived from DHS.

CMS also made a number of what it considers non-substantive and clarifying changes to the rules regarding profit-sharing and productivity bonuses. Among other things, CMS clarified that if a group has five or fewer physicians, overall profits means the profits from DHS from the entire group; but if a group has more than five physicians, the group may designate a component of at least five physicians to aggregate the profits for the purpose of distribution.

As noted, the profit sharing and productivity bonus sections of the Stark Law do not go into effect until January 1, 2022. CMS is delaying the effective date to allow group practices to have time to adjust their compensation practices.

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