BLOG: Health care regulatory 101: Physician self-referral law: Group practice definition
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Key takeaways:
- A group of physicians working together may not be considered a “group practice” under the Stark Law.
- There are eight components a group must meet to qualify as a “group practice.”
Most physicians who work together with other physician colleagues — as co-owners, employees and/or independent contractors — in the same organization consider themselves as part of a physician practice.
In all practical terms, that likely is the case. But as we know, the Physician Self-Referral Law (aka the Stark Law) is not exactly practical, and whether a group of physicians working together is considered to be a “group practice” under the Stark Law can have significant impact on the practice’s compliance with the law and the practice’s ability to be reimbursed by Medicare for certain designated health services (DHS).
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There are eight components that must be met to qualify as a “group practice” under the Stark Law:
1. Single legal entity: The group may take any legal form (including a partnership, limited liability company, corporation or professional corporation), but it must be comprised of only one legal entity. It is worth noting that the single legal entity may be organized or owned (in whole or in part) by another medical practice but only if that other medical practice is not an operating medical practice (regardless of whether that other medical practice itself meets the definition of a group practice).
2. At least two physicians: There must be at least two “members” of the group who are physicians. Shareholders, partners and W-2 employees who are physicians are considered members of the group. On-call and locums physicians qualify as members while they are substituting for other members, but independent contractors and mid-level practitioners do not count as members.
3. Full range of care: Each physician member must provide substantially the full range of patient care services that he or she routinely provides. This means that the member should perform the same scope of services within the group as he or she does outside of the group for another employer or in his or her independent practice.
4. Seventy-five percent of encounters: Members of the group must personally conduct at least 75% of the physician-patient encounters of the group practice. Practices where independent contractors perform a larger number of the physician-patient encounters may have difficulty meeting this requirement.
5. Seventy-five percent of patient care services: At least 75% of the patient care services provided by members must be provided through the group and billed under the group’s billing number. This analysis requires calculation of the percent of each member’s time that is spent providing patient care services for the group and then computation of the average of those percentages for all members. “Patient care services” can be any tasks that address the medical needs of patients, regardless of whether those services involve direct patient encounters. Patient care services can include clinical services, consultations with other physicians, staff education and training, equipment ordering, group management tasks, quality assurance activities and other activities that benefit the group. Outside activities like teaching and research do not count as patient care services for the group. Note that this rule does not apply to group practices in health professional shortage areas.
6. Distribution of expenses and income: Expenses and income of the group must be allocated according to formulas established before payment is received for the services that give rise to the expenses or produce the income.
7. Unified business: The group must operate as a unified business with centralized decision-making by a body representative of the group that maintains effective control over the group’s assets and liabilities, including, but not limited to, budgets, compensation and salaries. The group must also demonstrate consolidated billing, accounting and financial reporting practices. Location-based and specialty-based compensation practices are generally permitted only with respect to revenues not derived from DHS, although there may be some exceptions where the special rules for productivity bonuses and profit shares (described below) have been met.
8. Compensation: All physicians in the group, including employees and independent contractors, if they receive a share of profits or a productivity bonus, must be paid pursuant to a formula that complies with the special rules for compensation:
- Profit sharing: A physician in the group may be paid a share of overall profits of the group, provided that the share is not determined in any manner that is directly related to the volume or value of referrals of DHS by the physician. Compensation structures based on profit sharing are compliant if the group’s profits are divided per capita or if DHS-derived revenues are shared based on the distribution of the group’s non-DHS-derived revenues.
- Productivity bonuses: A physician in the group may be paid a productivity bonus only if the bonus is based on services he or she personally performed or services incident to his or her personally performed services or both. The productivity bonus cannot be determined in any manner that is directly related to the volume or value of DHS referrals (except for DHS referrals for services incident to his or her personally performed services). For example, compensating a physician based on the technical component of a DHS diagnostic test performed by a technician can run afoul of this rule.
Errors relating to these special rules for physician compensation are the most common way that physician groups encounter problems with meeting the “group practice” definition. Although it is relatively unusual, some practices may qualify for an exemption from some of these compensation restrictions. Compliance with the profit-sharing and productivity bonus rules is not required for practices where (1) all revenue derived from DHS constitutes less than 5% of the total revenue of the practice and (2) for each physician, the share of his or her compensation that is derived from DHS constitutes less than 5% of his or her total compensation.
Given the complexities and continued refinement of the regulations implementing the Stark Law and the financial impact that noncompliance can have for physicians, it is good business hygiene to have your practice structure and compensation methodologies reviewed by legal counsel, regardless of whether your practice is considering a sale process. In addition, always confirm that the individual or organization delegated the task of calculating compensation for your practice thoroughly understands your compensation methodology. We have found many instances where a practice believed it set up a compliant compensation structure only to find out that when the numbers were run, it was done so incorrectly.
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