BLOG: New Stark regulations may require changes to your compensation formula
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CMS just issued new rules that dramatically revise the Stark regulations.
While many of the changes loosen restrictions, permitting more flexibility for value-based payment arrangement, and allowing hospitals to subsidize electronic health records and assist with cyber security, 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.
There are several significant changes in the new Stark regulations. Perhaps the biggest: CMS states that to qualify as a group practice, the practice must use the same allocation methodology for all designated health services (DHS). Historically, it was possible to treat each designated health service independently. One could choose to split imaging revenue based on physician productivity while dividing physical therapy evenly among the group.
As of Jan. 1, 2022, the compensation formula will need to treat all DHS uniformly. In essence, the revenue from all DHS must be aggregated and divided pursuant to one formula. You can still choose to use productivity, an even split, seniority or any other method that does not take into account referrals for DHS, but whichever method you use, it must be applied to all DHS revenue.
A second change is that Stark will now apply to all revenue from DHS, even if the service is billed to a private payor. Historically, a group was prohibited from compensating physicians for ordering DHS only if the patent was enrolled in the Medicare or Medicaid programs. Actually, Stark’s applicability to Medicaid is not entirely clear, but it is safer to assume it applied to Medicaid.
Under the new rules, effective Jan. 1, 2022, it will be improper to credit physicians for laboratory, X-ray, therapy, prosthetics and orthotics, and other DHS even when the service is billed to a private payer.
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 equal division of DHS revenue for the first subgroup of five or more physicians and use productivity for the second subgroup while a third subgroup divides DHS revenue based on seniority and a fourth on patient satisfaction scores. However, as outlined above, within each subgroup, all DHS must be allocated the same way.
The bottom line is that it will be important to have someone with a solid understanding of the new Stark rules review your compensation formula before Jan. 1, 2022.
My law firm does free monthly health law webinars. The December webinar will discuss some of the other Stark changes, as well as other regulatory changes. You can register for it here: https://www.fredlaw.com/health_law_webinars/
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