A group of physicians that qualify as "group practice" under the Stark law may qualify for several exceptions to the referral prohibition, in particular the exception for physician services and the exception for "In-Office Ancillaries." The regulations make some important modifications to the definitions of "group practice" and "member of a group practice" that impact how groups will be structured and operated and how they may compensate their members.
Group Practices
The Stark law defines a group practice as "two or more physicians legally organized as a partnership, professional corporation, foundation, not-for-profit-corporation, faculty practice plan, or similar association." The regulations clarify that a group practice must be a single legal entity. However, an additional provision allows physicians to form single-physician professional corporations, and have those professional corporations be the shareholders, partners or owners of the group practice. A group practice may be formed by a hospital or other entity, provided two or more physicians have a role in providing services, and all other conditions of the group practice definition are met.
Another important modification made is in the definition of "member" of a group practice. "Members" are limited to owners and employees (part or full-time) of the group practice. Independent contractors are not considered members of a group practice.
Group Practice Must Meet Additional Conditions
Each member must furnish substantially the full range of patient care services that the physician routinely furnishes through the joint use of shared office space, facilities, equipment and personnel. This condition is not new, but the regulations enlarge the definition of "Patient Care Services" to include activities that benefit the practice in general, such as training of staff and administrative and managerial duties.
At least 75% of the total patient care services of the members must be furnished through the group practice, billed under a billing number assigned to the group practice, and amounts received must be treated as receipts of the group practice (with certain exceptions for healthcare professional shortage areas). The 75% requirement is not new, but the regulations clarify that a group practice may have more than one billing number which is often the case if a group has several locations or operates in more than one state. The Centers for Medicare & Medicaid Services ("CMS") [formerly Health Care Financing Administration ("HCFA")] recognizes that a billing agent may do the billing, if the agent bills for the group, under the group's name, and using a billing number assigned to the group. Additionally, detailed time records are not required to verify that the group meets the 75% requirement, but that a practice should maintain general schedules sufficient to demonstrate how its calculations were made.
Overhead expenses and income of the group practice must be distributed according to methods "determined prior to the time period during which the group has earned the income or incurred the costs." This provision of the regulations is a clarification of the statutory language "in accordance with methods previously determined." It is aimed at the fear that ad hoc distributions or determinations made just prior to distribution may result in payment for referrals. The regulations also clarify that a hospital or other entity that created the group practice may be the entity that makes the determination as to distribution.
Overhead expenses and income of the group practice must be distributed according to methods that indicate the practice is a unified business; the methods must reflect centralized decision making, a pooling of expenses and revenues, and a distribution system that is not based on each satellite office operating as if it were a separate enterprise.
No member may directly or indirectly receive compensation based on the volume or value of referrals by that physician, except that a member may be paid a share of the overall profits of the group or a productivity bonus based on services he or she personally performed (or services incident thereto), as long as the share or bonus is not determined in a manner that is directly related to the volume of value of referrals by the physician. Because the ordering of ancillary services such as laboratory tests or x-rays by a physician is considered a referral, the requirement that a share or bonus not be related to referrals means that it may not be directly or indirectly related to the in-office ancillaries ordered by that physician, even if they are personally performed or supervised by that physician.
A share or bonus may be based on the in-office ancillary services performed (or supervised) by that physician, but ordered or referred by another physician in the group practice, however. Other acceptable methods for determining a share of overall profits or a bonus, would be an even split, a physician's investment in the group, the number of hours a physician in general devotes to the group, seniority, or the difficulty of a physician's work.
Further, "over-all profits" means all of the profits or revenues a group can distribute in any form to group members, from all locations within or outside of the state. Caution should be exercised against interpreting "overall profits" as those belonging only to a particular specialty or subspecialty group, because the narrower the pooling, the more likely it will be that a physician's compensation will be related to his or her own referrals.
Members of the group must personally conduct no less than 75% of the physician-patient encounters of the group practice. Because "members" do not include independent contractors, this condition must be met by owners and employees of t he group. An "encounter" is considered to be any appointment during which a group practice patient is actually examined or treated by a physician.
In-Office Ancillaries
If all of the above conditions are met, the group will be a qualified group practice, which will enable its members to take advantage of the exception for physician services, furnished personally by (or under the personal supervision of) another physician in the same group practice as the referring physician.
The services must be furnished personally by, or directly supervised by, the referring physician or a physician who is a Member of the same group practice. Independent contractors are not included in the definition of member, so they may not furnish or supervise in-office ancillary services for a group practice.
Services Must be Furnished in One of the Following Locations
The same building in which the referring physician (or another physician who is a member of the same group practice) furnishes physician services unrelated to the furnishing of designated health services. "Same building" means one physical structure, with one address, and not multiple structures connected by tunnels or walkways. The "building" means only those parts that are used for commercial or office space, so that a mobile MRI pulled into the garage of the building would not be in the "same building."
A building that is used by the group practice for some or all of the group's clinical laboratory services.
A building that is used by the group practice for the centralized provision of the group's designated health services, other than clinical laboratory services.
The services must be billed by the physician performing or supervising the service; by the group practice of which the performing or supervising physician is a Member, under a billing number assigned to the group practice; or by an entity that is wholly-owned by the physician or the physician's group practice.
In Conclusion
The application of Stark Law's prohibition against self-referral by a Medicare or Medicaid patient to a designated health service that the physician has a financial relationship can be a complicated and confusing. However, by careful attention to the requirements for group practice and in-office ancillary services, physicians should find that they will be able to take advantage of exemptions that will make complying with Stark Law a much smoother process