Sharing the Stark money

By Alice G. Gosfield, Esq., March 1, 2022

Every month, DermWorld covers legal issues in “Legally Speaking.” This month’s author, Alice G. Gosfield, Esq., is a health care attorney at Alice G. Gosfield and Associates, P.C.

Physicians may share many basic misconceptions about the Stark statute. The first is that they refer to all kinds of other fraud and abuse problems as “Stark issues.” In fact, the Stark statute is relatively narrow by contrast with the antikickback statute, or even state based anti-referral laws. Stark is relevant only to physician referrals, only for services paid for by Medicare and Medicaid, and only if the referral is for one of a list — both in statute and regulations — of designated health services (DHS). For dermatologists, the most significant DHS are most often clinical laboratory services and outpatient prescription drugs. DHS referrals are prohibited where the physician (or an immediate family member) has a financial relationship with the entity receiving the referral unless the arrangement meets an exception.

There are exceptions stated in the original statute, and the government has published additional exceptions in regulation. Most of the exceptions, including those for referrals from physician to physician, or for in-office ancillary services (which would include dermatopathology services as clinical laboratory services), among others, provide that to qualify for the exception, the group practice must meet the definition of a group. One of the qualifying criteria for that definition is how the group handles its internal compensation! This restriction, first set forth in the 1995 statute which expanded the scope of restrictions beyond clinical laboratory services to include, among other services, almost all imaging and outpatient prescription drugs, was not interpreted in regulations at all until 2001 — almost six years after the law's enactment. Most recently, effective Jan. 1, 2022, the regulators have changed and reinforced some of these internal compensation rules, which are addressed here.

Productivity-based compensation

The statute itself says that physicians may be paid a productivity bonus based on services they personally perform, or which are ‘incident to’ such personally performed services. First, this does not mean a physician’s entire compensation must be productivity based nor that productivity may only be paid as a bonus. A physician can be paid purely on productivity as well as with a base salary and then a percentage above some number to reflect productivity. The rules specify little more regarding personal productivity — the fruits of the physician’s own labors. If the services are the professional component of DHS (such as interpretation of an image) the physician can only be given credit for what they do themself. Unless the physician literally takes the image with no technician involved, they could not be given credit for the technical component revenues they did not personally perform.

The statute and supporting regulations also permit dollar-for-dollar allocation for services rendered ‘incident to’ the physician’s services. The term ‘incident to’ is a long-standing Medicare concept. This rule allows Medicare payment to a physician for services rendered by ancillary personnel, which services are an ‘integral although incidental part of the physician’s personal professional service to the patient.’ It is by that provision that Medicare has always paid for a medical assistant or a nurse to take vital signs or draw blood in a physician office, for example. As the years have gone by, more types of clinicians have emerged, such as nurse practitioners (NPs), physician assistants (PAs), respiratory therapists, physical and occupational therapists (PTs/OTs), and more. They, and other clinical personnel, can be billed incident to the physician, which means they are invisible on the claim form and the services are billed as if the physician rendered them.

To bill incident to a physician, first, there must be a physician service to which the incidental services relate. Typically, this is some kind of visit. To the extent the physician establishes a treatment plan that calls for incidental services, they may be billed for even when that physician is not on premises while the services are provided. There must, however, be some physician in the group practice on premises and in the office suite at all times that the incidental services are being provided. The supervising physician is listed on the claim form, but that has nothing to do with the allocation of dollars to the treating physician. The incident to rules cover supplies as well — for example, if a patient receives a drug infusion incident to a physician’s treatment plan, the reimbursement for the services of the nurse administering the drugs and the payment for the drugs themselves can be allocated directly to the treating physician, even if he is not the supervising physician when the services are rendered. If the patient’s condition changes so that the physician must intervene to establish a new plan of care, a new series of incident to services may be provided.

Because this dollar-for-dollar permitted allocation flies in the face of the basic Stark prohibition against rewarding physicians for the volume or value of DHS they order, even many lawyers have had difficulty absorbing this. The government has reiterated its position multiple times with each iteration of changes to the Stark regulations, referring to their regulations in 2001 when they first allowed this approach. It is not a requirement, but physicians can be given dollar-for-dollar credit for their personal productivity and the services and supplies incident to their personal services.

Profit sharing

In the arena of profit sharing, the regulators have made more changes. The profits at issue are those generated by DHS which is not allocated as personally performed or incident to. These profits reflect the fruits of the labors of others. The government has emphasized that their restrictions pertain to profits, what remains after expenses are deducted from revenues. These are typically generated by technical components of all diagnostic services including laboratory and imaging, but can include any other DHS profits as well, such as drugs. In 2007 and 2008, Medicare changed its rules regarding diagnostic testing, taking the position then, after 30 years to the contrary, that diagnostic testing could never be considered incident to. The first settlement regarding group compensation failures was entered 20 years after the law was passed. In a whistleblower case settlement, a private practice cardiology group had to pay more than $1.33 million to the government for allocating technical component revenues to the ordering physician. Again, there is no requirement to engage in profit sharing, but if a group does, it must follow the rules.

The first major change is that it is no longer permitted to allocate DHS differently to different subsets of physicians based on the modality at issue, a practice CMS calls ‘split pooling.’ Rather, all the profits from all DHS must be shared in a single pool. We have had large, multi-specialty groups which have had separate profit-sharing pools and pods, for different types of imaging (e.g., CT, X-ray, MRI, ultrasound) as well as other pods for physical and occupational therapy, infusions, clinical laboratory, etc. That is no longer permitted. All the DHS profits must create the single pool for profit sharing. So, in a multi-specialty group sharing profits among many physicians with multiple DHS revenues, the pool of money to be shared with the dermatologists who order relatively few of the group’s DHS, must include all the other profits from DHS as well.

That said, there can be differing formulas among subsets of physicians, but no pod may be fewer than five physicians. The formulas must be established in a forward-looking manner, so, ideally, the formula is in place before the profits are earned. If a group is only four physicians or fewer, only one formula may be used for all, with different results for each permitted. The allocation of profits may be shared on widely variant bases (which may exclude some physicians) including but not limited to per capita, by specialty, seniority, status as a shareholder, wRVUs other than from DHS, number of patients, number of patient encounters, volume of E/M services, or similar practice patterns. Any of those would be permissible; none is required. Any subset, no matter the formula it uses, must be at least five physicians.

Conclusion

That the Stark statute has anything to say about internal group practice compensation is a unique phenomenon. The rules for compliance can be complex. Physician groups who provide DHS have no choice but to confront this challenge.

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