New Stark Rules for Physician Compensation Within Group Practices

Oct 06, 2021 at 10:11 am by admin

Denise Burke

New Stark Law rules governing physician compensation within group practices go into effect on January 1, 2022.  Physician groups should be close to finalizing a review of their compensation policies to make sure they are compliant by January 1, 2022. 

On November 20, 2020, the Department of Health and Human Services (HHS) issued a sweeping set of final rules to revise regulations under the federal physician self-referral law, commonly referred to as the Stark Law. The Stark Law prohibits a physician from referring a patient to an entity with which the physician (or an immediate family member) has a financial relationship, for the furnishing of designated health services (DHS) for which payment may be made under the Medicare program, unless an exception applies. DHS includes, among other services, lab, imaging, physical therapy, DME and outpatient prescription drugs. Physician practices primarily rely on the Stark Law's in-office ancillary services exception to protect DHS referrals within the practice. Significant changes/clarifications to the in-office ancillary services exception were included in the final rules.

Important details about Physician Compensation Under the New Stark Law:

  • If a physician group practice wishes to share "overall profits" from DHS with any of its physicians, it must: (1) aggregate all DHS profits from the entire group, or (2) aggregate all DHS profits from any component of the group that consists of at least five physicians.  Many practices have historically maintained separate profit-sharing pools of at least 5 physicians by ancillary service type (lab, imaging, infusion).  Such "split pooling" is no longer acceptable after January 1, 2022. 
  • Once pooled, overall DHS profits should be divided in a reasonable and verifiable manner that is not directly related to the volume or value of the physician's referrals of DHS (per capita, by seniority, based on the practice's revenues that are not attributed to DHS, etc.)
  • Separate pools of five physicians within a group are not required to utilize the same distribution methodologies to distribute shares of the overall profits from, so long as the profits from all the DHS referred by the physicians within the pool are aggregated. However, the same methodology for distributing overall profits must be applied to every physician within the pool.
  • A group practice is not required to distribute all of the DHS to physicians.  It may choose to retain some of the profits. 
  • There is an exception for profits from DHS that are directly attributable to a physician's participation in a value-based enterprise which can be distributed directly to the participating physician, without having to aggregate the profits with the overall profits of the group practice or a pool of five or more physicians within the group practice. This would include downstream compensation derived from payments made to a group practice that relate to the physician's participation in a value-based arrangement (whether or not the group practice participates in the value-based arrangement).
  • After years of conflicting guidance, CMS clarified that DHS does not include Medicaid. 

The in-office ancillary services exception is an extremely long, detailed and complex exception to the Stark law. This article only discusses a single element of the in-office ancillary services exception. Despite the complexity of the law, the Stark Law is a strict liability statute and violations and/or alleged violations can lead to significant penalties and/or government and whistleblower actions. Physician groups should promptly work to review their compensation arrangements with trusted advisors to ensure that any needed changes to compensation policies can be adopted and implemented prior to the January 1, 2022 compliance date.

The opinions expressed in this article are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.

Denise Burke is a partner with Waller Lansden Dortch & Davis, LLP who provide legal counsel to the healthcare industry. She can be reached at

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