If you haven’t yet read those articles, we encourage you to go back for a refresher before continuing on!
Next, we’ll discuss Employed Group Practices under The Stark Law. It’s imperative that all hospitals and health systems containing some amount of employed provider groups have a good grasp on the group practice requirements and obligations under Stark Law. There can be material ramifications from both a compliance and financial perspective if the established rules and regulations are not carefully followed.
Code §411.352 of the Federal Regulations focuses on Group Practices and the rules and regulations that exist for them to comply within the requirements of The Stark Law.
In order to know if these rules apply to your organization, it’s important to first understand what constitutes a “Group Practice.” Based on federal regulations, a Group Practice is a physician practice that meets the following conditions:
Single legal entity
The group practice must consist of a single legal entity operating primarily for the purpose of being a physician group practice. This can be in any organizational form recognized by the State in which the group practice achieves its legal status, such as a partnership, professional corporation, limited liability company, foundation, nonprofit corporation, faculty practice plan, or similar association.
The single legal entity may be organized by any party or parties, including physicians, health care facilities, or other persons or entities. And the single legal entity may be organized or owned by another medical practice, provided that the other medical practice is not an operating physician practice. A single legal entity in this case does not include informal affiliations of physicians formed to share profits from referrals, or separate group practices under common ownership or control through a physician practice management company, hospital, health system, or other entity or organization.
Physicians
The group practice must have at least two physicians who are members of the group, whether employees or direct or indirect owners.
Range of care
Each physician who is a member of the group must furnish substantially the full range of patient care services that the physician routinely furnishes, including medical care, consultation, diagnosis, and treatment, through the joint use of shared office space, facilities, equipment, and personnel.
Services furnished by group practice members
Substantially all of the patient care services of the physicians who are members of the group (that is, at least 75 percent of the total patient care services of the group practice members) must be furnished through the group and billed under a billing number assigned to the group, and the amounts received must be treated as receipts of the group. Patient care services must be measured by one of the following:
The data used to calculate compliance with this “substantially all” test and related supportive documentation must be made available to the Secretary upon request, but the “substantially all” test does not apply to group practices that are located solely in a HPSA. For a group practice located outside of a HPSA, any time spent by a group practice member providing services in a HPSA should not be used to calculate whether the group practice has met the “substantially all” test, regardless of whether the member's time in the HPSA is spent in a group practice, clinic, or office setting.
During the start-up period of a new group practice, a group practice must make a reasonable, good faith effort to ensure that the group practice complies with the “substantially all” test requirement as soon as practicable, but no later than 12 months from the date of its initial formation. This does not apply when an existing group practice admits a new member or reorganizes.
Distribution of expenses and income
The overhead expenses of, and income from, the practice must be distributed according to methods that are determined before the receipt of payment for the services giving rise to the overhead expense or producing the income.
Unified business
The group practice must be a unified business having at least the following features:
Volume or value of referrals
No physician who is a member of the group practice directly or indirectly receives compensation based on the volume or value of his or her referrals, except as provided in §411.352(i).
Physician-patient encounters
Members of the group must personally conduct no less than 75 percent of the physician-patient encounters of the group practice.
For the full explanation of the conditions, you can reference Code §411.352 here.
As it relates to Employed Group Practices, there are special rules for profit shares and productivity bonuses.
In summary, in a group practice setting, there are two permitted compensation methodologies for a provider to be paid that meet Fair Market Value and Stark Law compliance: paying a provider for their personally-performed productivity as discussed in part three of this series or, secondly, paying a provider for services that are “incident to” their personally-performed services and part of a single pool profit-sharing payment. Only providers in the group (partners, employees) may be paid as part of this profit sharing. An agreed-upon methodology on how the profit-sharing pool will be distributed has to be established and meet the Stark Law requirements.
If you have any questions around this topic within our Fair Market Value series, please feel free to reach out to Ronnen Isakov, Managing Director Advisory Service of Medic Management Group.
Ronnen Isakov is Managing Director Advisory Service of Medic Management Group. His background includes extensive work in areas including business advisory, valuation, network optimization, transaction support, and project management.