CMS Makes Further Edits to Enable Allowances Under Stark Law

The Centers for Medicare & Medicaid Services (CMS) have recently taken steps to correct Stark Law, and released an advisory this week that applies to physician groups providing services through wholly owned subsidiary practices that are separately enrolled in Medicare.

The federal physician self-referral law, popularly known as “Stark Law”, which prohibits providers from referring Medicare or Medicaid patients to other providers owned by or with a financial relationship with the referring provider, has long been an impediment to the development of ambitious alternative payment models.

CMS released the amendment in a proposed rule on July 13, according to SheppardMullin Healthcare Law Blog. This proposed rule revises the definition of “indirect compensation arrangement,” reverting the meaning of the definition back to the definition that was in place prior to the latest Stark Law rule from December of last year. In this new proposed rule, CMS states that the December Final Rule, “Modernizing and Clarifying the Physician Self-Referral Regulations”, “inadvertently omitted” a clause that would have ensured that a subset of potentially abusive financial relationships.

According to the National Law Review, this means a few things for providers. First, any entity that meets the legal requirement of “Group Practice” would remain under the ownership of the physician owner and would acquire the equity of subsidiaries in such a way that those would become wholly-owned subsidiaries of the Group Practice. All material assets and business functions would be transferred to the Group Practice or management company. The subsidiaries would then provide services to patients under the supervision of clinical personnel and the subsidiaries would maintain their respective payor arrangements and bill government and commercial payors for medical services furnished.

This will have significant repercussions for, say, radiology clinics, according to Radiology Business. Danielle Sloan, an attorney with Bass Berry & Sims told the publication that this would be meaningful for practices that offer interventional services:

For diagnostic-only practices where they generally receive referrals from outside treating physicians, this would not be important. However, for any IR practices that are providing imaging, drugs or other services within their practice, it is noteworthy — particularly for those involved in consolidation transactions.

She also notes that CMS is maneuvering this workaround by calling the parent company the “Group Practice” rather than the subsidiaries.

It demonstrates CMS’ continued recognition that the healthcare industry is innovating, and the need for flexibility to foster that innovation. This is not likely to increase enforcement given it is a positive advisory. In other words, it outlines what is permissible and doesn’t highlight a problematic structure.

Read the full opinion at CMS Advisory Opinion No. CMS-AO-2021-01