Stark Law Changes Target Physician Compensation Plans

The Centers for Medicare and Medicaid Services (CMS) has made changes in the physician self-referral law (also known as the “Stark Law”) which will affect physician compensation plans.

In particular, if the hospital or health system is trying to meet either of the following exceptions: indirect compensation arrangement exception or the Stark Law employment exception then they should look at their physician compensation plans.

The changes do not impact Stark Law compliance if the compensation meets the in-office ancillary services exception.

Jana Kolarik, a partner at Foley & Lardner LLP, an international law firm, and Angie Caldwell, a principal at PYA, P.C., a national professional services firm, wrote on the key compliance takeaways. Kolarik and Caldwell highlighted the points discussed below.

Hospitals and health centers should review physician compensation plans to ensure that compensation is consistent with the physician’s personal productivity. Kolarik noted that “some physician compensation plans have been set up to trigger review when productivity is above the 75th percentile.” This assumes that anything below 75 is fair market value. However, at the end of the year in 2020, CMS clarified that there are “no presumptive percentiles.”

Hospitals and health centers should also review physician compensation plans to make sure that compensation is consistent with services provided by the individual practitioner. This includes nurse practitioners and physician assistants and applies for the commercial reasonableness analysis. Kolarik explained, “if a physician is compensated based on his/her advanced practice providers’ (APPs’) work relative value units (wRVUs), ensure that such compensation is for services performed by the physician, i.e., supervision.”

Furthermore, hospitals and health centers should review indirect compensation agreements. Kolarik refers this point back to the previous two points, emphasizing that “certain compensation arrangements that consider APP wRVUs as physician compensation may have issues meeting CR [commercial reasonableness] and FMV [fair market value] tests and the indirect compensation arrangements exception under 42 C.F.R. § 411.357(p).”