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Rosen and Montanio: New Stark rules: Compensation and cybersecurity

The U.S. Department of Health and Human Services and Centers for Medicare and Medicaid Services (have issued new rules modernizing the Stark law.

As discussed in a previous Daily Record column, the most transformative part of the rules, now in effect, update the Stark law to reflect the industry trend of encouraging value-based care arrangements, rather than traditional fee-for-service models. However, this article focuses on additional components of the new rules, namely physician compensation and cybersecurity.

The Stark Law generally prohibits physicians from referring Medicare and Medicaid patients to other providers with whom the referring physician (or a close relative) has a financial relationship, unless a specific exception applies.

  1. DHS profit-sharing

Effective Jan. 1, 2022, the new rule clarified physician profit-sharing and bonus arrangements under Stark and prohibited the practice of “split pooling.”

The Stark law is triggered when a physician refers a patient for Designated Health Services (DHS) to be provided by others in the physicians’ group practice. DHS includes clinical laboratory services, physical therapy services, occupational therapy services, outpatient speech-language pathology services, radiology and certain other imaging services, and radiation therapy services and supplies.

Currently, a group practice may pay a physician a share of “overall profits” derived from DHS as long as the physician’s share is not calculated in a way that relates to the volume or value of the physician’s referral of DHS. Previously, some practices were pooling profits from DHS on a service-by-service basis and distributing those profits to a certain group of physicians (a practice referred to as “split pooling”).  Under the new rule, practices may not split pool.

Instead, profits must be shared in group practices in one of two ways: 1) the practice can aggregate all of the DHS profits of the entire group practice and then distribute those aggregated profits to any physician in the group practice; or 2) the practice can aggregate all of the DHS profits (not just profits from a particular service line) of any pods of at least five physicians and then distribute the profits within the pod.

In both cases, other components of the rule, such as not accounting for the value or volume of any single physician’s referrals, must be followed.

If an entity has multiple pods, each pod may use its own distribution formula. However, the same distribution method must be used for each member of the pod and must be used for all of the profits generated by the pod.

CMS also confirmed that any physician can take advantage of these profit-sharing arrangements, not just owners. Assignments to pods may be based on any criteria, such as practice location, practice pattern, or longevity, so long as pods are not assigned in a way that accounts for the volume or value of referrals.

  1. Limited monetary physician compensation

Previously, if a physician provided services to a referral source, that arrangement had to be in writing. The new law adds a new limited monetary compensation exception that allows physicians to be paid a total of up to $5,000 per calendar year (adjusted for inflation) for items or services provided by the physician (directly or indirectly) without signing a written compensation agreement set in advance.

This compensation cannot account for the value or volume of referrals, exceed fair market value or be commercially unreasonable. If a provider has multiple such arrangements with the same entity, the total compensation for all of the arrangements must be less than the $5,000 limit.

  1. Cybersecurity technology

Sometimes providers to whom a physician refers patients offer cybersecurity technology and related services to the physician. A new exception protects arrangements involving the donation of cybersecurity technology and related services, such as training or access to a health desk.

Providers wishing to take advantage of any of these new rules should ensure that each proposed arrangement meets all of the detailed requirements of the exception.

Barry F. Rosen is the chairman & CEO of the law firm of Gordon Feinblatt LLC, heads the firm’s health care practice group, and can be reached at 410-576-4224 or  Alexandria K. Montanio is an associate in Gordon Feinblatt’s Health Care Practice Group, and can be reached at 410-576-4278 or