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While there’s still some confusion about when the newly published Stark II final rules will take effect, the fact is there’s a new game in town that practices must learn if they are going to stay on the right side of the fraud and anti-kickback law. One of the areas greatly affected by these new rules will be physician compensation, including the distribution of productivity bonuses and profit shares by physician practice groups to their individual practice physicians.
Here are some insights on Stark II’s impact on physician compensation from Steven M. Harris, a partner in the Chicago law firm of Harris Kessler & Goldstein. Generally, Stark II prohibits a group practice physician from being compensated directly or indirectly based on the volume or value of the physician’s referrals for designated health services (DHS), says Harris. However, a doctor in a group practice may receive shares of overall profits of the group or a productivity bonus based on services the doctor personally performed.
Warning: In no way can any share or the bonus be determined in a manner directly related to the volume or value of the physician’s referrals.
This version of the rule is a much more flexible interpretation of the Stark statute than the Health Care Financing Administration’s (HCFA) earlier stance on the standard, experts note. Before, for instance, when it came to profit-sharing, HCFA required that overall profits be aggregated for the entire group and not by group components, such as separate offices or specialties.
Also, HCFA previously stated that productivity bonuses could relate only to work performed by the physician resulting from referrals from other physicians in the group, and not to work resulting from any DHS work ordered and performed by the physician or to the physician’s DHS referrals to other group physicians. "The effect of this interpretation was to severely limit the means and manner by which physician groups could compensate their individual physicians," maintains Harris.
However, in its final rules, HCFA clarified that allowing a physician to receive a "share of overall profits" means a share in the entire profits of the group or in any component of the group that consists of at least five physicians. HCFA also said a group practice physician may receive shares of the overall profits of the group as long as the shares do not correlate directly to the volume or value of referrals generated by the physician for designated health services performed by someone else.
HCFA says group practices may pay productivity bonuses to member doctors based directly on their personal productivity, which could include work ordered and performed by the physician. HCFA also has stated that the following indirect methods of distributing overall profit shares are allowable:
— a per capita (per physician) division of profits;
— a distribution of revenues derived from designated health services in accordance with the group’s distribution of its revenue unrelated to those services;
— a distribution of designated health service revenue if such revenue represents less than 5% of a group’s total revenues and provided that no single physician’s allocation of that revenue exceeds 5% of that physician’s total compensation.
HCFA also will allow the following indirect compensation methods by which a group practice may calculate physician productivity bonuses:
— based on the physician’s total patient encounters;
— based on the allocation of the physician’s compensation attributable to services unrelated to designated health services, including revenues related to designated health services if the group’s total designated health service-related revenues make up less than 5% of the group’s total revenues and if the physician’s allocation of those revenues represents no more than 5% of the physician’s total revenue from the group.
Group practices also can use other distribution methods, provided that they are "reasonable, verifiable and not directly related" to the volume or value of a physician’s referrals.
Sticking to these distribution methods should ensure that your group’s profit shares or productivity bonuses are not illegally directly related to either the volume or value of referrals.