CMS Stark Rule Changes Impact Permissible Physician Compensation and Profit Distribution Models

On December 2, 2020, CMS issued the long-awaited Final Sprint Rules, implementing significant revisions to the Stark physician self-referral regulations (42 CFR Part 411). Although many of the revisions are focused on facilitating value-based care arrangements and are generally positive for physicians in easing compliance with the Stark Law, the revisions made to the physician group practice rules will prohibit some commonly utilized methodologies for structuring physician compensation and profit distribution.

In-Office Ancillary Services Exception and Group Practice Definition

Medical practices rely primarily on the in-office ancillary services (IOAS) exception under the Stark regulations to allow their physicians to refer patients to the practice for x-rays, MRI’s, CT scans, laboratory services, durable medical equipment (DME), physical and occupational therapy and other designated health services (DHS) payable by Medicare. One key requirement of the IOAS exception is that the medical group meet the definition of a “group practice”, which among other things, prescribes how a group can allocate its profits or pay compensation to physicians with respect to DHS. A group may allocate its overall DHS profits from the entire group, or it can pool and allocate the DHS profits of a sub-group of 5 or more physicians.

Common Currently Used Profit Allocation and Physician Compensation Models

The sub-group allocation option has long been relied upon by medical practices with multiple clinic locations or multi-specialty practices. For example, historically:

  • A medical practice with clinics in City A and City B would allocate the profits arising from the DHS provided at City A clinic to a pool for distributing profits or paying compensation to the physicians working at City A clinic (as long as there are at least 5 physicians at that clinic), and would allocate the profits arising from DHS services provided at City B clinic to a pool for the City B clinic physicians (as long as there are at least 5); or
  • If the physicians at City A clinic and City B clinic wanted to develop a new imaging center jointly, the practice would pool the profits from the imaging center and allocate it as profit distributions or compensation across the physicians working at both clinics, while continuing to allocate the DME profits generated at City A clinic to just the City A physicians, and the PT/OT profits generated at City B clinic to just the City B physicians (again as long as each such pool includes at least 5 physicians). This is referred to as “split-pooling”; or
  • A multi-specialty practice might have a subset of 5 or more physicians who practice in orthopedics and ENT participating in a compensation pool for imaging services profits, and another subset of 5 or more physicians who practice in orthopedics and podiatry participating in a compensation pool for DME profits.

Further, the regulations historically have been interpreted to permit a medical group to allocate one type of DHS profits, such as imaging, under one permissible methodology (e.g. equally) and another type of DHS profits, such as DME, under another permissible methodology (e.g. in proportion to professional RVUs).

New Stark Rules and Required Changes to Profit Allocation and Physician Compensation

In the new Stark regulations, CMS has clarified its position and revised the regulations to prohibit split-pooling (i.e. the 2nd and 3rd examples above). A group practice may still pool DHS profits for distribution or payment of compensation for a sub-group of 5 or more physicians, but it must aggregate all of the profits from all of DHS of the physicians in that sub-group prior to allocation. It can no longer have overlapping pools of physicians by service line. Further, within that pool, the DHS profits must be allocated per a single methodology (e.g. equally or in proportion to professional RVU’s, etc.). Different methodologies cannot be applied on a service-by-service basis.

Recognizing that these are significant changes from prior interpretation of the Stark rules and commonly accepted practices, CMS delayed the effective date of this part of the regulations to January 1, 2022. Medical groups should consult with their health law attorney to review carefully their profit distribution and physician compensation methodologies in the coming months and implement changes as needed to comply with these new rules by the end of this year.

Kristi O’Brien is a health law, business and corporate attorney with more than 21 years of experience advising healthcare professionals on compliance with federal and state healthcare laws, and can be reached at

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