January 1 comes with significant changes for physician practices that operate as group practices under the Stark Law. Though the “split pooling” profit sharing model will be eliminated, group practices gain notable opportunities in distributing Designated Health Services (DHS) profits and productivity bonuses based on the broadly defined regulatory concept of “value-based enterprise.”

Back in December 2020, practically a lifetime ago, we posted a summary of the Centers for Medicare & Medicaid Services (CMS) final regulations that were published December 2, 2020. You can read that summary here. Those final regulations made substantial changes to the Stark Law, many of which went into effect in 2021. At the bottom of our summary was a note that there would be changes to the “group practice” definition, including “clarifying the permissibility of profit-sharing in connection with value-based enterprise participation and the impermissibility of sharing DHS profits on an individual service basis” that would not go into effect until January 1, 2022. Many readers may not have focused on the group practice changes given all the other changes that went into effect a year earlier.

Meeting the group practice definition is required for physician practices that rely on the “in-office ancillary services” exception to the Stark Law. The in-office ancillary services exception allows physicians in a group practice to make internal referrals within the practice for DHS, which includes (among other things) 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.

The biggest change to the group practice definition is that “split pooling” is now prohibited. This means that groups can no longer allocate DHS profits on a service-by-service basis with each service line using its own unique profit allocation methodology. Rather, profits from the entire group’s DHS (except if using pods) must be aggregated and then distributed using the same methodology. It is still allowable for groups to segregate and allocate DHS profits generated by five or more physician pods and for each pod to use a different profit allocation methodology. But, within each pod, the same methodology must be used for all the DHS profits generated by the pod.

While the split pooling prohibition placed a big limitation on what a group practice can do, the other big change expanded what a group practice can do. A group practice may now distribute to physicians DHS profits and productivity bonuses derived from the physicians’ participation in a “value-based enterprise” (as defined in the final regulations), even if the distribution would “directly” relate to the volume or value of the physicians’ DHS referrals. The definition of value-based enterprise is expansive, so this change potentially gives group practices a lot of new opportunities.