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CMS opinion broadens in-office Stark protections to include certain wholly-owned subsidiaries of physician practices

The Centers for Medicare & Medicaid Services (CMS) has issued an advisory opinion that broadens protections under the Stark Law's in-office ancillary services exception for referrals made by physician owners of a group practice. The advisory opinion responded to a request for an opinion from a physician group practice that furnishes designated health services (DHS), such as radiology services, through wholly-owned subsidiary physician practices that are separately enrolled in Medicare and contracted with commercial payers. 

The question posed to CMS was whether the Stark Law’s in-office ancillary exception applied when the physician owners of the group practice referred Medicare patients to the subsidiary physician practices for DHS. 

The Stark rules provide that a group practice must consist of a "single legal entity" operating primarily for the purpose of being a physician group practice. In the arrangement reviewed by CMS, the physician group acquired the equity of entities that become wholly-owned subsidiaries of the group practice. All non-physician clinical personnel, equipment and management functions were provided by the group practice. Even though Medicare enrollment and private payer contracts remained with the subsidiary entities which billed for the services, the services were considered as services to patients of the group practice.  

In the advisory opinion, CMS concluded that the "single legal entity" requirement for group practices can be met through wholly-owned subsidiary physician practices that do not themselves qualify as group practices under the Stark rules.

The CMS advisory opinion has the most relevance for referring physician practices that may acquire and operate wholly-owned physician group practices. It could relate also to radiology groups that may choose to operate in this manner and permit interventional radiology (IR) physicians who practice clinically to refer Medicare patients for diagnostic tests to the radiology group's wholly-owned subsidiaries and thus qualify for the Stark exception. But the new opinion will not offer a pathway for IR physicians to make referrals to hospital-radiology group joint ventures since they are not wholly owned by the radiology group

Patients to whom health care services are furnished by the Subsidiaries would be considered patients of the Group Practice. The health care services furnished to Group Practice patients would be furnished or supervised by clinical personnel that are employed or contracted by Requestor and designated to work at the Group Practice State office site, the State A office site, or the State B office site. Manager would provide all nonclinical support personnel to the Group Practice and the Subsidiaries under the terms of the management agreement among the parties. All revenues of the Subsidiaries would be remitted to and be treated as revenues of the Group Practice.


health care & life sciences, stark, group practices, in-office exception