The Centers for Medicare & Medicaid Services (CMS) has issued Advisory Opinion No. CMS-AO-2021-01 on whether a wholly-owned physician practice that provides designated health services (“DHS”) through one or more wholly-owned subsidiaries can qualify as a group practice under the federal physician-self referral law (commonly known as the “Stark Law”) based on the specific facts presented by the requestor. The advisory opinion addressed the issue of a physician group that wanted to acquire two other entities owned by the same physician. 

The “Stark Law” prohibits a physician from making referrals for certain designated health services payable by Medicare to an entity with which the physician (or an immediate family member of the physician) has a financial relationship unless all requirements of an applicable exception are satisfied. One exception, the exception for in-office ancillary services, is available to a physician practice consisting of two or more physicians only if the physician practice qualifies as a “group practice” as defined by 42 C.F.R. § 411.352. Under 42 C.F.R. § 411.352(a), a group practice must consist of a single legal entity operating primarily for the purpose of being a physician group practice.  CMS has previously issued regulations on the single legal entity requirement in 1995 and in 2001. The August 1995 final rule clarified that a single group practice was permitted to own other legal entities for the purpose of providing services to the group practice and still qualify as a single legal entity. This rule was reiterated in the 2001 final rule by the CMS.

In its most recent Advisory Opinion, CMS clarifies that 42 C.F.R. § 411.352(a) does not dictate or limit the types of subsidiary entities that a group practice may own. CMS, opining on only the specific facts provided by the Requestor, determined that 42 C.F.R. § 411.352(a) does not preclude a group practice from qualifying as a single legal entity if Requestor furnishes DHS through subsidiaries, provided that Requestor is the sole owner of the subsidiaries. The specific facts provided by the Requestor are as follows, although CMS gives significant weight to the last two bullet points:

• The Group Practice would remain under the ownership of its physician owner and would acquire the equity of Subsidiary A and Subsidiary B such that the entities would become wholly-owned subsidiaries of Group Practice.

• All material assets and business functions would be transferred to the Group Practice or management company.

• The subsidiaries would provide designated health services to patients under the supervision of clinical personnel employed or contracted by the Group Practice.

• The subsidiaries would maintain their respective payor arrangements and bill government and commercial payors for medical services furnished, including designated health services, but all revenues and expenses of the subsidiaries would be treated as the revenues and expenses of Group Practice.

This Advisory Opinion creates some additional flexibility for physician owners by clarifying that group practices that wish to acquire wholly-owned subsidiaries to provide DHS  a path to meet the in-office ancillary services exception of the Stark Law. 

Matthew Smekens contributed to this article.