CMS Stark Law Guidance Details Potential Avenue for New Practice Acquisition Structure

The Centers for Medicare & Medicaid Services (“CMS”) has issued its first Stark Law advisory opinion of 2021 (and only its 19th ever since it started issuing advisory opinions in 1998). Although only binding on the original requestors (that is to say, no one else can legally rely on them), these rare missives provide helpful insight into how CMS interprets the Stark Law and its own regulations and are considered by legal practitioners to be instructive guidance.

The latest CMS advisory opinion, CMS-AO-2021-1, addressed the single legal entity requirements for group practices under 42 C.F.R. 411.352(a). A physician practice has to qualify as a group practice in order to meet the, frequently used, Stark Law in-office ancillary services exception. Specifically, CMS answered the question whether the requestor could qualify as a group practice under 42 C.F.R. 411.352(a) if the requestor furnished designated health services (“DHS”)  through a wholly-owned subsidiary physician practice that itself did not qualify as group practice. CMS answered the question in the affirmative.

CMS-AO-2021-1 adds additional detail to previously provided CMS guidance on the topic of the single legal entity requirement for group practices. 42 C.F.R. 411.352(a) states that a group practice must consist of a single legal entity but that a group practice that is otherwise a single legal entity may own subsidiary entities. CMS previously clarified that a group practice may furnish services to group practice patients, including DHS, through wholly-owned subsidiaries. In its final rule in August 1995, CMS stated that a professional corporation could qualify as a group practice if it owned subsidiary entities that provided equipment, building services and ancillary services. In a 2001 final rule, CMS addressed and allowed a group practice to own subsidiary entities that owned real estate and equipment in addition to providing billing and ancillary services. It also mentioned as an example in both 1995 and 2001 that a wholly-owned laboratory facility that provides lab services to the group practice would be permitted.  In CMS-AO-2021-1, it expands on this previous guidance to allow that, at least in some circumstances, the subsidiary entity may provide physician practice services and not impact the ability of the parent entity to qualify as a group practice.

Facts that CMS highlighted as being relevant to its decision include: 1) all clinical employees and contractors of the subsidiaries would be employed or contracted by the parent entity; and 2) although the subsidiaries would be separately enrolled in Medicare, remain credentialed and contract with payors and health plans under their own billing numbers, all revenues and expenses for the subsidiaries would be treated as revenues and expenses of the parent group practice. It is possible that CMS may have reached a different conclusion if one or both of these factors was not present.

CMS-AO-2021-1 is good news for the physician practice community because it provides the potential for an additional allowable practice acquisition structure.