CMS: Stock in a nonprofit physician group doesn't violate Stark rules

Stock held by physicians in a nonprofit, multispecialty group does not constitute ownership that would fall under physician self-referral regulations, the Centers for Medicare & Medicaid Services said in a recent advisory opinion.

But the August opinion, which answered a question posed by a medical group in a unique situation, was significant more for its timing than its substance, health care attorneys said.

It marked the first CMS Stark law ruling in seven years on an issue other than specialty hospitals.

Health lawyers believe it might be an indication that the agency will be more willing to rule on nonspecialty hospital questions in the future.

"The fact that it exists is big news," said health care lawyer William Maruca, a partner with Fox Rothschild LLP in Pittsburgh. "We've been waiting for this for years."

Physician groups and other health care organizations might have been sitting with questions for several years waiting for some indication that CMS would review their case in light of physician self-referral laws, attorneys said.

But with a response being a remote possibility, "people were saying, 'What's the point?' " said Brian Annulis, a health care attorney and partner with Katten Muchin Rosenman LLP in Chicago.

"CMS is now in a position to consider advisory opinions on Stark," he said. "I will take this as a positive sign that they are open for business."

The last nonspecialty hospital opinion, issued in November 1998, dealt with an in-office ancillary exception to the Stark law.

In general, Stark prohibits physicians from referring Medicare and Medicaid patients to entities in which they or immediate family members have a financial interest.

Physician stock ownership

The recent CMS opinion does not have wide-reaching implications for the typical physician group.

The agency cautions that the opinion only applies to the group that requested it, a nonprofit group with more than 700 physicians across 34 communities. The state in which the group is located was removed from the opinion to protect the group's identity.

According to the opinion, physicians in the group can qualify to own one share of stock at a price of $1,000. If the doctor leaves the group, he or she must give back the share and receive the $1,000 in return, without interest. The physician does not receive any dividends or other financial benefits normally associated with stock ownership, but the stock does entitle him or her to a vote on group matters.

Based on that corporate structure, CMS said the physician ownership did not fall under Stark guidelines, which would limit "referrals by the physician-shareholders to the practice."

"In these circumstances, the physician-shareholders in the practice are essentially similar to members in a nonprofit corporation, and their stock holdings in the practice under [business corporation law in the group's state] bear none of the financial attributes or benefits typical of an ownership or investment interest," the opinion reads.

Annulis speculated that the group "just wanted to make sure" that its corporate structure was legal, because the question had a seemingly obvious answer.

"People have to think seriously about asking for advisory opinions, because by definition, [CMS] is going to be somewhat conservative in its approach," he said.

Still, the opinion proves that CMS will not necessarily look at questions from a completely rigid perspective, Maruca said.

The fact that the agency agreed with the physician group shows it is willing to look at individual circumstances, he said.

"It reveals a certain welcome flexibility," Maruca said. "It says you may make your case, and they may agree with you."