A CMS advisory opinion [Advisory Opinion No. CMS-AO-2021-01] issued in June 2021 provides guidance that a parent-subsidiary medical practice entity structure in which the subsidiaries themselves don’t qualify as “group practices” under Stark can, in total, qualify as a “group”.
The Stark Law and the regulations under it prohibit a physician from making a referral for certain designated health services, such as clinical laboratory services, DME, and imaging 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.
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 group practice.
Under the regulations a group practice must consist of a single legal entity operating primarily for the purpose of being a physician group practice. However, a group practice that is otherwise a single legal entity may itself own subsidiary entities through which it provides services to the group practice.
The entity requesting the Advisory Opinion (“Requestor”) is a single-owner (“Owner”) professional limited liability company operating as a physician group practice furnishing, in addition to physician services, designated health services to Medicare beneficiaries.
In simplified form, Requestor sought CMS’s opinion as to whether Requestor would fail to qualify as a group practice if it furnishes designated health services through a wholly-owned subsidiary entity that is a physician practice but does not itself qualify as a group practice.
Owner, in addition to being the sole owner of Requestor, also was the sole owner of (i) “Subsidiary A”, a professional corporation operating as a physician practice, and (ii) “Subsidiary B”, a professional limited liability company operating as a physician practice.
The Owner planned on having the Requestor acquire the Owner’s interest in Subsidiary A and Subsidiary B but continue to operate them as separate legal entities providing both physician services and designated health services because many payors and health plans prohibit assignment of their payor contracts to a successor organization. All of the Requestor and the Subsidiaries would be managed by the same management entity (“Manager”). Subsidiaries A and B would continue to remain credentialed and contract directly with payors and health plans, and use billing numbers assigned to the Subsidiaries to bill payors and health plans for items and services furnished to their enrollees. The Subsidiaries would also remain enrolled in Medicare under tax identification numbers assigned to the Subsidiaries, and use billing numbers assigned to them as participating suppliers to bill Medicare for items and services, including designated health services, furnished to beneficiaries.
Requestor certified that, following the acquisition: (1) Requestor would be the sole owner of the Subsidiaries; (2) all clinical employees and contractors of the Subsidiaries would become employed or contracted by Requestor; (3) all material assets and business functions of the Subsidiaries would be transferred to Requestor or Manager; and (4) Manager would continue to provide management and other non-clinical services to Requestor and the Subsidiaries.
In addition, under the Requestor’s structure, 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 three sites, that is, as the Requestor’s original group practice site, at Subsidiary A’s site, and at Subsidiary B’s site. Manager would provide all nonclinical support personnel to the Group Practice and to 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.
CMS began its analysis by referencing the fact that although a group practice must consist of a single legal entity, the regulations permit a group practice to own subsidiaries, and the law does not dictate or limit the types of subsidiaries a group practice may own.
CMS was persuaded by the specific facts certified by the Requestor that the subsidiary structure does not preclude Requestor from qualifying as a single legal entity if Requestor furnishes designated health services through the Subsidiaries, provided that Requestor is the sole owner of the Subsidiaries.
As set out above, the particular certified facts were:
1. All clinical employees and contractors of the Subsidiaries would become employed or contracted by Requestor.
2. Those personnel would be designated to work at either the initial Requestor office site or at a Subsidiary site
3. Although Subsidiary A and Subsidiary B would maintain their respective enrollments in Medicare, remain credentialed and contract directly with payors and health plans, and use billing numbers assigned to the Subsidiaries to bill Medicare and other payors and health plans for services furnished to their beneficiaries and enrollees, all revenues and expenses of the Subsidiaries would be treated as revenues and expenses of the group practice, that is, of Requestor.
Note that the opinion is limited to the question posed by the Requestor, which did not venture into issues related to the other “group practice” exception requirements.
Note also, extremely importantly, that CMS advisory opinions are binding only in regard to the particular Requestor. However, they provide insight into CMS’s analysis on the application of Stark. In the instance of Advisory Opinion No. CMS-AO-2021-01 we see regulatory flexibility in regard to parent-subsidiary structures in which the parent entity and the subsidiary entities are all physician practices.