Stark law and group practices: the definition, the exception, and what a behavioral health group needs

Does Stark apply to your group?

Three things have to be true at once: a physician makes the referral, the service is a designated health service (DHS) billed to Medicare (or Medicaid), and the physician (or an immediate family member) has a financial relationship with whoever bills for it. Ownership, employment and any pay arrangement all count. Here is where common behavioral health set-ups land:

Your group	Stark exposure	What to do
Therapists only: LPCs, LCSWs, LMFTs, psychologists, LCDCs, with no physician owner, employee or contractor	Outside Stark. "Physician" means a doctor of medicine or osteopathy, dentist, podiatrist, optometrist or chiropractor (42 U.S.C. 1395x(r)), and psychotherapy isn't a designated health service anyway.	Stark isn't your issue; the Anti-Kickback Statute and the Texas Patient Solicitation Act still are (see patient brokering laws).
A psychiatrist or addiction medicine physician who sees patients for E/M visits and psychotherapy only	Low inside the group: the physician's own professional services aren't DHS. Exposure comes from what the physician orders elsewhere (an outside lab, a hospital program) where the physician or the group has a financial tie.	List every financial relationship each physician has (directorships, ownership, leases) and check each against an exception.
A physician group that tests urine in the office or gives Part B injections, and bills Medicare or Medicaid	Direct. In-office drug tests are clinical laboratory services and Part B drugs are outpatient prescription drugs, both DHS, referred by the group's own physicians to the group.	Meet the group practice definition and the in-office ancillary services exception, and set physician pay under the special rules. This is most of this guide.
An IOP or PHP with a medical director	Depends on what the program bills that the director orders. Lab work billed to Medicare is DHS; a hospital outpatient program's services are DHS too.	The director's agreement must fit a Stark exception if it reaches DHS. See the medical director guide.

Nurse practitioners aren't "physicians" under Stark, so an order a PMHNP makes on their own isn't a physician's referral. If a psychiatrist in the group directs or controls those orders, ask counsel how Stark treats them before you rely on the difference. Opening a prescriber practice? Our psychiatric NP practice guide covers the Texas side.

What the Stark law prohibits

The physician self-referral law is Section 1877 of the Social Security Act (42 U.S.C. 1395nn), with regulations at 42 CFR 411.350 to 411.389. In CMS's summary, it 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 has a financial relationship, unless an exception applies, and it prohibits the entity from billing for those referred services (CMS, physician self-referral).

• It's strict liability. The HHS Office of Inspector General puts it plainly: proof of specific intent to violate the law isn't required (OIG, fraud and abuse laws). A paperwork gap, such as an expired or unsigned agreement, can be enough.
• Medicare first, Medicaid too. OIG describes Stark as covering designated health services payable by Medicare or Medicaid. Commercial plans aren't covered by Stark, though their contracts may have their own rules.
• The consequences: the claims aren't payable, money collected for them must be refunded, and knowing violations bring civil monetary penalties and possible exclusion from federal health care programs (42 U.S.C. 1395nn(g); OIG).
• Exceptions do the work. Almost every group has financial relationships with its physicians. The question is always which exception each one fits, and whether every condition of that exception is met.

Designated health services, and the ones behavioral health groups touch

Stark only reaches the services on its list (OIG; definitions in 42 CFR 411.351). CMS publishes a yearly code list of the lab, imaging and other codes that count:

Designated health service	Where a behavioral health group meets it
Clinical laboratory services	Urine drug screens in the office (for example 80305 with the QW modifier on a CLIA-waived test), and labs drawn for medication monitoring. See CLIA waivers for drug testing.
Outpatient prescription drugs	Drugs Medicare covers under Part B or Part D, such as long-acting injections given in the office
Inpatient and outpatient hospital services	A physician who refers Medicare patients to a hospital's psychiatric unit or hospital-based PHP while holding a directorship or other paid role there
Physical therapy, occupational therapy and outpatient speech-language pathology; radiology and certain imaging; radiation therapy; durable medical equipment; parenteral and enteral nutrients; prosthetics and orthotics; home health	Rare in a behavioral health group. Watch for imaging or home health referrals from a group that also owns part of those businesses.

Psychotherapy, psychological testing, E/M visits, IOP and PHP services at a non-hospital program, and case management aren't on the list.

The group practice definition under Stark (42 CFR 411.352)

"Group practice" under Stark is a defined term, and it's stricter than what the word means anywhere else. Being a group on your NPI, on your insurance contracts or on your sign doesn't make you one. A practice must meet every one of these conditions in 42 CFR 411.352:

Paragraph	The requirement	What it means in practice
(a) Single legal entity	One legal entity operating primarily as a physician group practice (a PLLC, professional corporation, partnership or similar form)	Informal affiliations formed to share referral profits don't count, and neither do separate group practices under common ownership or control.
(b) At least two physicians	At least two physicians who are members of the group, as owners or employees	A psychiatrist plus nurse practitioners and therapists is one physician: not a Stark group practice. A solo physician relies on personally performing or supervising the service instead.
(c) Range of care	Each member furnishes substantially the full range of patient care services they routinely furnish through the joint use of shared space, equipment and staff	A physician who practices mostly elsewhere and drops in for the group's lab revenue doesn't fit.
(d) "Substantially all" services	At least 75 percent of the members' total patient care services are furnished through the group, billed under its billing number, with the money treated as group receipts	Measure it, by time or another reasonable method fixed in advance, and keep the numbers; CMS can ask for them.
(e) Expenses and income	Overhead and income are distributed by methods set before the payments that produce them are received	No deciding at year end who gets the lab money. Write the method down first.
(f) A unified business	Centralized decision-making by a body representative of the group, with effective control of assets, budgets and pay; consolidated billing, accounting and financial reporting	One set of books and one billing operation, not separate practices under one name.
(g) Volume or value of referrals	No physician who is a member is paid based on the volume or value of their referrals, except as (i) allows	The pay plan is where most groups fail. See below.
(h) Physician-patient encounters	Members personally conduct no less than 75 percent of the group's physician-patient encounters	A group that leans heavily on independent contractor physicians can fail this one.
(i) Profit shares and productivity bonuses	The special rules for how physicians may share DHS profits and earn bonuses	Covered in paying physicians.

This table summarizes the rule; it isn't the rule. Paragraphs (a) and (d) have more detail (multi-state groups, practices in health professional shortage areas, newly formed groups), and the definitions they rely on are in 411.351. Read the current text with your attorney.

Members of the group vs physicians in the group

Two similar-sounding terms in 411.351 decide who counts for which test:

• Member of the group: a physician owner, a physician employee, a locum tenens physician, or an on-call physician while covering for members. An independent contractor is not a member. Members are who you count for the two-physician minimum, the 75 percent "substantially all" test and the 75 percent encounter test.
• Physician in the group practice: the members plus an independent contractor physician while furnishing patient care services for the group's patients in the group's facilities, under a contract directly with the group. Physicians in the group can supervise in-office ancillary services and can share in profits under the special rules.

So a part-time contract psychiatrist can supervise the office's drug screens, but doesn't help you reach two members.

The in-office ancillary services exception (42 CFR 411.355(b))

There's no single "group practice exception" in Stark. The phrase usually means one of two exceptions built around the group practice definition: the physician services exception (411.355(a)), for physician services personally furnished by, or supervised by, another physician in the same group practice, and the in-office ancillary services exception (411.355(b)), the one that lets a group bill for designated health services its own physicians order. It has three tests, and all three must be met:

1. Who furnishes it. The service is furnished personally by the referring physician, by a physician who is a member of the same group practice, or by someone supervised by the referring physician or another physician in the group practice. A medical assistant running a CLIA-waived cup under the group physician's supervision fits; a test sent to an outside lab is the outside lab's service, not yours.
2. Where it's furnished. In the "same building" where the physicians practice, or in a "centralized building" the group uses for some or all of its lab or other DHS. "Same building" has three alternative tests. The most common: an office normally open to the group's patients at least 35 hours a week, where the referring physician or group members furnish physician services at least 30 hours a week. The other two allow part-time offices, with conditions; read them with counsel.
3. Who bills it. The physician performing or supervising the service, or the group practice under a billing number assigned to the group, or an entity wholly owned by them. In Cima EHR, the group's claims go out under the group's NPI and tax ID with each clinician as the rendering provider, entered once (Cima for group practices).

Meeting the exception doesn't make the test medically necessary. Order drug tests on a written clinical reason in the chart, and keep CLIA certificates current; a chart audit catches tests ordered with no reason documented.

Paying physicians: profit shares and productivity bonuses (411.352(g) and (i))

A group may pay its physicians well. What it can't do is pay a physician more because that physician ordered more lab tests or drugs from the group, except in the specific ways paragraph (i) allows:

Pay	What the rule allows	Watch for
Salary	A fixed salary that doesn't vary with DHS referrals	Raises tied to how much lab revenue a physician generates.
Productivity bonus	A bonus based on services the physician personally performed, or services "incident to" them, not directly related to the volume or value of DHS referrals. A bonus based on the physician's total patient encounters or RVUs personally performed, or on services that aren't DHS, is deemed acceptable.	A bonus per drug screen or injection ordered is a bonus for DHS referrals.
Share of overall profits	A share of the profits from all of the designated health services of the whole group, or of a component of at least five physicians, divided in a reasonable and verifiable way. Per capita splits, or splits based on non-DHS revenue, are deemed acceptable.	"Split pooling": since January 1, 2022, a group can't divide lab profits one way and drug profits another, or hand each physician the profits from their own orders. A group with fewer than five physicians pools all of its DHS profits together.

CMS made these changes in its 2020 final rule, effective for profit shares and productivity bonuses on January 1, 2022 (85 FR 77492). Within a component of five or more physicians, every physician's share has to be figured the same way. Keep the written method and the math for each pay period; the group must be able to show it on request. Nothing requires a group to share DHS profits with physicians at all.

The pay models for therapists in a group, where Stark usually doesn't reach, are in how to start a group practice in Texas.

A worked example, with a made-up practice

Riverbend Psychiatry and Counseling (made up) is one Texas PLLC with two psychiatrists who own it, a PMHNP, five LPCs and a part-time contract psychiatrist. It runs CLIA-waived urine drug screens in its one office and gives long-acting injections, and it bills Medicare and Texas Medicaid plans for both.

• Is it a Stark group practice? Possibly. It's a single legal entity with two physician members (the owners; the contractor doesn't count), one set of books, and one billing number. It still has to show the 75 percent tests from its own records: the owners' patient care time through the group, and the share of physician encounters the members conduct rather than the contractor.
• The drug screens and injections. They're DHS ordered by the group's physicians, so Riverbend uses the in-office ancillary services exception: performed by a medical assistant under a group physician's supervision, in the office it keeps open more than 35 hours a week where the owners practice at least 30, billed under the group's number.
• The PMHNP's orders. Not physician referrals on their own. If a psychiatrist directs them, Riverbend's attorney decides how to treat them.
• The pay plan. The owners split lab and drug profits per capita, the same way for both, set in writing at the start of the year. The contract psychiatrist is paid a fixed hourly rate. Nobody is paid per test ordered.
• The LPCs. Paid a share of collections for their own sessions. Psychotherapy isn't DHS, so Stark doesn't reach that plan, but the Anti-Kickback Statute and the Texas Patient Solicitation Act still forbid paying anyone for referrals.

Stark, the Anti-Kickback Statute and Texas law

Meeting a Stark exception doesn't settle the other laws, and they work differently:

• Stark is civil, strict liability, about physicians and designated health services in Medicare (and Medicaid).
• The Anti-Kickback Statute is criminal and intent-based, covers anyone and any item or service paid by federal health care programs, and has its own safe harbors. Our patient brokering laws guide covers it with EKRA, which adds private insurance for labs, recovery homes and treatment facilities.
• The Texas Patient Solicitation Act (Occupations Code chapter 102) bans paying or accepting anything of value for patient referrals for every licensed provider and every payer.
• Lab relationships sit under all of them at once. If a physician in the group has any financial tie to an outside lab, start with lab relationships and EKRA.

A Stark checklist for a behavioral health group

1. List every physician who owns, works for or contracts with the group, and every financial relationship each one (and their immediate family) has with anyone the group or its patients deal with.
2. List every designated health service the group bills: lab codes, Part B drugs, anything else on CMS's code list. If the answer is none, write that down and recheck yearly.
3. If there are any, confirm the group meets each paragraph of 411.352, with the 75 percent measurements on file.
4. Confirm the in-office ancillary services exception for each service: who performs and supervises it, where, and who bills it.
5. Put the physician pay plan in writing before the year starts, and have counsel check it against 411.352(g) and (i).
6. Keep every physician agreement signed, dated and current, with compensation set in advance.
7. Review it all when a physician joins or leaves, when you open a location, or when you start billing a new service.

Adding a psychiatric NP first? See the Prescriber Practice Launch. Or book a free 30-minute call.

Questions

What is the group practice definition under the Stark law?

It's the test in 42 CFR 411.352: a single legal entity with at least two physician members, each furnishing substantially their full range of care through the group; at least 75 percent of members' patient care services furnished and billed through the group; expenses and income distributed by methods set in advance; a unified business with centralized decision-making and consolidated billing and books; no member paid on the volume or value of referrals except under the special rules; and members conducting at least 75 percent of physician-patient encounters.

What is the group practice exception under Stark?

There isn't one exception by that name. People usually mean the in-office ancillary services exception (42 CFR 411.355(b)), which lets a group bill for designated health services its own physicians order if the service is performed or supervised by group physicians, in the same building or a centralized building, and billed by the group. The physician services exception (411.355(a)) also depends on being a group practice. Both require meeting the group practice definition.

Does the Stark law apply to therapists, psychologists or counselors?

Not directly. Stark is about referrals by physicians: doctors of medicine or osteopathy, dentists, podiatrists, optometrists and chiropractors. Psychologists, LPCs, LCSWs, LMFTs and LCDCs aren't physicians under Stark, and psychotherapy isn't a designated health service. The Anti-Kickback Statute and the Texas Patient Solicitation Act do apply to them.

Does Stark apply to nurse practitioners?

A nurse practitioner isn't a physician under Stark, so an NP's own order isn't a physician referral. If a physician directs or controls the NP's orders, ask your attorney how Stark treats them.

Can our group do in-office drug testing under Stark?

Yes, if it fits the in-office ancillary services exception: the test is performed by or under the supervision of a physician in the group, in the same building (or a centralized building), and billed by the group, and the group meets the group practice definition. You also need the right CLIA certificate and a documented clinical reason for each test.

Can a group practice share lab profits with its physicians?

Only as a share of overall profits: the profits from all designated health services of the group, or of a component of at least five physicians, divided per capita or by another reasonable, verifiable method not directly related to each physician's DHS referrals. Since January 1, 2022, profits from different services can't be split separately.

Is the Stark law strict liability?

Yes. Proof of specific intent isn't required. An arrangement that misses one condition of an exception, such as a signature or a pay method set in advance, can violate the law even if nobody meant to.

Is a group taxonomy code the same as a Stark group practice?

No. The NUCC group taxonomy codes (193200000X multi-specialty, 193400000X single specialty) describe an organization on its NPI record. They have nothing to do with Stark's group practice definition. Our group practice guide covers which taxonomy a Texas group uses.

Is Cima Consulting giving legal advice?

No. We're operators who set up practices and programs, not a law firm. We'll lay out your physicians, services and pay plan so your health-care attorney can review them quickly; the attorney decides whether an exception fits.

Sources

• 42 U.S.C. 1395nn, limitation on certain physician referrals (Stark): Cornell LII; definition of physician, 42 U.S.C. 1395x(r)
• eCFR, 42 CFR 411.351 (definitions), 411.352 (group practice) and 411.355 (physician services and in-office ancillary services exceptions)
• CMS, Physician self-referral
• HHS Office of Inspector General, A roadmap for new physicians: fraud and abuse laws (strict liability, designated health services, penalties)
• Federal Register, Modernizing and Clarifying the Physician Self-Referral Regulations, 85 FR 77492 (December 2, 2020)