QUESTION:
Our health system employs doctors through a “captive PC” where the CMO is the sole shareholder of the professional corporation but has no right to any distribution of profits or other rights normally related to ownership in a private medical group.  Does the Stark Law still apply to arrangements between the hospitals in our system and the captive PC?

ANSWER FROM HORTYSPRINGER ATTORNEY
DAN MULHOLLAND:
No.  In 2020, the definition of “ownership or investment interest” for the purpose of the Stark Law was amended to state that it does not include:  “A titular ownership or investment interest that excludes the ability or right to receive the financial benefits of ownership or investment, including, but not limited to, the distribution of profits, dividends, proceeds of sale, or similar returns on investment.”  42 CFR §411.354(b)(3)(vi).  This codified the conclusion of CMS Advisory Opinion AO-2005-08-01.  In that Advisory Opinion, CMS  concluded that stock ownership by physicians in a nonprofit corporation did not constitute an ownership or investment interest for the purposes of the Stark Law because the stock held by the physician-shareholders exhibited none of the benefits typical of stock ownership.

So, the fact that the hospitals in your situation may subsidize losses incurred by the captive PC would not, in and of itself, have Stark Law implications as it would if the hospital was subsidizing an independent practice.  However, to the extent that there would likely be indirect compensation arrangements between the hospitals and the employed physicians, it would still be necessary to make sure the compensation paid to the doctors reflects the fair market value of their services and is commercially reasonable.

If you have a quick question about this, e-mail Dan Mulholland at dmulholland@hortyspringer.com.