In June 2021, the Centers for Medicare & Medicaid Services (“CMS”) published Advisory Opinion No. CMS-AO-2021-01 (“AO”), indicating that a physician practice could qualify as a “group practice” under the federal physician self-referral prohibitions (a.k.a. the “Stark Law”) if the practice furnishes designated health services (“DHS”) through a wholly-owned subsidiary entity that is enrolled in the Medicare program as a physician practice.


As a general matter, the Stark Law prohibits a physician from referring Medicare beneficiaries to an entity for the furnishing of DHS if the physician (or one of their immediate family members) has a financial relationship (either an ownership interest or a compensation arrangement) with the entity (the “DHS Entity”) unless a statutory or regulatory exception applies. The Stark Law also prohibits the DHS Entity from billing Medicare or any other person or entity for improperly referred DHS. DHS includes the following twelve (12) categories of services:

  • Clinical laboratory services
  • Durable medical equipment and supplies Physical
  • Therapy Services
  • Parenteral and enteral nutrients, equipment, and supplies
  • Occupational therapy services
  • Prosthetics, orthotics, and prosthetic devices and supplies
  • Outpatient speech-language pathology services
  • Home health services
  • Radiology and certain other imaging services
  • Outpatient prescription drugs
  • Radiation therapy services and supplies
  • Inpatient and outpatient hospital services

One of the most popular exceptions for physician practices is the in-office ancillary services exception (the “IOAS Exception”). The IOAS Exception generally is available to a physician practice consisting of two (2) or more physicians only if the physician practice qualifies as a “group practice.” Under the Stark Law definition, a group practice must be a single legal entity operating primarily for the purpose of being a physician group practice. The group practice definition further requires that the single legal entity may be organized or owned by another medical practice, provided that the other medical practice is not an operating physician practice (regardless of whether the medical practices meets the conditions of being a group practice). The Stark Law also state that a group practice that is otherwise a single legal entity may itself own subsidiary entities, but does not specify whether the subsidiary can be a medical practice. Prior to this AO, CMS specifically referenced the ability of a group practice to own and operate other legal entities (e.g., a clinical laboratory) for purposes of providing services to the group practice, but had not opined as to whether such a subsidiary entity could itself be enrolled in Medicare as an operating physician practice.


The advisory opinion request was submitted by a group practice (the “Group”) which owned and operated physician practices (each a “Subsidiary,” and collectively, the “Subsidiaries”) located in separate states. Each Subsidiary is enrolled as a physician practice in the Medicare program. In this AO, CMS indicated that furnishing DHS through the Subsidiaries would not prevent the Group from qualifying as a group practice, thus permitting the Subsidiaries to furnish DHS.

As part of the CMS Stark Law advisory opinion process, the Group certified that all clinical employees and contractors of the Subsidiaries would be employed or contracted by the Group and assigned to work at the Subsidiaries. The Group also certified that all revenues and expenses of the Subsidiaries would be treated as revenue and expenses of the Group, and patients seen by the Subsidiaries would be considered patients of the Group. The favorable AO permits each Subsidiary of the Group to remain a Medicare-enrolled practice and bill Medicare for DHS without giving rise to a violation of the Stark Law, so long as the other requirements of the group practice definition and the IOAS Exception were satisfied.

In this AO, CMS emphasized that the requirement for a “group practice” to be a “single legal entity” expressly permits a group practice to own subsidiaries and, although CMS previously provided only the example of a laboratory wholly-owned by a group practice, this does not prevent a group practice from furnishing other services—including physicians’ professional services to its patients through other types of wholly-owned subsidiaries. CMS also noted that a group practice must “primarily provide services of the type provided by a supplier that is enrolled in Medicare as a clinic/group practice.” This language serves to highlight that, although a group practice may own and operate subsidiary entities to furnish services to its patients, the group must remain, at its core, a physician practice, and cannot utilize the IOAS Exception to circumvent the referral prohibition of the Stark Law by establishing subsidiary entities that are not central to group practice’s services to patients.


For purposes of physician practice acquisitions, consolidating under a single taxpayer identification number (“TIN”) has been the standard practice for purposes of meeting the Stark Law definition of a group practice. This AO establishes that an existing physician practice platform that is acquiring a physician practice may maintain the existing practice legal entity of the acquired practice as a wholly-owned subsidiary. This development eliminates the need for transferring payor contracts and provider recredentialing such efforts in a practice acquisition transaction. It is critical to note, however, that all other elements of the group practice definition must still be met for the relevant group practice to satisfy the IOAS Exception. In particular, the practice must operate as a unified business with centralized decision-making, consolidated billing, accounting and financial reporting. When structuring a group practice that intends to rely on subsidiary entities, extra care should be taken to ensure the “unified business” requirement is satisfied by the physician practice for Stark Law compliance.


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