Corporate Compliance

CMS issues Stark advisory opinion

Compliance Monitor, August 31, 2005

CMS has issued an advisory opinion allowing a group of physicians to hold stock in their nonprofit group practice. In the advisory opinion, CMS evaluated whether the arrangement would violate the Stark self-referral law.

Under Stark, a physician may not refer a Medicare patient to an entity with which the physician has a financial relationship, except under certain exceptions. In the opinion, posted Aug. 5, CMS concluded that the stock held by the physicians in this case does not constitute an ownership or investment interest (and, thus, does not create a financial relationship) under Stark.

In the opinion, CMS noted that:

1. The stock held by the physicians exhibits none of the benefits typical of stock ownership. Although the physicians purchase "shares," they do so as a formality. Stock value neither appreciates nor depreciates and is unaffected by the financial performance of the practice, according to the opinion. Under the arrangement, shareholders receive no dividends and shares are nontransferable. A share of stock gives a physician only a vote. Physicians are permitted to purchase only one share of stock, which must be returned to the practice for the original purchase price of $1,000 when the physician leaves the practice.

2. Physician shareholders have no right to distribution of the net income, assets or profits of the practice, which is tax-exempt. Practice assets are held in trust for the sole use of the practice in the furtherance of its charitable purposes. In the event of dissolution, 100% of the practice's assets must be distributed to educational, scientific, or charitable organizations, according to the opinion.

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