A simple Stark compensation example

Here is a question about physician compensation and Stark that I received recently; related answers are in red:

I have an Internal Medical group -- 5 physicians and one Nurse Practitioner -- 4 of the physicians are equal owners.

In the past, profit division has been:

25% of total profit is divided equally among the 4 owners (6.25% each).

75% of total profit is divided based upon relative ratio of production of the 4 owners (6 month rolling average).

Issue #1:  All income and expense of the Nurse Practitioner and employed Physician go into the general profit and are split as per above.  The production totals of the Nurse Practitioner and employed Physician are NOT included in the Doctor ratios described above.

From what I have been told before, there are no Medicare issues with this arrangement -- is this correct?? [There are three issues: one relates to Stark; the second is a tax issue. See Pediatric Surgical Associates v. Commissioner. Bad facts that result in bad law essentially saying profits from non-owner employees must be distributed as corporate profits, not as salary. The third is an economic issue as equal owners why wouldn’t the four share in “enterprise profits” generated by employees equally?]

Issue #2:  The office has recently purchased a machine for cardiac Echo.  The office owns the machine, and the hospital provides a tech (on a contract basis) to administer the tests.  One of the physicians (who is an owner) does all of the reads.

Are there any Medicare issues with the office billing for the tech, since he is not an employee of the practice? [No.]

Is there any problem with giving the Physician doing the "reads" the credit in his production totals for this part of the procedure in his relative ratio that is used for profit division? [No.]

Is there any issue with the 4 physician/owners getting credit in their production totals for the procedures that they have prescribed/referred (Echos) but are administered by the tech? [YES: Echos are a Stark designated health service. Giving productivity credit for the professional component is fine since this service is personally performed by the physician receiving credit. However, you may not give productivity credit for the technical component based on who ordered the test. This is a clear Stark violation (unless the revenue involved falls under the de minimus exception to Stark—which it very well may.)

Note also that many states have adopted statutes similar to Stark, but without the numerous exceptions that apply to the federal law.  So the best course is not to allow productivity credit based upon referrals. In the current legal climate, it just smells bad.]