Stark II and physician compensation models: integrating business and legal issues

In March of 2004, the Centers for Medicare & Medicaid Services released new regulations that interpreted the Federal Physician Self Referral Act, otherwise known as Stark II. The new regulations, commonly referred to as the Phase II regulations, must be carefully considered when structuring physician compensation models. Stark II generally holds that physicians may not make a referral for designated health services to an entity with which they have a direct or indirect financial relationship. This Article outlines the provisions of Stark II that are applicable to physician compensation methodologies. In addition, the authors evaluate hypothetical transactions involving physician groups seeking viable compensation schemes and explore the validity and risks of each.