Centers for Medicare and Medicaid Services (“CMS”) issued an Advisory Opinion clarifying the ability for wholly-owned subsidiary physician practices to meet the Group Practice requirement of the In-Office Ancillary Services Exception under the federal Stark Law. The Stark Law is a federal law that prohibits individuals from making referrals for certain designated health services ("DHS") payable by federal healthcare programs to entities in which they, or an immediate family member, possess a financial interest unless a statutory exception is met, such as the Group Practice exception. In the case being addressed by the Advisory Opinion, a physician practice that overall met the definition of a Group Practice sought to acquire two separate subsidiaries that would not independently meet the Group Practice definition and thus sought clarification as to whether the collective entities could meet the “single legal entity” requirement of the Group Practice definition under 42 C.F.R. § 411.352(a).

Specifically, CMS found that under the circumstances encompassing the Advisory Opinion, a physician group practice together with its wholly-owned subsidiaries could meet the definition of a “single legal entity” so long as the main entity remained a sole owner of the subsidiaries, and it primarily provided services of the type provided by a supplier that is enrolled in Medicare as a clinic/group practice and billed to Medicare in accordance with the claims processing instructions for physician services in the Medicare Claims Processing Manual. For example, all clinical employees should be employed by or contracted with the physician group, and the revenue and expenses from the subsidiary should be treated as group practice revenue and expenses.

This Advisory Opinion sheds further light on the boundaries of the Group Practice definition and provides greater clarity as to how subsidiary relationships with medical practices can be structured to comply with the federal Stark Law and the Group Practice requirement.