Matt Dickstein

Business Attorney

Making legal matters easy and economical for your business.

Matt Dickstein, P.O.Box 3504, Fremont, CA 94539-5856

Matt Dickstein

Business Attorney

Making legal matters easy and economical for your business.

39488 Stevenson Place, Suite 100, Fremont, CA 94539 510-796-9144.


Lawyer for Physicians, Medical Corporations and Group Medical Practices

Stark and Anti-Kickback laws regarding the compensation structure of a group medical practice

By Matt Dickstein

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In this article, I briefly outline the legal requirements that apply when a group medical practice pays compensation to its members (whether owners, employees or contractors). My prior article, Compensation structures for a group medical practice, explains compensation plans from a non-legal perspective, including a discussion of “eat what you kill” practices and more team-oriented compensation structures.

This article is hard work because I talk about the law, specifically, medical practice compensation plans under California and federal referral laws (Stark and Anti-Kickback).

In general, a group medical practice pays its physicians in some combination of three ways: (1) salary, (2) productivity payments including a percentage of collections, (3) per-share corporate dividends. Let’s start right away with how the referral laws treat salary.


Salary is the first element of a compensation plan. In general, salary should be reasonable and consistent with fair market value without taking into account any referrals. Salary usually is not a problem for Stark and Kickback compliance, and I won’t belabor it here. If you want to read more on the topic, see Stark and Anti-Kickback laws re physician employment and contractor agreements.

In all cases, make sure you have a solid employment agreement that clearly shows its compliance with the Stark and Kickback laws. For more on employment agreements, see Physician employment and independent contractor agreements.

Productivity Payments — Bonuses & Shares in Profits or Collections

Productivity payments are the second element of a compensation structure. They include profit-shares, percentages of collections and productivity bonuses. To make productivity payments, your group must meet the Stark definition of a “group practice.” [The definition of group practice is important for many reasons, not just making productivity payments, but that’s a topic for another day.]

A group practice may compensate its physicians (regardless of status as owner, employee or contractor) based on their productivity or work as follows:

1. Based directly on DHS (designated health services) personally performed by the physician. This can be a straight percentage of collections for professional services personally rendered.

2. Based on DHS that others perform “incident to” the physician’s personally performed services and subject to his or her supervision. This can be a percentage of collections or profit share that includes the billings made by other health care providers under the doctor’s supervision.

3. Based on factors that have nothing to do with referrals, for example, tenure in the group or management services.

What you may not do is base payments directly on referrals of DHS. Compensation may not be directly related to the volume or value of DHS referrals by the physician.


*** The group must charge its overhead expenses and distribute its income in a manner determined prior to their occurrence (no ad-hoc allocations). The group may, however, modify its distribution method as often as desired so long as the changes are only applied prospectively and are not based upon a pattern of referrals.

*** The group must have a written compensation plan for its members. Usually you see the plan as an attachment to board of director resolutions, but you also see it in shareholders agreements or even the bylaws. The compensation plan must track the Stark law without deviation.

*** Word to the wise: Do not think that your compensation plan is OK just because other groups seem to pay their physicians the same way. Yes, it’s true that most medical practices pay percentages of collections or profit shares. It’s also true that the law doesn’t care what everyone else is doing. The law only cares about what you’re doing.

Dividends and Other Per-Capita Shares in Profits

Dividends are the third element of a compensation plan. The group may pay per-capita shares of overall group profits, for example per-share dividends, provided that the share of profit is not directly related to DHS referrals. Dividends are straight-forward because a per-share dividend rarely has any relation to referrals.

Enough already. The referral laws are voluminous, complex, subtle and idiotic. Get competent legal help for your group practice’s compensation plan.

Call me to schedule a legal consultation