🏛️ Stark Law Explained: A Guide for Small Healthcare Providers on Physician Self-Referral Rules

If your medical practice bills Medicare and includes physicians who refer patients for services like labs, imaging, or therapy, Stark Law applies to you.

This complex statute—also known as the Physician Self-Referral Law—can lead to major penalties if ignored. But with the right knowledge and structure, you can stay compliant and protect your revenue.

Let’s break it down in plain English.

📜 What Is Stark Law?

The Stark Law is a federal statute that prohibits physicians from referring Medicare patients for certain designated health services (DHS) to an entity with which they (or an immediate family member) have a financial relationship, unless a legal exception applies.

Unlike the Anti-Kickback Statute (AKS), Stark Law is a strict liability law—meaning intent doesn't matter. If you violate it, even accidentally, you can still face serious penalties.

🔍 When Does Stark Law Apply?

For Stark Law to be triggered, all of these must be true:

• A physician makes a referral

• The referral is for DHS

• The referral is made to an entity that furnishes the service

• The physician or a family member has a financial relationship with the entity

• The referral involves a Medicare patient

If these are true and no exception applies, the referral violates Stark—and the entity cannot bill Medicare for the service.

🧾 What Counts as a "Referral"?

A referral includes:

• Ordering services (e.g., lab tests, MRIs)

• Certifying or recommending DHS

• Referrals by a group practice member or employee

Referrals don’t include DHS personally performed by the referring physician.

📋 What Are Designated Health Services (DHS)?

There are 12 categories of DHS under Stark Law, including:

• Clinical lab services

• Radiology (MRI, CT, ultrasound)

• Physical, occupational, and speech therapy

• Durable medical equipment (DME)

• Home health services

• Hospital inpatient and outpatient services

• Outpatient prescription drugs

• Radiation therapy

• Parenteral/enteral nutrients

• Prosthetics and orthotics

Check CMS’s official list of CPT/HCPCS codes to confirm if a service is classified as DHS.

💼 What Counts as a Financial Relationship?

There are two main types:

1. Ownership/Investment Interest
   – e.g., stock, equity, or membership in a healthcare entity

2. Compensation Arrangement
   – Any payment or exchange of value, direct or indirect

Even indirect relationships (e.g., through a management company) can count if there's a financial chain tied to referrals.

🚫 Stark Law Penalties

If a referral violates Stark Law:

• The entity cannot bill Medicare

• Reimbursements must be paid back

• You may face civil monetary penalties

• You may be liable under the False Claims Act

There’s no "close enough" defense—you must meet every element of a valid exception to avoid liability.

🛡️ Stark Law Exceptions You Should Know

Here are common exceptions used by small and midsized providers:

1. Bona Fide Employment Exception

• Written, signed agreement

• Compensation set in advance and reflects fair market value (FMV)

• Duties clearly defined

• No link to referral volume or value

2. Personal Services Arrangements

• Written contract for at least one year

• Compensation set in advance, FMV, and commercially reasonable

• Must describe all services clearly

3. Rental of Office Space/Equipment

• Lease in writing, for at least one year

• Rent based on FMV—not referrals

• Space or equipment must be used for legitimate business needs

4. Fair Market Value Compensation

• Applies to short-term or part-time work

• FMV payment, unrelated to referrals

• Must be clearly documented

You must meet every condition of an exception—partial compliance is not enough.

📏 Key Compliance Metrics: The “Big Three”

1. Fair Market Value (FMV)
   – Compensation must match actual market conditions—not inflated due to referrals

2. Volume or Value Standard
   – Pay or rent must not vary based on the number of referrals

3. Commercial Reasonableness
   – The arrangement must make business sense, even if it’s not profitable on its own

🧠 Compliance Tips for Healthcare Providers

• ✅ Use written contracts for all referral or financial arrangements
  ✅ Define scope, term, and compensation clearly
  ✅ Keep documentation of FMV analysis (e.g., benchmarks, salary surveys)
  ✅ Avoid per-click or % compensation tied to referrals
  ✅ Review contracts annually or after any change

⚖️ Stark Law vs. Anti-Kickback Statute (AKS)

Stark Law:

• Type: Civil only

• Applies to: Physicians + DHS

• Key trigger: Financial relationship

• Penalties: Civil fines, billing ban

AKS:

• Type: Criminal/Civil

• Applies to: Anyone

• Key trigger: Referrals + remuneration

• Penalties: Fines, jail, FCA charges

Some arrangements may violate both laws—compliance with one doesn’t guarantee compliance with the other.

💡 Final Thoughts

Stark Law compliance is a must for any Medicare-participating provider group. It’s not just for hospitals—solo practices and specialty clinics are just as vulnerable. By understanding the rules, using written contracts, and meeting specific exceptions, you can avoid violations and build a compliant, sustainable practice.

Unsure if your contracts or referral relationships meet Stark exceptions? Let’s review them together and keep your business protected.

Hurley Law Group
Healthcare Law for Small & Midsized Providers
📞 308-383-1867
🌐 hurleylawgroup.com
✉️ eric@hurleylawgroup.com