In today’s healthcare environment, compliance with federal regulations is more than a legal necessity—it’s a cornerstone of ethical and sustainable practice management. Two of the most critical laws that medical practices must navigate are the Stark Law and the Anti-Kickback Statute (AKS). These laws are designed to prevent financial conflicts of interest and ensure that medical decisions are made in the best interest of patients, not influenced by improper financial incentives.
This guide provides a detailed overview of both laws, outlines key exceptions and safe harbors, and offers practical strategies for structuring medical practices in a compliant and scalable way.
Understanding the Stark Law
The Stark Law (42 U.S.C. § 1395nn), formally known as the Physician Self-Referral Law, prohibits physicians from referring Medicare patients for certain designated health services (DHS) to entities with which they or their immediate family members have a financial relationship—unless a specific exception applies. DHS includes services such as clinical lab tests, imaging, physical therapy, durable medical equipment, and hospital services.
What makes the Stark Law particularly stringent is that it is a strict liability statute. This means that a violation can occur regardless of intent. Even if a physician unknowingly refers a patient in a way that violates the law, penalties can still apply. These penalties may include denial of payment, refund of payments received, civil monetary penalties, and exclusion from federal healthcare programs.
To determine whether the Stark Law applies to a particular arrangement, practitioners should ask four key questions:
1. Is a physician referring DHS to an entity?
2. Does the physician or their immediate family have a financial relationship with that entity?
3. Will Medicare be billed for the services?
4. Does the arrangement meet a Stark Law exception?
If the answer to the first three questions is “yes” and the fourth is “no,” the arrangement is noncompliant and must be restructured or abandoned.
Key Stark Law Exceptions
There are numerous exceptions under the Stark Law that allow for compliant financial relationships. These fall into three broad categories: those that apply to both ownership and compensation arrangements, those that apply only to ownership or investment interests, and those that apply only to compensation arrangements.
One of the most commonly used exceptions is the In-Office Ancillary Services (IOAS) exception. This allows group practices to provide services like imaging or lab work in-house, provided specific conditions are met regarding who performs the service, where it is performed, and who bills for it. Another important exception is the Bona Fide Employment exception, which permits referrals within an employment relationship if the compensation is fair market value and not based on referral volume.
Other notable exceptions include:
- Personal Services Arrangements: For independent contractors providing defined services under a written agreement.
- Fair Market Value Compensation: A catch-all for arrangements that meet fair market value and commercial reasonableness standards.
- Office Space and Equipment Leases: Must be in writing, set in advance, and not based on referral volume.
Each exception has detailed requirements, and failure to meet even one element can result in noncompliance.
The Anti-Kickback Statute (AKS)
The AKS is a criminal statute that prohibits the exchange of anything of value to induce or reward referrals for services reimbursed by federal healthcare programs. Unlike the Stark Law, the AKS requires proof of intent, but it is broader in scope and applies to all federal healthcare programs, not just Medicare.
Violations of the AKS can result in criminal penalties, including fines and imprisonment, as well as civil penalties and exclusion from federal programs. Because of its broad language, many common business practices in healthcare could potentially violate the AKS, which is why the law includes a number of safe harbors—specific arrangements that are not subject to prosecution if all conditions are met.
Common AKS Safe Harbors
Some of the most frequently used AKS safe harbors include:
- Small Entity Investment Interests (60/40 Rule): Limits the percentage of ownership and revenue that can come from referring physicians.
- Group Practice Investments: Applies to practices owned by licensed professionals offering in-office ancillary services.
- Personal Services and Management Contracts: Must be in writing, set in advance, and reflect fair market value.
- Space and Equipment Rental: Similar to Stark exceptions, these must be commercially reasonable and not based on referral volume.
It’s important to note that failing to meet a safe harbor does not automatically mean an arrangement is illegal, but it does increase the risk of scrutiny.
AKS vs. Stark Law.
It’s also important to note that, while Stark and AKS are distinct, many arrangements must comply with both. For example, a compensation model that meets a Stark exception may still violate AKS if intent to induce referrals is present.
Structuring a Compliant Medical Practice
When structuring a medical practice, especially one with multiple locations or physicians, it’s essential to design the organization in a way that complies with both Stark and AKS. Here are three common models:
1. Single Group Practice Model
This is often the most flexible and scalable structure. It allows for centralized billing, shared resources, and unified compliance oversight. Physicians can be employed or offered ownership or profit-sharing arrangements, provided these are structured to avoid tying compensation to referral volume. This model supports key Stark exceptions like IOAS and employment, and it can be adapted for future growth.
2. Professional Services Arrangement
In this model, the main practice contracts with individual physicians or their entities to operate specific locations. The physicians act as independent contractors and are compensated based on performance metrics like net revenue. This structure allows for operational autonomy while maintaining compliance through personal services and lease exceptions. It’s also highly scalable and offers liability protection.
3. Separate Practices with Partial Common Ownership
Each location is a separate legal entity co-owned by the main practice and the local physician. While this can foster a sense of ownership and accountability, it carries higher compliance risks under the AKS, particularly with the 60/40 Rule. Careful structuring and legal oversight are essential to avoid violations.
Compensation Strategies That Work
Compensation arrangements must be carefully designed to comply with Stark and AKS. Physicians can be paid salaries, productivity bonuses, or profit shares, but these must not be based on the volume or value of referrals for DHS.
Acceptable models include:
- Per capita profit sharing among group members.
- Revenue-based sharing that mirrors non-DHS revenue distribution.
- Limited DHS-derived compensation, capped at 5% of total revenue and physician compensation.
Independent contractors must have written agreements that specify services, duration, and compensation terms, all of which must meet fair market value and commercial reasonableness standards.
Recent Regulatory Updates and OIG Advisory Opinions (2024–2025)
Staying current with regulatory developments is essential for maintaining compliance with the Stark Law and AKS. Over the past year, several key developments have reinforced the federal government’s continued focus on physician compensation arrangements and referral practices.
DOJ Enforcement Trends
In 2024, the U.S. Department of Justice (DOJ) resolved multiple high-profile False Claims Act (FCA) cases involving alleged violations of the Stark Law and AKS. These cases often centered on excessive or improperly structured physician compensation arrangements that allegedly incentivized referrals.
One notable case involved a Delaware-based health system that agreed to pay $42.5 million to settle allegations that it violated both the Stark Law and AKS. The government claimed that the system provided free clinical support to a private neonatology practice, which then billed globally for services largely performed by staff. This arrangement was deemed to constitute illegal remuneration intended to induce referrals.
These cases underscore the DOJ’s continued scrutiny of:
- Compensation arrangements that exceed fair market value.
- Indirect financial relationships that may influence referral patterns.
- Billing practices that obscure the true provider of services.
OIG Advisory Opinions
The Office of Inspector General (OIG) continues to issue advisory opinions that clarify the application of the AKS and related safe harbors. While these opinions are legally binding only for the requestor, they provide valuable insight into the OIG’s enforcement priorities and interpretive stance.
Recent advisory opinions have emphasized:
- The importance of commercial reasonableness and fair market value in management and services contracts.
- The need for clear documentation and written agreements in arrangements involving shared services or co-location.
- Increased scrutiny of marketing arrangements and referral-based compensation models, especially those involving digital health platforms or telemedicine.
Healthcare organizations are encouraged to review these opinions regularly and consult legal counsel when structuring novel or complex arrangements.
Building a Culture of Compliance
A robust compliance program is essential for any medical practice. The Office of Inspector General (OIG) recommends a seven-element framework:
- Conduct internal audits and monitoring.
- Develop written policies and procedures.
- Designate a compliance officer.
- Provide regular training and education.
- Respond promptly to violations.
- Maintain open lines of communication.
- Enforce disciplinary standards.
Implementing these elements not only reduces legal risk but also improves operational efficiency and patient care quality.
Compliance Checklist and Comparison Table
Compliance Checklist
When considering compliance with the Stark Law and AKS, consider the following, a non-exhaustive compliance checklist:
- Ensure all physician compensation arrangements meet fair market value standards.
- Document all financial relationships and referral patterns clearly.
- Review and update written agreements regularly.
- Verify compliance with Stark Law exceptions and AKS safe harbors.
- Conduct regular internal audits and risk assessments.
- Provide ongoing training on Stark Law and AKS compliance.
- Consult legal counsel for complex or novel arrangements.
- Monitor regulatory updates and OIG advisory opinions.
Comparison Table: Stark Law vs. Anti-Kickback Statute (AKS)
Final Thoughts
Compliance with the Stark Law and AKS is not just about avoiding penalties—it’s about building a practice that operates with integrity, transparency, and long-term sustainability. By understanding the laws, leveraging exceptions and safe harbors, and adopting best practices in structure and compensation, healthcare providers can focus on what matters most: delivering exceptional care.
