- Who the Stark Law applies to
- What counts as a financial relationship
- The 10 designated health services
- Common Stark Law exceptions
- Penalties for Stark Law violations
- How to maintain Stark Law compliance
- How financial documentation supports Stark Law compliance
The Stark Law restricts physician self-referral to Medicare-covered services at entities where the physician has a financial interest. Here's what it covers, what the exceptions are, and how you can maintain compliance at your practice.
The Stark Law (42 U.S.C. § 1395nn) prohibits physicians from referring Medicare patients for designated health services to any entity where they, or an immediate family member, have a financial relationship, unless a specific exception applies. It's a strict liability statute, so intent isn't required for a violation.
Who the Stark Law applies to
The Stark Law applies to physicians who refer Medicare patients and to entities that provide Medicare-covered designated health services (DHS). It doesn't cover non-physician practitioners or Medicaid-only arrangements, though many states have enacted parallel self-referral laws. Related physician-payment transparency rules, like the Sunshine Act, impose separate reporting requirements on top of Stark's referral restrictions.
What counts as a financial relationship
Ownership or investment interests: You (or an immediate family member) hold an ownership stake or investment interest in the entity providing DHS.
Compensation arrangements: You receive or provide compensation from or to the DHS entity. This includes employment agreements, independent contractor arrangements, medical directorships, space and equipment leases, and consulting arrangements.
The 10 designated health services
DHS category | Examples |
|---|---|
Clinical laboratory services | Blood tests, pathology, genetic testing |
Physical therapy, occupational therapy, and outpatient speech-language pathology services | PT/OT evaluation and therapeutic exercises, speech evaluation, dysphagia treatment |
Radiology and imaging | X-ray, MRI, CT scan, ultrasound |
Radiation therapy services | External beam, brachytherapy |
Durable medical equipment and supplies | Wheelchairs, walkers, CPAP machines |
Parenteral and enteral nutrients | IV nutrition, tube feeding |
Prosthetics, orthotics, and prosthetic devices | Custom orthotics, artificial limbs |
Home health services | Skilled nursing, PT/OT in the home |
Outpatient prescription drugs | Chemotherapy, specialty drugs (limited) |
Inpatient and outpatient hospital services | Facility fees for hospital-based procedures |
Common Stark Law exceptions
In-office ancillary services: Physician-owned practices can refer patients for DHS provided within the same group practice, in the same or centralized building.
Bona fide employment: An entity employs a physician at fair market value (FMV) compensation not determined by referral volume.
Personal services arrangements: A physician provides services to a DHS entity under a written contract, at fair market value, for commercially reasonable services.
Rental of office space or equipment: Fair market value under a written lease for at least one year.
Value-based care arrangements: The Centers for Medicare & Medicaid Services (CMS) added this exception in 2020 to accommodate coordinated care models tied to patient outcomes.
Penalties for Stark Law violations
Denial of payment: Medicare won't pay any claim submitted for DHS provided in violation of Stark, and you must refund any payments already received.
Civil monetary penalties: Up to $15,000 per service rendered in violation.
Exclusion from Medicare: Repeated or knowing violations can get you excluded from Medicare participation.
False Claims Act exposure: Submitting Medicare claims for DHS under a Stark-violating arrangement can trigger False Claims Act (FCA) liability with treble damages.
How to maintain Stark Law compliance
Stark Law compliance is one piece of broader healthcare spend management: a few practical steps keep every physician financial relationship documented and defensible.
Written agreements for all financial relationships: Every compensation arrangement between a physician and a DHS entity needs a written contract.
Fair market value documentation: Use an independent valuation or published FMV methodology consistently.
No referral-volume link: Physician compensation can't be tied to the volume or value of referrals.
Annual compliance review: Designate a compliance officer to review all physician financial relationships annually.
How financial documentation supports Stark Law compliance
When Ramp processes a vendor payment or captures an expense, it creates a full audit trail: the invoice, the approval chain, the cost center code, and the payment confirmation—all captured at the time of the transaction, not reconstructed at audit time.
For practices that process physician expense reimbursements alongside vendor payments, having both in one platform makes it easier to pull the full financial picture of a physician relationship when needed.
Learn how Ramp's audit trail captures vendor and expense documentation
The information provided in this article does not constitute accounting, legal or financial advice and is for general informational purposes only. Please contact an accountant, attorney, or financial advisor to obtain advice with respect to your business.
FAQs
The federal Stark Law covers Medicare only. Many states have enacted parallel statutes extending similar requirements to Medicaid, commercial insurance, or all payers.
It depends on the structure. Under the in-office ancillary services exception, referral to a physician-owned imaging center is permitted if it's in the same building as the primary practice. Outside that structure, a different exception is required—or the referral is prohibited.
Stark is a strict liability civil statute focused on physician referrals for DHS. The Anti-Kickback Statute is a criminal statute that broadly prohibits anything of value to induce referrals for any federal healthcare program.
CMS operates a Self-Referral Disclosure Protocol (SRDP) for voluntary disclosure in exchange for reduced penalties. Consult healthcare compliance counsel before taking corrective action.
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