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What Doctors Must Know About Stark Law


Given the myriad of federal and state rules and regulations governing the provision of health services, Physicians need to be aware that each business opportunity that deals with the provision of DHS services to Medicare or Medicaid, be it a lease, a new company, or an employment position in a Hospital could lead to potential legal exposure if due care and diligence is not taken. This blog post will focus on Stark Law.

What is Stark Law?

Stark Law is also known as the ‘Physician Self-Referral Law’ and in plain English, says that if you are a doctor and you or any of your immediate family members have a financial relationship with an entity (e.g., Doctor’s Office, Nursing Home, Clinical Laboratory, etc), you cannot benefit financially (directly or indirectly) from  referring  “certain designated health services (DHS) payable by Medicare” to that financially related entity. Effectively, Stark Law proscribes against financially benefiting from referral activities in excess of a reasonable amount for work you actually performed.

When are you deemed to have a ‘financial relationship?

Under Stark Law, “financial relationship” is a broad term that includes ownership, investment interest, and compensation arrangements that exceed commercial reasonableness or fair market value of services rendered.

What DHS services or items are covered by this law?


Almost any type of medical service, supply or even equipment that can be billed to Medicare or Medicaid including but not limited to lab services, prescription drugs and physical therapy services and  Durable medical equipment and supplies to mention a few.

Are there any exceptions to the law?

Yes. In order to avoid getting caught in the web of Stark Law, numerous exceptions are provided that protects a financial arrangement that includes a referral for a designated health service. This includes but is not limited to, physician services, in-office ancillary services, rent of office space and equipment, and bona fide employment relationships so long as payment for services was within a commercially reasonable rate or of fair market value. If a referral falls under one of the exceptions, the referral is not in violation of the Stark Law

What happens if you break the law?

stark compliance

Any individual or entity that violates Stark Law:

  1. Must repay all Medicare funds paid under the improper arrangement, which easily could total into the millions of dollars.

  2. Could face Medicare exclusion for claims violations.

  3. Will pay penalties up to $15,000 for each violation claim.

  4. Will pay a penalty up to $100,000 for each “circumvention schemes” arrangement.

  5. Will pay fines of three times the amount improperly collected.

  6. Could be charged with False Claims Act (FCA) liability as well.

How does the Federal Government monitor violations?

The government can discover violations of the Stark Law through various means however two examples are:

  1. Whistle-blowers: Individuals are incentivized through the whistleblower aspect of the law to report instances of violations because they can earn up to 30 percent of the government’s recovery in False Claims Act cases.

  2. Recovery audit contractors (RAC): These are private companies that audit providers for overpayments in consideration for a percentage of recoveries resulting from violations of the law.

No payment for ancillary services. Specifically, this means that the physician cannot be compensated in any manner for referring a patient for ancillary services such as diagnostic tests, physical therapy or the prescription of durable medical equipment. A physician, however, may be compensated for personally performing the professional component of an ancillary service (i.e., radiology reads).


A violation of Stark Law is a potentially serious matter. It can jeopardize a physician’s license, close down his or her practice, and involve lengthy and expensive legal investigation. To avoid getting caught in the web of Stark Law and others like it, seek legal assistance and mitigate your risk.


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