The federal physician self-referral law has been on the books since 1989. Its exceptions, and the exceptions to those exceptions, still trip up physicians, hospitals and ASC operators. A federal judge in West Virginia said the law “has evolved into a labyrinth of multipart compliance requirements where the exception-to-the-exception is the norm.”
The rules are still changing. Starting Nov. 1, providers must use CMS’ revised forms for all new self-referral disclosures, according to Thompson Coburn.
Here are 20 Stark law terms to know, drawn from the statute, CMS regulations and prior Becker’s coverage:
- Stark law: The physician self-referral law, codified at 42 U.S.C. § 1395nn. It bars physicians from referring Medicare patients for designated health services to an entity they have a financial relationship with, unless an exception applies. A separate provision extends the ban to Medicaid by restricting federal matching funds. CMS administers the law. HHS’ Office of Inspector General imposes civil monetary penalties, and the Justice Department pursues related False Claims Act cases.
- Strict liability: Intent doesn’t matter. If the elements of a violation are met and no exception applies, the referral is prohibited, regardless of good faith or ignorance of the law.
- Physician: A doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry or a chiropractor.
- Immediate family member: A spouse; a birth or adoptive parent, child or sibling; a stepparent, stepchild or stepsibling; in-laws; a grandparent or grandchild; and the spouse of a grandparent or grandchild. A relative’s financial relationship with an entity counts the same as the physician’s.
- Referral: A physician’s request for, or order of, a designated health service payable by Medicare. This includes a request for a consultation and the tests or procedures that consultant orders, as well as a plan of care that includes designated health services. Services the referring physician personally performs are not referrals.
- Designated health services: The service categories the law covers:
- Clinical laboratory services
- Physical therapy, occupational therapy and outpatient speech-language pathology
- Radiology and certain other imaging services
- Radiation therapy services and supplies
- Durable medical equipment and supplies
- Parenteral and enteral nutrients, equipment and supplies
- Prosthetics, orthotics and prosthetic devices and supplies
- Home health services
- Outpatient prescription drugs
- Inpatient and outpatient hospital services
Services paid under Medicare’s ASC payment system are not designated health services. That’s why ASC procedures generally fall outside Stark. Ancillary services billed separately, such as imaging or lab work, can still trigger the law.
- Financial relationship: Either an ownership or investment interest in an entity (through equity, debt or other means) or a compensation arrangement, direct or indirect. A compensation arrangement is any remuneration between a physician or family member and the entity, including employment pay and medical director or consulting fees.
- Billing prohibition: An entity can’t bill Medicare, a patient or any other payer for designated health services furnished through a prohibited referral. Any amount collected must be refunded on a timely basis.
- Exception: A set of criteria in statute or regulation (42 CFR §§ 411.355-411.357) that makes an arrangement lawful. An arrangement must meet every element of an exception for the entity to bill Medicare.
- In-office ancillary services exception: Protects designated health services, such as imaging or lab work, provided by the referring physician, another physician in the same group practice, or someone those physicians supervise. The services must be furnished in a qualifying location. They must be billed by the physician, the group practice or an entity wholly owned by either.
- Group practice: A practice that qualifies for certain exceptions, including in-office ancillary services. It must be a single legal entity with at least two physicians. It must also pass a “substantially all” test: at least 75% of members’ total patient care services must be furnished through the group and billed under its billing number.
- Bona fide employment exception: Protects employer pay to a physician for identifiable services if the pay is at fair market value and not based on the volume or value of referrals. The arrangement must also be commercially reasonable even if the physician made no referrals to the employer.
- Personal services arrangements exception: Protects independent contractor agreements that are written and signed, cover at least one year and specify the services. Pay must be set in advance, at fair market value and not tied to the volume or value of referrals.
- Rental of office space and equipment exceptions: Protect rent payments under a written, signed lease of at least one year. Rent must be set in advance, at fair market value, and can’t vary with referral volume. A separate timeshare exception covers physicians who use a hospital’s or physician organization’s space, equipment or staff, mostly for evaluation and management services, without a traditional lease.
- Physician recruitment exception: Lets hospitals, federally qualified health centers and rural health clinics give support, such as income guarantees or loans, to physicians who relocate their practice into the geographic area the hospital serves. The physician can’t be required to refer to the hospital. A practice that takes part in the arrangement can’t impose restrictions that unreasonably limit the physician’s ability to practice in that area. Repayment terms if a physician leaves early are set by the recruitment agreement, not the regulation.
- Fair market value and commercial reasonableness: Fair market value is pay that reflects an arm’s-length deal at general market value. An arrangement is commercially reasonable if it serves a legitimate business purpose and makes sense given the parties’ size, type and specialty, even if it doesn’t turn a profit, according to CMS’ 2020 final rule. Both are conditions of many exceptions, but neither is a standalone defense.
- Nonmonetary compensation: Entities can give physicians items or services up to an annual cap, which is $535 per physician for 2026. The items can’t be tied to referral volume or value, can’t be solicited by the physician or practice, and can’t be cash or cash equivalents such as gift cards.
- Signature grace period: Under 42 CFR § 411.353(g), a missing signature or written document doesn’t automatically create liability. The arrangement must otherwise meet an exception, and the writing or signature must be obtained within 90 consecutive calendar days of the lapse.
- Self-Referral Disclosure Protocol: A CMS process, created under the ACA, for providers to self-report actual or potential Stark violations and resolve them, often for less than the full overpayment. Disclosure doesn’t guarantee a reduced amount. Revised forms are mandatory for new submissions starting Nov. 1. CMS has also said providers may report and refund some Stark overpayments directly to their Medicare administrative contractor instead, according to Thompson Coburn.
- Penalties and circumvention schemes: Violations can lead to claim denials, refunds, exclusion from Medicare and Medicaid, and civil monetary penalties. The statute sets those penalties at $15,000 per service and $100,000 per scheme designed to get around the law. With inflation adjustments, the amounts are $31,670 per service and $211,146 per scheme, according to the Federal Register. Stark violations are often paired with False Claims Act allegations, which carry treble damages.
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