The federal physician self-referral law — better known as the Stark law — was enacted in 1989 and aims to curb physician self-referrals that could drive overutilization and higher costs. Decades later, it remains one of healthcare’s most complex compliance regimes, and physician groups say it hasn’t kept pace with value-based care and the consolidation of the healthcare market.
Industry groups, including the Medical Group Management Association, have pushed for changes, calling Stark a major regulatory burden. MGMA’s stated reform priorities include modernizing compensation arrangement rules, simplifying the statutory “group practice” definition and adjusting penalty provisions so fines are more closely tied to demonstrable harm from prohibited referrals.
Stark generally prohibits a physician from referring Medicare or Medicaid patients for designated health services to an entity with which the physician or an immediate family member has a financial relationship, unless an exception applies. Stark is a strict liability statute, meaning intent doesn’t matter. If the elements are met and no exception fits, the referral is prohibited.
Financial relationships include:
- Ownership or investment interests
- Compensation arrangements (employment pay, medical director agreements, consulting fees, profit-sharing)
Stark applies to physicians and certain other practitioners, depending on the specific regulatory definitions, and its reach is largely defined by what qualifies as DHS, including:
- Clinical lab services
- Physical and occupational therapy
- Radiology (including MRI, CT and ultrasound)
- Durable medical equipment and supplies
- Home health services
- Prescription drugs
- Inpatient and outpatient hospital services
Common exceptions practices rely on
Many financial relationships are permitted, but only if they satisfy detailed, technical requirements. Commonly used exceptions include:
- Bona fide employment: Compensation is for identifiable services, fair market value and not based on referral volume.
- Office space rental: Leases must be in writing, last at least a year and reflect fair market value.
- In-office ancillary services: Allows referrals for certain services within a physician’s practice, under specific conditions.
Across exceptions, the practical theme is consistent: paperwork, FMV support, commercial reasonableness and clean documentation. Agreements should be in writing and signed where required, and records should clearly reflect the business purpose and valuation support.
Penalties and self-disclosure
Stark exposure can cascade. Potential consequences include:
- Denial of payment for DHS provided via prohibited referrals
- Refund of improper payments
- Civil monetary penalties up to $15,000 per service
- $100,000 fines for schemes that attempt to circumvent the law
- Exclusion from Medicare and Medicaid participation
If a violation is discovered, providers can report it under the self-referral disclosure protocol with CMS. While disclosure does not guarantee immunity, it often leads to reduced penalties.
How physicians say Stark plays out in 2026
Physician leaders increasingly argue Stark law is colliding with the realities of consolidation and employment. Some independent and employed physicians described Stark as a law that was designed to prevent conflicts, but now feels like it can entrench system-based referral expectations and intensify administrative oversight of referral patterns.
Niazy Selim, MD, a private practice gastrointestinal surgeon in Lake Charles, La., told Becker’s the current healthcare system leaves physicians practicing medicine “with their backs against the wall” amid the growing pressures of consolidation and administrative burdens. Other physicians echoed concerns that referral pattern tracking and “keep it in-system” pressure can limit physician autonomy and patient choice.
Stark includes a physician recruitment exception that allows hospitals to provide financial assistance to recruit physicians into their communities if strict criteria are met.
In practice, physicians often sign:
- an employment agreement with the practice, and
- a recruitment agreement tied to hospital support (forgivable loans, income guarantees, etc.).
Key mechanics:
- The physician typically must relocate into the hospital’s defined service area, often calculated using contiguous ZIP codes that generate most of the hospital’s inpatients.
- If the physician leaves the practice or area before the forgiveness period ends, repayment obligations can be triggered.
- Recruitment deals frequently restrict noncompetes. If a noncompete forces a physician to leave the service area, repayment risk can become a flashpoint.
Physicians should have both agreements reviewed to understand repayment triggers, relocation requirements and any restrictive covenants.
The “payments by a physician” exception
CMS has recently confirmed, through self-referral disclosure protocol submissions, that the “payments by a physician” exception under the Stark law may apply more broadly than many physicians have believed.
This exception generally allows a physician to pay FMV for items or services without triggering Stark law, and it’s appealing because it can be less rigid than other exceptions.
The major practical guardrails:
- It applies only when the physician is the one paying (not receiving compensation).
- It cannot be used as a substitute for office space rental arrangements that are governed by other Stark exceptions.
- FMV still matters, and providers still need documentation strong enough to withstand scrutiny.
CMS also created a separate timeshare exception to address scenarios where physicians use space without leasing it in a traditional way, which matters because providers must decide which exception best fits the facts.
The in-office ancillary services exception
This is one of the most commonly used exceptions because it lets physician groups provide some DHS in-house.
It hinges on three big factors:
- Supervision: DHS must be furnished under the appropriate level of physician supervision, often the referring physician or another group physician, depending on the service.
- Location: DHS must be provided in the group’s office or a centralized location used for patient care, not a stand-alone referral center.
- Billing: DHS must be billed by the physician, the group or a wholly owned entity, not a third-party billing structure.
To apply the exception, the organization must also meet Stark’s technical group practice definition, including integration and the “substantially all” test of at least 75% of patient-care services personally furnished by member physicians. Compensation methodologies must also avoid directly paying physicians based on the volume and value of DHS referrals, even if profit-sharing and productivity pay are allowed within certain structures.
2026’s non-monetary compensation update
For 2026, DHS entities, including hospitals, ASCs, physician groups and others, may provide non-monetary compensation to physicians up to an aggregate annual cap of $535 per physician, as long as it:
- doesn’t account for the volume/value of referrals or other business generated, and
- isn’t solicited by the physician, including via staff acting on the physician’s behalf.
Key operational points:
- It’s an annual aggregate cap (total of all qualifying items/services over the year).
- Cash and cash equivalents, such as gift cards, do not qualify.
- If the cap is exceeded inadvertently, there’s a limited “return” cure if the excess is no more than 50% of the cap and the excess is returned within the required timeframe, but the cure can only be used once every three years for the same physician.
Physician-owned hospital guidance
In March 2025, CMS issued a favorable advisory opinion for a physician-owned hospital seeking to relocate and add an emergency department, concluding it would still qualify for the “whole hospital” exception, based largely on continuity factors, including unchanged ownership and key operational identifiers, and no substantial change to core capacity.
ASCs sit in a different place than hospitals and imaging centers under Stark law, but that doesn’t mean there’s no fraud-and-abuse risk.
- Anti-Kickback Statute risk is often the primary exposure area for ASCs: remuneration tied to referrals is prohibited, and investment must not be offered based on referral volume or business generated.
- Stark may not apply to ASCs in the same way as it does to DHS entities like hospitals, but ancillary arrangements and compensation structures can still create Stark issues when they touch DHS referrals or referral-linked compensation outside the ASC context.
Practical guardrails in ASC transactions and ownership structures commonly include:
- FMV pricing for ownership interests
- Avoiding inflated purchase prices, especially for controlling interests
- Avoiding discounted sales tied to referrals
- Profit distributions aligned with ownership, not volume or value of referrals
- Using independent third-party valuations to support FMV
Reducing risk: how to respond to Stark allegations
To lower risk and strengthen defensibility, providers should prioritize:
- Inventory all ownership and compensation relationships tied to DHS referrals, direct and indirect.
- Maintain a real compliance program: policies, training, due diligence and recurring risk assessments.
- Audit DHS billing and coding, compensation models and referral-related documentation.
- Map each arrangement to a specific Stark exception and keep the evidence.
- Build airtight documentation: signed agreements, FMV support and appraisals where appropriate.
- When allegations arise, focus the defense on the facts (timing, causation, analytics, contract terms).
- Fix and disclose issues quickly when appropriate, including SRDP use and permitted retroactive corrections in limited circumstances.
Enforcement: “quiet” doesn’t mean safe
Even when Stark-specific headlines slow, compliance risk remains because Stark issues often surface through broader enforcement channels, particularly False Claims Act investigations and whistleblower suits. Recent Department of Justice reporting shows high FCA activity overall, which matters because Stark theories can be bundled into FCA allegations depending on the claims and relationships at issue.
