42 CFR 411.351 is the definitions section of the Physician Self-Referral Law, better known as the Stark Law. It supplies the working meaning of every term the statute’s referral ban turns on: what a designated health service is, what makes a relationship “financial,” who counts as an immediate family member, how fair market value is measured, what qualifies as an entity, and what a group practice has to look like. Because Stark is a strict liability statute, a definition that quietly captures an arrangement is enough to make the referral prohibited, whether or not anyone intended to cheat Medicare.
The definitions below are the ones that determine, in practice, whether a physician arrangement is inside or outside the statute.
Designated Health Services: The Trigger List
The referral ban only reaches twelve categories of service. If a service is not on this list, Stark does not apply to the referral, no matter how tangled the physician’s financial ties to the receiving entity may be. The designated health services are:1Centers for Medicare & Medicaid Services. Physician Self-Referral
- Clinical laboratory services
- Physical therapy services
- Occupational therapy services
- Outpatient speech-language pathology services
- Radiology and certain other imaging services, including MRI and CT scans
- 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
The list is exhaustive. Congress chose these categories because they have a history of overutilization when physicians hold an ownership stake in the provider delivering them.
What Counts as a Referral
A referral, under 42 CFR 411.351, is any request, order, or certification of need by a physician for a designated health service. Writing a lab order, drafting a plan of care that calls for physical therapy, or directing a patient to a particular imaging center all qualify. The definition looks at the act of steering the patient, not at whether the physician personally makes money on that specific order.
There is one carve-out worth knowing. A designated health service the referring physician personally performs is not treated as a referral. “Personally performed” is literal. If anyone else delivers the service, including the physician’s own employee or another physician in the same group, the order counts as a referral and the statute is in play. Services billed “incident to” the physician’s own work are not exempt.
What Counts as a Financial Relationship
Stark is triggered when a physician, or an immediate family member, has a financial relationship with the entity receiving the referral. The regulation splits financial relationships into two buckets.
Ownership and Investment Interests
Ownership or investment interests include equity, stock, partnership shares, and debt instruments such as loans secured by the entity’s assets. The interest can be held directly or indirectly through a family member or intermediary business, and the corporate form does not matter. A stake held through an LLC, corporation, or trust is still a stake. If an ownership chain connects the physician to the entity furnishing designated health services, the statute reaches it.
Compensation Arrangements
A compensation arrangement exists any time something of value moves between the physician and the entity. Salary, consulting fees, discounted office space, below-market equipment rentals, and even forgiveness of a debt all count. There is no dollar threshold. Any remuneration can create a compensation arrangement, which is why the statutory exceptions for employment, fair market value leases, and bona fide services do so much day-to-day work in physician practices.
Immediate Family Members
The prohibition extends beyond the physician to their immediate family. A spouse’s ownership stake in an imaging center bars the physician from referring Medicare patients there just as surely as if the physician owned the stake. The regulation defines “immediate family member” broadly: spouse; birth or adoptive parents; children; siblings; stepparents; stepchildren; stepsiblings; in-laws (father, mother, son, daughter, brother, and sister); grandparents; grandchildren; and the spouses of grandparents and grandchildren.2GovInfo. 42 CFR 411.351 Definitions In-law investments are one of the more common compliance blind spots.
Fair Market Value
Most Stark exceptions require compensation to be at fair market value, so the definition carries real weight. Under 42 CFR 411.351, fair market value is the price that would result from genuine bargaining between informed parties who are not in a position to generate business for each other.2GovInfo. 42 CFR 411.351 Definitions The price cannot be influenced by the volume or value of referrals between the parties.
For leases, fair market value means the rental rate for general commercial purposes. A hospital cannot cut a physician’s rent to reward referrals, and a physician-landlord cannot mark up rent because the tenant sends patients their way. The regulation specifically prohibits adjusting a lease price to reflect the convenience of being near a referral source.
What Counts as an Entity
An “entity” is any person or organization that furnishes designated health services or presents claims to Medicare for those services. The definition reaches from a solo practitioner to a multi-hospital system. What matters is not who physically delivers the care but who has the right to bill for it. A management company that never touches a patient still qualifies as an entity if it submits the Medicare claim.
Layered corporate structures do not break the chain. Slotting a separate billing company between the physician and the service provider does not defeat the statute. The entity that receives the referral and the entity that bills Medicare may be the same organization or different ones, and the prohibition reaches both.
Group Practice
Group practices get their own defined status because several exceptions, most importantly the in-office ancillary services exception, are only available to groups that meet the regulatory definition. The requirements are technical, and missing one can disqualify the entire practice from the exception.
A group must operate as a single legal entity organized primarily to deliver physician services. Members must share office space, equipment, and support staff. The practice must also satisfy the “substantially all” test: at least 75 percent of the total patient care services provided by group members must be furnished through the group and billed under the group’s billing number.3eCFR. 42 CFR 411.352 – Group Practice Patient care time can be measured using actual hours from time cards or appointment logs, or by any alternative method that is reasonable, fixed in advance, uniformly applied, and verifiable.
How the group pays its physicians matters as much as how it is organized. Overhead and income must be divided using methods that do not reward referral volume. Profits from designated health services can be shared, but only through methods not directly tied to how many referrals each physician generates. Equal per-physician splits and formulas based on revenue from non-designated services both work. Productivity bonuses are allowed if they are based on services the physician personally performs, measured by patient encounters or work relative value units. A bonus tied to the volume of lab tests a physician orders for a group-owned lab would fail; a bonus based on personal patient encounters would pass.
The Scope Boundary: Medicare and Medicaid Only
The definitions in 42 CFR 411.351 only matter when the underlying service would be payable by Medicare or Medicaid. The Stark Law prohibits a physician with a financial relationship with an entity from referring patients to that entity for designated health services payable by those programs, and it prohibits the entity from billing Medicare, any individual, or any third-party payer for services furnished through a prohibited referral.4Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals Purely private-pay arrangements outside federal healthcare programs fall outside the statute. In practice, though, almost every physician practice touches Medicare or Medicaid somewhere, so the definitions almost always apply.
Exceptions Live Elsewhere in the Regulations
If a definition captures an arrangement, the only way out is a statutory or regulatory exception. Those exceptions sit in 42 CFR 411.355 through 411.357, not in the definitions section. They include the in-office ancillary services exception, bona fide employment relationships, the office space rental exception, non-monetary compensation up to an annually adjusted cap ($535 per physician in 2026),5Centers for Medicare & Medicaid Services. CPI-U Updates and the rural provider exception. Each exception has its own list of conditions, and missing a single requirement means the arrangement gets no protection at all.6eCFR. 42 CFR 411.357 – Exceptions to the Referral Prohibition Related to Compensation Arrangements
What Happens When a Definition Catches an Arrangement
Stark is strict liability. There is no need to prove the physician intended to defraud anyone. If a financial relationship exists under the definitions and no exception applies, the referral is prohibited.
Medicare will not pay for a designated health service furnished through a prohibited referral, and any payment already collected must be refunded. Anyone who submits a claim they knew or should have known resulted from a prohibited referral faces a civil monetary penalty of up to $15,000 per service. For deliberate schemes designed to route referrals around the statute, such as cross-referral arrangements, the penalty rises to $100,000 per arrangement, and physicians and entities can be excluded from Medicare and Medicaid.4Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals
Because a claim resulting from a prohibited referral is treated as a false claim, the same conduct can also trigger False Claims Act liability, including treble damages plus a per-claim penalty. Reckless disregard is enough; specific intent to defraud is not required.7U.S. Department of Health and Human Services Office of Inspector General. Fraud and Abuse Laws
If You Find a Violation, Self-Disclose
A provider who realizes an arrangement fell outside an exception does not have to wait for an audit. CMS runs the Voluntary Self-Referral Disclosure Protocol, which lets providers and suppliers report actual or potential Stark Law violations on their own initiative.8Centers for Medicare & Medicaid Services. Self-Referral Disclosure Protocol Self-disclosure generally produces lower settlement amounts than government-initiated enforcement. Through the end of 2025, CMS had settled 1,234 disclosures for a combined total of roughly $105 million, with individual 2025 settlements ranging from as little as $2 to about $2.7 million.9Centers for Medicare & Medicaid Services. Self-Referral Disclosure Protocol Settlements Catching a problem early and disclosing it puts a provider in a stronger position than waiting for a whistleblower or investigator to raise it.