The Stark Act, formally the Physician Self-Referral Law at 42 U.S.C. ยง 1395nn, prohibits physicians from referring Medicare patients to a healthcare entity in which the physician or an immediate family member holds a financial interest, when the referral is for one of a specific list of services.1Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals A companion provision extends the same ban to Medicaid.2Centers for Medicare & Medicaid Services. Current Law and Regulations It is a strict-liability civil statute, meaning a violation happens whether or not anyone meant to break the rules, and the penalties are structured to compound quickly.
What the Law Prohibits
The statute blocks both sides of a self-referral. A physician with a financial relationship to a healthcare entity cannot refer Medicare or Medicaid patients there for a covered service, and the entity cannot bill Medicare, Medicaid, or any other payer for services delivered under that prohibited referral.1Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals The doctor cannot send the patient, and the lab cannot collect on the claim.
The financial interest that triggers the ban can be the physician’s own or an immediate family member’s. The regulations read “immediate family” broadly: spouse, parent, child, sibling, stepfamily, in-laws, grandparents, grandchildren, and the spouses of grandparents or grandchildren all count.3eCFR. 42 CFR 411.351 – Definitions Referring a Medicare patient to an imaging center co-owned by your brother-in-law is treated the same as referring to a center you own yourself.
Why Intent Does Not Matter
Most federal healthcare fraud laws require prosecutors to prove corrupt intent. The Stark Act does not. The government only has to show that a financial relationship existed and that a referral occurred without fitting an exception. Whether the physician knew about the law, tried in good faith to comply, or gained nothing personally is irrelevant. A paperwork slip inside an otherwise legitimate arrangement can be a violation, and it carries the same consequences as deliberate self-dealing.
Which Services Are Covered
The referral ban does not reach every medical service. It applies only to a defined set of “designated health services” listed in the statute:1Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals
- Clinical laboratory services
- Physical therapy, occupational therapy, and outpatient speech-language pathology
- Radiology and imaging services, including MRI, CT, and ultrasound
- 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
CMS publishes and updates a list of specific billing codes that fall inside each category, so the exact edges of a designated health service shift from year to year.4Centers for Medicare & Medicaid Services. List of CPT/HCPCS Codes A referral for something outside these categories does not implicate the Stark Act, though it may still involve other fraud laws.
What Counts as a Financial Relationship
The statute defines “financial relationship” broadly enough to catch most arrangements that move money or value between a physician and a provider of designated health services.1Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals There are two categories.
The first is ownership or investment interests: equity, stock, partnership shares, or debt in an entity that furnishes designated health services. The interest can be direct, like owning shares in a lab, or indirect through any layer of holding companies. If the money trail connects the physician to the provider through any chain of ownership, the statute applies.
The second is compensation arrangements. The law defines “remuneration” to include anything of value, direct or indirect, in cash or in kind. Salaries, consulting fees, medical directorships, equipment leases, office rentals, meals, and gifts all count. A hospital that puts a physician on payroll creates a compensation arrangement, and so does an imaging center that leases office space to a referring doctor.
The Exceptions That Make Ordinary Practice Possible
Because the definition of a financial relationship is so wide, applying the ban with no carve-outs would freeze most of modern healthcare. The statute and regulations contain dozens of exceptions that permit specific arrangements. Every condition of an exception must be met; missing one requirement means the exception fails and the referral is prohibited.
In-Office Ancillary Services
A physician or group practice can refer patients for designated health services performed inside the practice itself, provided the service is furnished in the same building where the referring physician or another group member sees patients, is supervised by a group member, and is billed by the practice.5eCFR. 42 CFR 411.355 – General Exceptions to the Referral Prohibition This is what lets a family doctor draw blood and run it in the lab down the hall. Only a narrow slice of durable medical equipment qualifies, mainly items like canes, walkers, and blood glucose monitors provided during a visit.
Bona Fide Employment
Hospitals and other entities can employ physicians on salary without triggering the ban, as long as compensation reflects fair market value for the services actually performed, does not vary with the volume or value of referrals, and the arrangement would be commercially reasonable even if no referrals occurred.
Personal Service Arrangements
Independent contractor relationships such as medical directorships or on-call coverage are permitted if the arrangement is in writing, runs at least a year, specifies the services, and pays fair market value that does not fluctuate with referrals.
Rental of Office Space or Equipment
Leases between a physician and a covered entity are allowed if the lease is written, runs at least a year, identifies the space or equipment, and sets rent at fair market value fixed in advance and not tied to referrals.
Non-Monetary Compensation
An entity can provide a physician with small gifts, meals, or other non-cash items as long as the annual total stays under a cap that CMS adjusts each year. For calendar year 2026 the cap is $535.6Centers for Medicare & Medicaid Services. CPI-U Updates One dollar over and the exception fails entirely.
Value-Based Arrangements
In 2020, CMS finalized permanent exceptions for arrangements built around quality outcomes and care coordination inside a “value-based enterprise” rather than fee-for-service volume.7Federal Register. Medicare Program – Modernizing and Clarifying the Physician Self-Referral Regulations There are three tiers keyed to how much financial risk the parties take on. The broadest tier requires the physician to be responsible for repaying at least 10 percent of total compensation if quality targets are missed.
Several of these exceptions require compensation at “fair market value,” meaning what a willing buyer and seller would agree to at arm’s length without any weight given to potential referrals.1Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals Rent that runs above general commercial value because the space happens to sit near a referral source does not qualify.
Penalties for a Violation
Consequences stack. Medicare will not pay for any designated health service furnished under a prohibited referral, and any payment already collected must be refunded.1Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals Under the federal overpayment statute, providers have 60 days to identify and return the money. Holding an overpayment past that deadline can convert it into a false claim.
The statute sets base civil monetary penalty caps that are adjusted for inflation each year:
- Up to $15,000 per service for billing, or causing a bill to be submitted, for a service the entity knew or should have known came from a prohibited referral. The inflation-adjusted cap reached $31,670 per service as of 2025.1Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals8Federal Register. Annual Civil Monetary Penalties Inflation Adjustment
- Up to $100,000 per arrangement for a scheme designed to route referrals in a way that would violate the law if done directly. The inflation-adjusted cap reached $211,146 per scheme as of 2025.8Federal Register. Annual Civil Monetary Penalties Inflation Adjustment
- Up to $10,000 per day for failing to meet the law’s reporting requirements.1Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals
Because each billed service counts on its own, prohibited referrals made over months or years can produce penalties in the millions without any circumvention scheme.
A claim submitted because of a Stark violation can also qualify as a false claim under the federal False Claims Act, which allows treble damages plus additional per-claim penalties.9HHS Office of Inspector General. Fraud and Abuse Laws False Claims Act cases can be filed by the government or by private whistleblowers, called relators, who collect a share of the recovery. Many of the largest Stark settlements have come out of whistleblower-initiated suits.
In the most serious cases, a physician or entity can be excluded from Medicare and Medicaid entirely. For a physician, that effectively cuts off the ability to treat elderly and low-income patients; for a hospital or health system, it can be financially catastrophic.
Self-Disclosing a Violation
A physician or entity that discovers a Stark violation can self-report through CMS’s Self-Referral Disclosure Protocol. Disclosing lets the party negotiate a resolution, which usually produces a lower financial settlement than an enforcement action would.10Centers for Medicare & Medicaid Services. Self-Referral Disclosure Protocol A complete submission includes CMS-approved forms, a financial analysis covering the full duration of the violation broken down by year, and a signed certification. Self-disclosure does not guarantee a favorable outcome, but it removes the risk of a whistleblower filing a False Claims Act case over the same conduct.
Stark Act vs. Anti-Kickback Statute
The Stark Act is often confused with the federal Anti-Kickback Statute. They overlap in practice, and a single arrangement can violate both, but they work differently on four points:
- Intent. Stark is strict liability. The Anti-Kickback Statute requires proof that someone knowingly and willfully offered or received payment to induce referrals.
- Who is covered. Stark reaches only physician referrals. The Anti-Kickback Statute reaches anyone who arranges referrals for services paid by a federal healthcare program, including nurses, therapists, and administrators.
- What services. Stark covers only the designated health services listed above. The Anti-Kickback Statute covers any item or service reimbursable by Medicare or any other federal healthcare program.
- Criminal exposure. Stark is a civil statute with no criminal penalties of its own. The Anti-Kickback Statute is a criminal law that can carry imprisonment.
A physician who takes above-market rent from an imaging center and refers Medicare patients there may violate both laws at once: the Stark Act because of the compensation arrangement without a valid exception, and the Anti-Kickback Statute because the rent functions as payment for referrals. Fitting a Stark exception does not by itself satisfy the Anti-Kickback Statute, and the reverse is also true.