The Stark Law and the Anti-Kickback Statute are the two primary federal laws that govern financial relationships between healthcare providers. Together, they prohibit arrangements that could influence medical decision-making based on financial incentives rather than patient need. For healthcare providers in New York, understanding these laws is essential because violations carry severe penalties: civil monetary penalties, treble damages, exclusion from federal healthcare programs (Medicare and Medicaid), and potential criminal prosecution. Even well-intentioned arrangements between physicians, hospitals, laboratories, and other healthcare entities can violate these laws if they are not properly structured.
This guide covers the key provisions of both laws, the safe harbors and exceptions that protect compliant arrangements, and the most common compliance issues that healthcare providers encounter.
The Stark Law (Physician Self-Referral Law)
The Stark Law, codified at 42 U.S.C. Section 1395nn, prohibits a physician from making referrals for designated health services (DHS) to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. It also prohibits the entity from billing Medicare or Medicaid for services provided as a result of a prohibited referral. The Stark Law is a strict liability statute, meaning that intent is irrelevant. If the elements of a violation are met, the arrangement violates the law regardless of whether the parties intended to influence referrals.
Designated Health Services
The Stark Law applies only to referrals for designated health services, which include clinical laboratory services, physical therapy and occupational therapy, radiology and imaging services, radiation therapy, durable medical equipment, parenteral and enteral nutrients, prosthetics and orthotics, home health services, outpatient prescription drugs, and inpatient and outpatient hospital services. If the referred service is not a designated health service, the Stark Law does not apply (though the Anti-Kickback Statute may still apply).
Financial Relationships
A financial relationship can be either an ownership or investment interest in the entity (including equity, debt, or other financial instruments) or a compensation arrangement (any arrangement involving payment between the physician and the entity, whether direct or indirect). Because the definition is so broad, virtually any financial interaction between a referring physician and a DHS entity triggers the Stark Law analysis. The question then becomes whether an exception applies.
Key Stark Law Exceptions
The Stark Law includes numerous exceptions that permit referrals notwithstanding a financial relationship. The most commonly used exceptions include the bona fide employment exception (compensation paid to a physician employee that is consistent with fair market value, does not vary with referrals, and is commercially reasonable), the personal services exception (compensation for services under a written agreement that is set in advance, consistent with fair market value, and does not vary with referrals), the rental exception (space or equipment leases at fair market value with a written agreement of at least one year), the in-office ancillary services exception (services provided within the physician's own group practice), and the isolated transactions exception (one-time transactions such as a practice purchase at fair market value). Each exception has specific requirements that must be satisfied in full. Substantial compliance is not sufficient; the arrangement must meet every element of the exception.
The Anti-Kickback Statute
The Anti-Kickback Statute (AKS), codified at 42 U.S.C. Section 1320a-7b(b), is broader than the Stark Law. It prohibits knowingly and willfully offering, paying, soliciting, or receiving anything of value to induce or reward referrals of items or services payable by any federal healthcare program. Unlike the Stark Law, the AKS is an intent-based statute: the government must prove that at least one purpose of the payment was to induce referrals. However, the "one purpose" standard is low, and courts have found AKS violations even where the arrangement had legitimate business purposes in addition to the referral purpose.
What Constitutes Remuneration
Remuneration under the AKS includes anything of value, whether in cash or in kind, directly or indirectly. Examples include cash payments, below-market rent or equipment leases, free or discounted services, excessive compensation for medical directorships or consulting agreements, gifts, entertainment, and travel, referral fees or per-click payments, and waiver of copayments or deductibles (with limited exceptions). The breadth of this definition means that virtually any transfer of value between parties in a position to refer or receive referrals must be analyzed for AKS compliance.
Safe Harbors
The AKS includes regulatory safe harbors that protect certain arrangements from prosecution if all elements of the safe harbor are met. Key safe harbors include the employment safe harbor (bona fide employment relationships with compensation consistent with fair market value), the personal services safe harbor (written agreements for services at fair market value, signed in advance, with aggregate compensation set in advance), the space and equipment rental safe harbors (written leases at fair market value for a term of at least one year), the sale of practice safe harbor (for the one-time sale of a medical practice), and the investment interest safe harbors (for certain small entity investments and publicly traded securities). Safe harbors are narrowly construed, and failure to meet every element means the arrangement does not qualify for the protection.
Fair Market Value: The Common Thread
Both the Stark Law exceptions and the AKS safe harbors require that compensation reflect fair market value. Fair market value means the value that would be agreed upon by a willing buyer and willing seller, neither under compulsion, with both having reasonable knowledge of the relevant facts. Compensation that exceeds fair market value creates a presumption that the excess is payment for referrals. Healthcare entities should obtain independent fair market value opinions from qualified appraisers for all compensation arrangements between referral sources, including employment agreements, consulting agreements, medical directorships, space and equipment leases, and practice acquisitions. For more on medical practice valuations, see our medical practice transitions guide.
The False Claims Act Connection
Violations of the Stark Law and AKS can trigger liability under the federal False Claims Act (FCA). Claims submitted to Medicare or Medicaid as a result of a prohibited referral (Stark) or a kickback arrangement (AKS) are considered false claims. The FCA imposes penalties of up to three times the amount of the false claim, plus additional civil monetary penalties per claim. The FCA also includes a qui tam (whistleblower) provision that allows private individuals to file lawsuits on behalf of the government and receive a share of any recovery. Whistleblower lawsuits are a significant source of Stark and AKS enforcement, and disgruntled employees, former business partners, and competitors are common sources of qui tam complaints.
Common Compliance Issues
The arrangements that most frequently create Stark and AKS risk include physician compensation tied to the volume or value of referrals (production-based compensation that includes revenue from ancillary services), below-market or above-market lease rates for office space or equipment, medical directorships with compensation that exceeds fair market value for the services actually provided, free or below-market staffing, equipment, or supplies provided to referring physicians, joint ventures between hospitals and physician groups where the investment return correlates with referral volume, and discount or rebate arrangements with vendors that provide products or services reimbursed by federal programs. For guidance on structuring compliant compensation arrangements, visit our healthcare law practice page.
Recent Enforcement Trends
Federal enforcement of the Stark Law and AKS has intensified in recent years, with a particular focus on physician compensation arrangements that exceed fair market value, hospital-physician joint ventures structured to reward referral volume, telemedicine arrangements where the financial terms incentivize referrals rather than legitimate clinical services, laboratory and imaging referral arrangements involving percentage-based compensation, and pharmaceutical and medical device manufacturer payments to prescribers. The OIG publishes annual work plans identifying its enforcement priorities, and healthcare entities should review the work plan regularly to identify areas of focus that may affect their arrangements. The Department of Justice has also increased its use of data analytics to identify outlier billing patterns that may indicate Stark or AKS violations, making proactive compliance more important than ever.
State Anti-Kickback and Self-Referral Laws
In addition to the federal Stark Law and AKS, New York has its own anti-referral and anti-kickback provisions. New York Education Law Section 6509-a prohibits fee splitting for referrals among licensed professionals. New York Public Health Law contains additional restrictions on financial arrangements involving Article 28 facilities. New York's laws apply regardless of the payer, meaning they cover privately insured patients as well as Medicare and Medicaid patients. Healthcare providers must comply with both federal and state requirements, and where the state law is stricter, the state law controls. For more on New York fee-sharing restrictions, see our fee-sharing arrangements guide.
Building a Compliance Program
The OIG (Office of Inspector General) recommends that healthcare entities implement a compliance program that includes written policies and procedures addressing fraud and abuse laws, a designated compliance officer, regular training for all employees and medical staff, internal monitoring and auditing of arrangements with referral sources, a mechanism for reporting potential violations (a compliance hotline or similar system), prompt investigation of reported concerns and implementation of corrective actions, and enforcement of disciplinary standards for employees who violate compliance policies. A well-documented compliance program does not guarantee that a violation will not occur, but it demonstrates good faith and can mitigate penalties if a violation is discovered. Voluntary self-disclosure of violations to the OIG through the Self-Disclosure Protocol can also significantly reduce the penalties. For more on compliance, see our HIPAA compliance guide.
Physician Self-Disclosure
The CMS Voluntary Self-Referral Disclosure Protocol (SRDP) allows providers to report potential Stark Law violations to CMS and negotiate a settlement. The SRDP is separate from the OIG Self-Disclosure Protocol (which covers AKS violations). Self-disclosure through either protocol typically results in lower penalties than those imposed through an investigation or audit. Providers who discover potential violations should consult their healthcare attorney to evaluate whether self-disclosure is the appropriate course of action and to prepare the disclosure submission.
Frequently Asked Questions
What is the difference between the Stark Law and the Anti-Kickback Statute?
The Stark Law is a strict liability, civil statute that prohibits physician self-referrals for designated health services when a financial relationship exists, regardless of intent. The Anti-Kickback Statute is a criminal and civil statute that prohibits knowingly and willfully paying or receiving anything of value to induce referrals, applying to any item or service payable by a federal healthcare program. The Stark Law focuses on the structure of the arrangement; the AKS focuses on the intent behind it.
Can a physician own a laboratory and refer patients to it?
A physician can refer patients to a laboratory they own if the arrangement meets a Stark Law exception, most commonly the in-office ancillary services exception. This exception requires that the services be provided in the physician's own office, by the physician or a member of the physician's group practice, and that billing is done under the group's name and provider number. If the exception requirements are not fully met, the referral violates the Stark Law regardless of the quality of care provided.
What are the penalties for violating the Stark Law?
Stark Law violations can result in denial of payment for the referred services, refund obligations for amounts received for prohibited referrals, civil monetary penalties of up to $15,000 per service (as of early 2026), civil monetary penalties of up to $100,000 for each arrangement deemed a circumvention scheme, and exclusion from Medicare and Medicaid. Because the Stark Law is strict liability, even inadvertent violations can trigger these penalties.
What happens if I discover a Stark Law or AKS violation in my practice?
Consult your healthcare attorney immediately. Depending on the nature and severity of the violation, options include self-disclosure to the OIG through the Self-Disclosure Protocol, voluntary refund of overpayments to the applicable federal program, restructuring the arrangement to bring it into compliance, and terminating the non-compliant arrangement. Self-disclosure and prompt corrective action can significantly reduce the penalties and demonstrate good faith compliance efforts.
Do the Stark Law and AKS apply to private insurance, or only Medicare and Medicaid?
The Stark Law applies only to referrals for designated health services payable by Medicare. The AKS applies to referrals for any item or service payable by any federal healthcare program, including Medicare, Medicaid, TRICARE, and the Veterans Administration. Neither law directly governs arrangements involving only private insurance, but many states, including New York, have their own anti-referral and anti-kickback laws that may apply to privately insured patients.
Can a hospital pay a physician for referrals through a consulting agreement?
A consulting agreement between a hospital and a referring physician must satisfy both a Stark Law exception and an AKS safe harbor. The physician must provide legitimate consulting services (not just referrals), the compensation must be at fair market value for the services actually provided, the agreement must be in writing and signed in advance, and the compensation must not vary with the volume or value of referrals. A consulting agreement that is essentially a payment for referrals disguised as compensation for services will not satisfy the exception or safe harbor.
What role does fair market value play in Stark and AKS compliance?
Fair market value is the cornerstone of compliance with both the Stark Law and the AKS. Both laws require that compensation in referral relationships reflect what a willing buyer and willing seller would agree to in an arms-length transaction. Compensation above fair market value creates a presumption that the excess is payment for referrals. Independent fair market value opinions from qualified healthcare appraisers should be obtained for all compensation arrangements with referral sources.
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