© 2018 Southwest Labs, All rights reserved

4261 Balloon Park Road NE, Albuquerque, NM 87109

  • LinkedIn - White Circle
  • Facebook - White Circle



The Stark law imposes a limitation on certain physician referrals. It prohibits physician referrals of designated health services ("DHS") for Medicare and Medicaid patients if the physician (or an immediate family member) has a financial relationship with that entity.

42 U.S.C. 1395nn. A financial relationship includes ownership, investment interest, and compensation arrangements. 42 U.S.C. 1395nn(h)(5).

The term “referral” is defined more broadly than merely recommending a vendor of DHS to a patient. Instead, the term “referral” means, for Medicare Part B services, “the request by a physician for the item or service” and, for all other services, “the request or establishment of a plan of care by a physician which includes the provision of the designated health service.”

DHS includes clinical laboratory services as well as the following: physical-therapy services; occupational-therapy services; radiology, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation-therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic devices; home health services and supplies; outpatient prescription drugs; and inpatient and outpatient hospital services.

The Stark Law contains several exceptions. They include physician services, in-office ancillary services, ownership in publicly traded securities and mutual funds, rental of office space and equipment, bona fide employment relationship, etc.

The law is named for United States Congressman Pete Stark (D-CA) who sponsored the initial bill.


Congress included a provision in the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) which barred self-referrals for clinical laboratory services under the Medicare program, effective January 1, 1992. This provision is known as "Stark I". The law included a series of exceptions to the ban in order to Introduction to the Stark Law accommodate legitimate business arrangements. A number of observers recommended extending the ban to other services and programs. The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) expanded the restriction to a range of additional health services and applied it to both Medicare and Medicaid; this legislation, known as "Stark II," also contained clarifications and modifications to the exceptions in the original law. Minor technical corrections to these provisions were included in the Social Security Amendments of 1994.

Passage of Stark II raised a series of concerns on the part of many provider groups. While Stark I and II were intended to remove potential conflicts of interest from physician decision making, a number of persons have argued that the legislation, particularly parts of Stark II, represents an unwarranted intrusion into the practice of medicine. They have stated that the legislation, particularly the provisions relating to compensation arrangements, is too complex and may, in fact, impede physicians' ability to participate in managed care networks.

On November 20, 1995, Congress gave final approval to the conference report on the Balanced Budget Act (BBA) of 1995. President Clinton vetoed the measure on December 6, 1995. BBA included several amendments to the physician self-referral provisions. The two major changes were the repeal of the prohibitions based on compensation arrangements and the reduction in the list of services subject to the ban.

The Federal Register announced that publication of Stark III had been extended until March 26, 2008, and Phase II will remain in effect through that date.

The Phase III final rule was published on September 5, 2007, at 72 FR 51012, and became effective December 4, 2007.

The Stark Law is related to, but not the same as, the federal anti-kickback law.

The Stark Law can be found at 42 U.S.C. 1395nn which is §1877 of the Social Security Act. Additionally, the regulations are at 42 C.F.R. §411.350 through §411.389.



Penalties include: denial of payment for the DHS provided; refund of monies received by physicians and facilities for amounts collected; payment of civil penalties of up to $15,000 for each service that a person “knows or should know” was provided in violation of the Stark Law, and three times the amount of improper payment the entity received from the Medicare program; exclusion from the Medicare program and/or state healthcare programs including Medicaid; and payment of civil penalties for attempting to circumvent the Stark Law of up to $100,000 for each circumvention scheme.



OIG has developed a series of voluntary compliance program guidance documents directed at various segments of the health care industry, such as hospitals, nursing homes, third-party billers, and durable medical equipment suppliers, to encourage the development and use of internal controls to monitor adherence to applicable statutes, regulations, and program requirements.

Introduction to the Stark Law 2014 saw some of the largest Stark Law violation settlements to date. On June 9, 2015, the Office of Inspector General issued a fraud alert targeting physician compensation arrangements with hospitals and health systems.



Contracts between physicians and hospitals must fit within the seven safe harbors for Stark Law in order to fully alleviate violation risk: the contract's duration must be at least a year; in writing and signed by both parties; specify aggregate payment which is set in advance; payment is reasonable and fair market value; payment must not relate to volume or value of business; the exact services to be performed must be outlined; and be commercially reasonable. Because current processes for monitoring contract compliance and logging physician work hours are often done on paper, the majority of Stark Law violation settlements are the result of technical violations.

Healthcare experts agree that Information technology is necessary to streamline hospital processes, including those relating to compliance and Stark Law. Certain Electronic health record companies help healthcare systems collect, organize, and store data. Multiple technology solutions exist that specifically automate physician time logging and eliminates Stark Law violation risk.



The recent health care reform legislation included one somewhat significant change to the Stark In-Office Ancillary Services Exception. This exception permits the referral source physicians who are members of a physician group practice to refer a patient for imaging services (or other Designated Health Services - DHS) to be provided within the group practice without violating Stark. This exception is basically what permits physician group practices to own and operate and receive compensation for imaging services and other DHS provided within their group practice.

Effective immediately upon the legislation being signed by Obama (March 23, 2010), a physician within a group practice referring his/her patient for MRI, CT or PET to be provided within the group practice must provide the patient, at the time of the referral, written notice that the patient may obtain these imaging services from a supplier other than the group practice. The written notice must provide the patient with a list of such alternative suppliers in the area where the patient resides.

At the present time, this new requirement only applies to DHS in the form of MRI, CT and PET. And it only applies to physician group practices composed of physician referral sources.



Stark Law

i. Stark Law - Information, Regulations, Legal Solutions http://starklaw.org
ii. Stark Law: Understanding the Rule | Physicians Practice
iii. Physician Self Referral https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/index.html
iv. Stark law | Definition of Stark law by Medical dictionary
v. Becker's Hospital Review: Why it takes 60 minutes or less to find a Stark violation at a hospital http://www.beckershospitalreview.com/legal-regulatory-issues/why-it-takes-60-minutes-or-less-to-find-a-stark-law-violation-at-a-hospital.html.