The Stark Law (formally the Physician Self-Referral Law, codified at 42 U.S.C. § 1395nn) prohibits physicians from referring Medicare patients for designated health services to entities where the physician or an immediate family member holds a financial relationship — unless a specific exception applies.
The law also prohibits billing for services furnished through a prohibited referral. It operates on strict liability, meaning intent does not matter. If the referral happens and no exception covers the arrangement, Medicare payment is prohibited. No one needs to plan the violation for it to count.
In this article, we’re going to explore:
What is Stark Law
A practical compliance checklist for medical practices
How each exception works (and where it commonly fails)
2026 CMS compensation thresholds and updated SRDP forms
Recent DOJ enforcement cases from 2025-2026 with verified settlement amounts
What does the Stark Law prohibit?
The prohibition targets a specific chain of events.
A physician refers a Medicare or Medicaid patient for one of 12 categories of designated health services (DHS) to an entity where the physician (or an immediate family member) has a financial relationship.
Unless a regulatory exception fully covers the arrangement, the entity cannot bill Medicare for those services.
The 12 DHS categories include:
Physical therapy
Occupational therapy
Clinical laboratory services
Outpatient speech-language pathology
Prosthetics/orthotics/prosthetic devices
Radiology and certain other imaging services
Parenteral and enteral nutrients and equipment
Inpatient and outpatient hospital services
Radiation therapy services and supplies
Outpatient prescription drugs
Home health services
DME and supplies
CMS maintains a current DHS code list updated annually. Financial relationships fall into two buckets.
Ownership or investment interests (direct equity, partnership shares, stock)
Compensation arrangements (employment, consulting, medical directorships, leases, personal services)
The practical problem most healthcare organizations face is not whether they know the law exists.
The problem is that financial relationships are everywhere in modern medicine — and each one needs to satisfy every condition of the applicable exception, not just the general idea of it.
HOW A STARK VIOLATION FORMS
The four-link chain that creates liability
1
Physician referral
A physician orders or refers a patient
2
DHS involved
The referral is for a designated health service
3
Financial relationship
Physician or family member has a financial tie
4
No exception met
No applicable Stark exception fully satisfied
Remove any link and the prohibition may not apply. But every link must be checked — not assumed.
How do you screen a physician arrangement for Stark risk?
Before examining the 15 scenarios, it helps to have a screening framework. Most compliance officers work through five questions, roughly in this order.
Does the referral involve a service on the DHS list?
Is a physician making, directing, or controlling the referral?
Does an applicable exception cover the entire arrangement?
Is Medicare or Medicaid the payer (or a payer) for the service?
Does the physician or an immediate family member hold a financial relationship with the entity receiving the referral?
If the answer to the first four questions is yes and the fifth is no, the arrangement has a Stark problem.
What makes this difficult in practice is that most healthcare organizations have dozens (sometimes hundreds) of physician financial relationships running simultaneously, and each one can shift over time as contracts expire, compensation changes, or new services launch.
15 Stark Law scenarios explained
Each scenario below follows the same format.
You’ll see the arrangement, the potential Stark concern, the exception worth examining, the documentation that matters, and the practical takeaway.
Every example is hypothetical — not a determination of legality. (If any of these hit uncomfortably close to home, that’s the point.)
Ownership scenarios
Ownership is where Stark gets personal.
A physician with equity in an imaging center, lab, or hospital may genuinely believe the investment is separate from clinical decisions. The law does not care about that belief.
Scenario 1: Physician owns part of an MRI center
A cardiologist holds a 30% equity stake in a freestanding imaging center and refers Medicare patients there for cardiac MRIs.
The Stark concern is straightforward. The physician has an ownership interest in an entity furnishing imaging services (a DHS category), and the physician is making referrals. Without a qualifying ownership exception, the imaging center cannot bill Medicare for those referrals.
The exception worth examining is the rural provider exception or any applicable investment-interest exception under 42 CFR § 411.356. Each has specific eligibility conditions that go beyond simply owning a share.
What to review includes the ownership agreement, the imaging center’s DHS billing records, referral volume from the physician, and whether every condition of the relevant exception is met.
The practical reality is that physician-owned imaging centers are common — but common does not mean automatically compliant. The ownership percentage alone does not determine whether an exception applies.
Scenario 2: Physician invests in an independent laboratory
An internist purchases a 15% limited partnership interest in a reference laboratory that processes blood work. The physician refers Medicare patients to the lab for routine panels.
The arrangement creates the same ownership-plus-referral chain as Scenario 1, but with laboratory services instead of imaging.
Lab testing generates high claim volume relative to other DHS categories, which means even a modest referral pattern can pile up significant claims exposure over a few quarters.
Scenario 3: Physician’s spouse works for a home health agency
A primary care physician refers Medicare patients to a home health agency that employs the physician’s spouse as a part-time administrator.
Stark Law defines “immediate family member” broadly. Spouses, children, parents, siblings, in-laws, and stepchildren all qualify. The spouse’s employment creates a compensation arrangement between the physician’s immediate family and the DHS entity.
The January 2026 DOJ settlement involving Community Home Health Services — a $702,541 resolution — alleged exactly this pattern. Bonuses paid to an employee were tied to referrals from the employee’s physician spouse.
Scenario 4: Physician holds ownership in a hospital
A surgeon holds an ownership interest in a specialty surgical hospital and performs procedures on Medicare patients at that facility.
Hospital services are DHS. Physician-owned hospitals face additional restrictions under the Affordable Care Act, and CMS issued Advisory Opinion CMS-AO-2025-01 addressing specific conditions for the whole-hospital exception, including facility relocation and emergency department requirements.
Compensation scenarios
Compensation is where most Stark problems hide in plain sight. The physician is doing real work. The hospital is paying real money. Everything looks legitimate — until someone examines the formula.
Scenario 5: Bonus linked to downstream referral revenue
A hospital pays an employed cardiologist a base salary plus a quarterly bonus calculated as a percentage of the hospital’s total cardiology imaging revenue — including imaging ordered by the cardiologist.
The problem is not the bonus itself. It’s the formula. When a physician’s compensation reflects the volume or value of their own DHS referrals, the arrangement may fail to satisfy the bona fide employment exception’s compensation conditions.
A 2024 systematic review of 53 studies (including 43 examining hospital-physician integration) found higher costs in 14 of 19 aggregate spending studies.
Financial alignment changes referral behavior. That’s precisely why the exception conditions exist — and why bonus formulas deserve more scrutiny than most organizations give them.
Scenario 6: Productivity bonus for personally performed services
A group practice pays its orthopedic surgeon a productivity bonus based solely on the surgeon’s own wRVUs for procedures the surgeon personally performs.
Compensation tied to personally performed services (not referrals) fits more naturally within the employment exception.
The difference between Scenario 5 and Scenario 6 is the revenue source — personally performed work versus downstream referral volume.
Scenario 7: Medical director paid without documented duties
A hospital pays a referring physician $8,000 per month for medical director services. The contract specifies 10 hours per month of administrative work, but no time logs, meeting records, or documented activities exist.
The personal services exception under 42 CFR § 411.357(d) requires, among other things, that the arrangement cover identifiable services.
When a physician receives regular payments but cannot demonstrate the work performed, the arrangement looks more like a referral incentive than a legitimate service agreement.
The December 2025 NewYork-Presbyterian settlement ($6.84 million) involved allegations of payments exceeding $4 million to an oncology practice for contracted work that was allegedly not performed, incomplete, or lacked required time documentation.
The hospital acknowledged substantial failures in contract performance.
Scenario 8: Above-market office space rental
A hospital leases office space from a referring physician at $65 per square foot when comparable medical office space in the area rents for 38-42. (Hypothetical figures for illustration.)
The hospital’s above-market payments flow to the physician, creating an improper compensation relationship if no applicable Stark exception covers the arrangement.
The rental exception under § 411.357(a) requires, among other conditions, that compensation reflect fair market value.
Paying significantly above market for space owned by a referring physician looks less like a real estate transaction and more like a referral incentive wearing a lease agreement as a costume.
The April 2026 Trinity Hospital settlement ($1.7 million) involved allegations of rental arrangements with two referring physicians that allegedly exceeded fair market value between 2014 and 2020.
Scenario 9: Gifts and nonmonetary compensation exceeding the limit
A hospital gives a referring physician a $600 smartwatch as a thank-you gift during the holiday season. The physician refers Medicare patients to the hospital for DHS.
CMS sets annual limits on nonmonetary compensation under a specific Stark exception at 42 CFR § 411.357(k). For 2026, the limit is $535 per physician per year. A $600 gift exceeds it.
Unless another exception or applicable regulatory provision covers the arrangement, the gift may create a prohibited compensation relationship.
Worth noting — the $535 threshold applies specifically to entities with a relevant DHS financial relationship, not to every gift a physician receives from anyone in healthcare.
2026 CMS THRESHOLDS
Stark Law compensation limits for specific exceptions
Source: CMS CPI-U Updates, effective January 1, 2026. Each limit applies only to its specific exception — not as a universal payment cap.
Operational scenarios
Day-to-day practice operations generate Stark questions that have nothing to do with shady motives.
An in-office lab, a satellite rehab center, an expired contract that nobody remembered to renew — all of these can create prohibited referrals through inattention rather than intent.
Scenario 10: In-office lab services within a group practice
A five-physician family medicine group runs its own in-office laboratory. Physicians order blood panels, urinalysis, and rapid strep tests for Medicare patients, and the group practice bills Medicare directly.
The in-office ancillary services exception (IOAS) under 42 CFR § 411.355(b) can cover this arrangement — but only if all conditions are met.
The service must be furnished in the same building where the referring physician provides non-DHS services (or in a centralized building used by the group).
Billing may be performed by the physician, the qualifying group practice, certain wholly owned entities, or authorized billing agents under § 411.355(b)(3). And the group must meet all the qualification requirements in the group practice definition.
Location and billing technicalities tend to be where the IOAS exception breaks down in practice, not on whether the practice genuinely provides the service.
Scenario 11: Services performed at an off-site facility
A group practice physician refers a Medicare patient for physical therapy at a satellite rehabilitation center owned by the practice but located 12 miles from the physician’s office.
Geographic separation can undermine the IOAS exception’s location requirements.
If the service is not furnished in the same building where the referring physician regularly practices (or in a qualifying centralized building), the exception may not apply to that specific referral.
Scenario 12: Expired physician agreements
A hospital’s personal services agreement with a consulting physician expired 14 months ago. The physician continued providing monthly consulting work. The hospital continued paying. Neither party noticed the lapse.
An expired agreement does not automatically create a Stark violation.
The current personal services exception at 42 CFR § 411.357(d)(1)(vii) permits a qualifying holdover arrangement without a fixed duration cutoff — provided the original agreement met the exception when it expired, the holdover began immediately, and all required conditions continue to be satisfied throughout.
But a holdover only works when someone is actually monitoring whether the conditions still hold. That’s where most organizations slip.
Expired agreements remain one of the more common compliance findings in practice.
In the December 2025 NewYork-Presbyterian settlement, agreements with an oncology practice expired in 2016, yet payments continued through 2019 — alongside allegations that contracted work was not properly performed or documented.
Scenario 13: Rural physician and family referral arrangements
A physician in a rural health professional shortage area (HPSA) refers Medicare patients to an imaging center owned by the physician’s brother.
When a physician refers patients to an entity owned by a sibling, the sibling’s ownership creates a Stark financial relationship that must be examined.
Depending on the circumstances, the rural provider exception under § 411.356(c)(1) or the intra-family rural referrals exception under § 411.355(j) may apply.
The intra-family exception has its own conditions, including rural patient residence, limited availability of other providers, and required inquiries about alternatives. An HPSA designation alone does not establish eligibility for either exception.
Scenario 14: Referrals outside the DHS scope
A physician refers a Medicare patient for cosmetic Botox injections at a dermatology clinic where the physician holds an investment interest.
If the referred service is not on the DHS list and is not billed to Medicare, the Stark prohibition may not apply. The screening framework matters here — cosmetic services typically fall outside Medicare coverage and DHS classification.
Scenario 15: Value-based care arrangements
A hospital and a physician group enter a care-coordination agreement where physicians share in savings generated by reducing unnecessary hospital readmissions for Medicare patients.
The three categories under § 411.357(aa) are structured around financial risk levels — full financial risk arrangements, meaningful downside risk, and value-based arrangements meeting specified conditions without the same level of downside risk.
Each has its own writing, monitoring, commercial reasonableness, and documentation requirements.
A shared-savings agreement does not qualify merely because it aims to reduce readmissions. The specific structure, risk allocation, and documentation must satisfy the applicable category.
Most healthcare organizations are still learning how to document these correctly — which is understandable, given that the exceptions are newer than most compliance officers’ training materials.
What do recent Stark Law enforcement cases show?
Federal enforcement records from 2025-2026 illustrate recurring risks involving physician compensation, financial relationships, and referral inducements.
The settlements below resolved allegations — they are not judicial findings that every alleged violation was proven.
But the patterns are instructive, and they tend to involve arrangements that looked perfectly routine from the inside.
Above-market office rental to two referring physicians
CMS also reported 244 settled voluntary disclosures in 2025 totaling $20.40 million, and 314 settlements in 2024 totaling $24.74 million through its Self-Referral Disclosure Protocol.
Cumulatively through December 31, 2025, the SRDP program has settled 1,234 disclosures for $105.09 million since 2011.
The pattern worth noticing is that these settlements involve common, recognizable arrangements — medical directorships, leases, consulting, employment bonuses.
Not exotic schemes hatched in a conference room at midnight.
Organizations that assume their arrangements are too routine to create Stark exposure tend to be the ones that stop checking the documentation.
Which Stark Law exceptions apply most often?
Stark Law contains dozens of exceptions across three regulatory sections. The table below covers the ones that appear most frequently in enforcement cases and compliance reviews.
Exception
Typical arrangement
Conditions to verify
Regulatory cite
Bona fide employment
Hospital employs a physician
Identifiable services, FMV compensation, commercially reasonable, compensation not based on referral volume/value
§ 411.357(c)
Personal services
Medical directorships, consulting
Written agreement, specified services, duration, FMV compensation, commercially reasonable
§ 411.357(d)
Fair market value
Contract services, equipment, space
Written arrangement, FMV, covers only identified items/services, no referral-volume consideration
§ 411.357(l)
In-office ancillary services
Group practice lab or imaging
Same-building/centralized-building test, supervision, billing by group practice
§ 411.355(b)
Office space rental
Physician leasing from hospital
Written lease, exclusive use or specific schedule, FMV rent, commercially reasonable
§ 411.357(a)
Equipment rental
Shared diagnostic equipment
Written agreement, FMV, exclusive use or time-based schedule
The conditions shown above are selected requirements — not the complete list for any exception. Each one has additional regulatory conditions.
An exception only works when every condition is satisfied.
Partial compliance does not provide partial protection. A personal services agreement that covers everything except the compensation formula still fails the exception entirely.
In guidance updated April 23, 2026, HHS-OIG confirmed that fair market value compensation alone does not guarantee compliance with the Anti-Kickback Statute.
Separately, Stark exceptions impose requirements beyond FMV — including commercial reasonableness, prescribed documentation, and restrictions on referral-related compensation formulas.
Paying a defensible hourly rate does not excuse a missing contract or a bonus tied to referral volume.
What are the penalties for Stark Law violations?
Stark violations carry civil consequences — not criminal ones (criminal liability comes through related statutes like the Anti-Kickback Statute or False Claims Act).
The financial consequences stack in ways that make individual violations far more expensive than the per-claim numbers suggest.
Refund obligation for amounts already collected on tainted claims
Denial of Medicare payment for services furnished through prohibited referrals
Separate False Claims Act exposure when FCA requirements are independently met
Potential exclusion from federal healthcare programs under applicable enforcement provisions
Up to $211,146 per circumvention scheme (separate penalty category for arrangements designed to evade the law)
A single improper arrangement can generate hundreds or thousands of prohibited claims over months or years. The Traditions Health settlement of $34 million involved medical director payments alleged from 2019-2024 and unnecessary services from 2021-2024.
Although CMS’s voluntary SRDP process is one pathway for addressing potential violations, organizations must also separately assess whether identified overpayments trigger mandatory reporting and repayment obligations under federal law.
How should a practice respond to a potential violation?
Discovering a possible Stark issue does not automatically require disclosure. But ignoring it creates additional risk. A structured response typically follows this sequence.
Identify the specific financial relationship and the affected referrals
Preserve all contracts, compensation records, referral data, and billing documentation
Engage healthcare counsel to analyze the arrangement against the applicable exception
Determine the relevant time period and estimate the claims volume
CMS released updated SRDP forms in September 2026 (approved by OMB on July 17, 2026). The revised forms become mandatory for disclosures submitted on or after November 1, 2026.
A common mistake organizations make is treating the initial compliance review as a one-time project.
Physician financial relationships change — contracts expire, compensation structures shift, new providers join the group, new services launch. The review needs to be continuous.
COMPLIANCE WORKFLOW
Five-step Stark Law compliance review
1
Inventory all physician financial relationships
Ownership, compensation, leases, consulting, family connections
2
Map DHS referrals to each relationship
Match each physician’s referral activity to DHS categories and billing records
3
Verify exception coverage for each arrangement
Confirm every condition of the selected exception — not just the general category
4
Audit documentation and compensation evidence
Contracts, FMV support, time logs, service records, and expiration tracking
5
Escalate and remediate gaps
Fix contract deficiencies, engage counsel, evaluate disclosure when necessary
How is the Stark Law different from the Anti-Kickback Statute?
Stark and the Anti-Kickback Statute (AKS) both regulate financial relationships in healthcare, but they work differently. Stark is a civil self-referral law focused on physician DHS referrals — no intent required.
AKS is a criminal statute covering anyone who knowingly and willfully offers, pays, solicits, or receives remuneration to induce federal healthcare program business.
Feature
Stark Law
Anti-Kickback Statute
Focus
Physician DHS referrals with financial relationships
Improper remuneration connected to federal program business
Intent
No intent required
Knowing and willful conduct
Who is covered
Physician referrals, immediate family
Any person or entity
Legal character
Civil
Criminal (with civil exposure)
Protections
Regulatory exceptions
Statutory exceptions + voluntary safe harbors
An arrangement can comply with Stark but violate AKS, or vice versa. The HHS-OIG confirms that satisfying a Stark exception does not automatically protect an arrangement under AKS. Each law requires its own analysis.
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Stark Law compliance also requires separate examination of physician financial relationships, referral arrangements, and applicable legal exceptions.
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Here are some commonly asked questions about this topic:
Can a doctor refer patients to a facility they own?
Possibly — but only if an applicable Stark exception covers the arrangement completely. Ownership alone does not prohibit referrals. The combination of ownership, a physician referral, and DHS billing to Medicare triggers the analysis. The relevant exception’s conditions determine whether the referral is permitted.
Does the Stark Law apply to private insurance?
The federal Stark Law applies to Medicare and has a Medicaid extension under Social Security Act § 1903(s). Private insurance referrals are not directly covered by the federal statute, but many states have separate self-referral laws that may apply. A practice operating across multiple states should review each state’s requirements.
What is an example of a simple Stark Law violation?
A physician refers a Medicare patient for lab work to a laboratory where the physician holds equity — and no qualifying exception covers the ownership arrangement. The laboratory bills Medicare. The claim is prohibited under Stark. No intent to violate the law is required.
Does an accidental referral violate Stark Law?
Yes, potentially. Stark operates on strict liability for the referral prohibition itself. If the referral happens, DHS is involved, a financial relationship exists, and no exception applies, the violation occurs regardless of whether the physician intended it. That said, certain penalty provisions may involve additional knowledge requirements.
What changed in Stark Law for 2026?
CMS published annual inflation adjustments to existing exception thresholds — the nonmonetary compensation limit moved to $535, the medical staff incidental benefits threshold to less than $46, and the limited remuneration exception to $6,237. (Congress did not create new exceptions or change the law’s structure.) CMS also released updated SRDP disclosure forms in September 2026, mandatory for submissions on or after November 1, 2026.
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