# Stark Law and Anti-Kickback: policing physician referrals
In 2023, a hospital system agreed to pay over $340 million to settle allegations that it paid physicians above fair market value to lock in their referrals. No patient was harmed by a bad drug. The alleged crime was a set of employment contracts. That is the world of Stark and Anti-Kickback: the money flows that quietly bend where a doctor sends a patient.
A physician is a spigot. Where they refer patients (which hospital, which lab, which imaging center) drives millions in downstream revenue. The core policy fear is simple: if you pay a doctor for referrals, or let them profit from services they order, they will order more, and often more than the patient needs.
Two federal laws attack this from different angles. They overlap, but they are not the same, and confusing them is the most common mistake in this field.
The Physician Self-Referral Law, universally called Stark Law (after Congressman Pete Stark), prohibits a physician from referring Medicare or Medicaid patients for certain "designated health services" (DHS) to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies.
DHS includes things like:
The critical word is strict liability. Intent does not matter. If a financial relationship exists and no exception fits, the referral is illegal even if everyone acted in good faith and the care was perfect. You cannot argue "we meant well."
It is broad. It covers ownership (the doctor owns part of the imaging center) and compensation (the hospital pays the doctor as a medical director). A lease, a consulting fee, or a below-market office rental all count.
Because Stark is so broad, real hospital operations survive only by fitting inside an exception. Common ones:
Miss a technical requirement (say, a lease that lapsed and was never re-signed) and you are exposed, regardless of intent. This is why hospital compliance teams obsess over paperwork.
The government's own overview is a useful primer: CMS Physician Self-Referral page.
The Anti-Kickback Statute (AKS) is different in three ways: it is criminal, it applies to all federal healthcare programs and to anyone (not just physicians), and it requires intent.
AKS makes it a crime to knowingly and willfully offer, pay, solicit, or receive anything of value to induce or reward referrals of federally reimbursable business.
"Anything of value" is expansive: cash, free rent, lavish dinners, speaking fees, consulting deals, even a discounted lease. If even one purpose of the payment is to induce referrals, the statute is violated. This "one purpose test" is a favorite of prosecutors.
AKS provides safe harbors: specific arrangements that, if every condition is met, are protected. There are safe harbors for employment, space rental, equipment rental, personal services, and more.
Important distinction: unlike Stark exceptions (which are mandatory to comply), an AKS safe harbor is voluntary. Failing to fit a safe harbor does not automatically make you guilty, but it does remove your protection and leaves intent open to scrutiny.
AKS is a felony. Penalties can include fines, imprisonment, and exclusion from Medicare and Medicaid, which is often a death sentence for a provider's business. Violations can also trigger the False Claims Act (FCA), since any claim tainted by a kickback is a false claim, and the FCA carries treble (triple) damages plus per-claim penalties.
| Feature | Stark Law | Anti-Kickback Statute |
|---|---|---|
| Who is bound | Physicians (and their DHS entities) | Anyone |
| Intent required | No (strict liability) | Yes (knowing and willful) |
| Type | Civil | Criminal |
| Scope | Designated health services | All federal program business |
| Compliance tool | Exceptions (mandatory) | Safe harbors (voluntary) |
Most risky hospital deals must satisfy both at once.
A hospital pays a cardiologist $200,000 a year to serve as medical director of the cath lab. Legitimate if the role is real, the hours are documented, and pay is FMV. Illegal if it is a no-show job designed to reward the cardiologist's referrals. Regulators ask: what did the doctor actually do for the money?
A hospital and a group of surgeons co-own a surgery center. Ownership means the surgeons profit from the cases they send there. This is heavily scrutinized. Structures must fit an exception and, ideally, a safe harbor, with returns proportional to real investment, not referral volume.
A hospital rents office space to a physician group at a suspiciously low rent, or pays above-market rent to lease space in the doctors' building. The rent gap can be an illegal inducement. Fix: written lease, FMV rent, set in advance, commercially reasonable.
Assume a hospital wants to pay a physician as medical director. FMV benchmark data (often drawn from published compensation surveys) puts the role at an estimated $250 per hour for this specialty and region (illustrative, not a quoted rate).
Now the red flag version: the hospital pays a flat $80,000/year with no timesheets, and internal emails say "we need to keep Dr. X's volume." That flat fee (nearly triple the FMV-supported figure) plus documented referral intent is exactly the fact pattern that produces settlements.
The lesson: the number alone is not enough. You need FMV support, documentation of actual work, and no evidence the deal is about referrals.
Knowledge check
1. A hospital enters into an employment contract with a physician in complete good faith, but the compensation is later found to exceed fair market value and no exception applies. Referrals for designated health services followed. Why is this still a Stark Law violation?
2. Why do regulators treat physician referrals as the key 'pressure point' in healthcare fraud enforcement?
3. A physician's spouse owns a stake in a lab, and the physician refers Medicare patients there for testing. Under Stark Law, how is this treated?
4. Select ALL correct answers about what qualifies as a 'financial relationship' under Stark Law.
Select all the correct answers.
5. Select ALL correct answers that correctly distinguish Stark Law from a general understanding of intent-based fraud statutes.
Select all the correct answers.
Several bodies police these laws:
A huge share of cases start with whistleblowers. The FCA's qui tam provision lets an insider (often a former employee or a competing physician) sue on the government's behalf and collect a percentage of the recovery, frequently 15 to 30 percent. That percentage of a nine-figure settlement is a powerful incentive, and it is why compliance is not optional.
You can browse real settlements on the OIG enforcement actions page to see the fact patterns regulators pursue.
Hospitals institutionalize this through:
The recurring theme: write it down, pay fair value, document the work, and never let compensation float with referral volume.
*This lesson is educational and not legal advice.*