Stark Law (physician self-referral)

Originally enacted in 1992 and significantly expanded in 1995, the Stark Law is a strict-liability federal statute—intent to violate it is irrelevant. It bars two things simultaneously: the referring physician from sending patients to a financially related entity for designated health services (DHS), and that entity from submitting or causing to be submitted any claim for services that resulted from a prohibited referral. A 'financial relationship' covers both ownership and investment interests as well as compensation arrangements, and it extends to a physician's immediate family members. The law applies to Medicare and, via Section 1903(s) of the Social Security Act, to Medicaid as well.

Designated health services encompass a defined list of service categories—clinical laboratory services, physical and occupational therapy, radiology and imaging, radiation therapy, durable medical equipment, home health services, outpatient prescription drugs, parenteral and enteral nutrients, prosthetics and orthotics, inpatient and outpatient hospital services, and others. CMS identifies the precise CPT and HCPCS codes belonging to each DHS category and updates that list annually on its website. Orthopedic practices are especially exposed because imaging (MRI, X-ray), physical therapy, DME, and outpatient hospital services are all DHS categories routinely bundled into orthopedic care pathways.

The statute establishes numerous exceptions—grouped broadly into general exceptions, ownership/investment exceptions, and compensation-arrangement exceptions—that, when fully satisfied, permit otherwise-prohibited referrals. The December 2020 'Modernizing and Clarifying the Physician Self-Referral Regulations' (MCR) final rule added three new value-based arrangement exceptions, a limited-remuneration exception, and a cybersecurity-donation exception, and updated foundational definitions used across the regulations (42 C.F.R. §§411.350–411.389). Compliance depends on meeting every element of a chosen exception, not just most of them.

A single prohibited referral can trigger a civil monetary penalty (CMP) of up to $15,000 per improperly referred service, and a 'circumvention scheme' carries a CMP of up to $100,000 per scheme, plus exclusion from all federal healthcare programs. Because Stark is strict liability, a well-intentioned orthopedic group that invests in an imaging center or a physical therapy practice and begins routing patients there—without structuring the arrangement to meet an applicable exception before the first referral—faces retroactive denial of every related Medicare and Medicaid claim, mandatory repayment with interest, and potential False Claims Act exposure. On the billing side, coders and compliance teams must recognize that a claim submitted for DHS resulting from a prohibited referral is itself impermissible, meaning downstream denial and recoupment risk falls on the billing entity even if the coder had no knowledge of the underlying arrangement.