Most physician practices rely on financial relationships that the Stark Law would otherwise prohibit: physicians who refer patients for lab work, imaging, or physical therapy their own practice performs, physicians employed by the group they refer within, and practices leasing space or equipment from an entity a physician owns. Stark Law exceptions make those arrangements lawful, but each exception carries its own conditions, and the physician self-referral law imposes liability without regard to intent. An arrangement that looks sound in substance can still fail on paper.
The In-Office Ancillary Services Exception
The exception most physician practices use day to day is the in-office ancillary services exception. It permits a physician to refer patients for certain designated health services, including clinical laboratory tests, physical therapy, and limited imaging, to the physician's own practice, as long as the services are furnished in the office under one of the location and supervision arrangements the exception sets out and billed through a qualifying arrangement. The exception also requires the practice to meet the separate regulatory definition of a group practice, not just the service-level conditions. A solo physician relies on the exception more simply than a multi-physician group, where the group practice test becomes its own threshold question.
The Group Practice Definition Behind It
A group practice has to operate as a single legal entity, not an informal arrangement physicians use mainly to split referral income. Each member must furnish substantially the full range of services the physician routinely performs through the group's shared space, equipment, and personnel, and the current regulation generally requires at least 75% of each member's patient care services to be billed under the group's own billing number. The group must also show centralized decision-making, with overhead and income distribution set before, not after, it bills for the services involved. A group that drifts from these conditions, for example when compensation starts tracking individual referrals, can lose the exception for every member, not only the physician whose arrangement changed.
Employment, Personal Service Arrangements, and Space or Equipment Leases
Physician employment inside the group is covered by its own exception, which asks whether the compensation is consistent with fair market value for the physician's identifiable services and is not based on the volume or value of referrals, apart from a limited productivity bonus tied to services the physician personally performs. Independent contractor work, medical directorships, and call coverage can fall under the personal service arrangements exception instead, and office space or equipment a physician leases from an entity the physician also owns falls under the separate space and equipment rental exceptions. Several of these exceptions call for a written agreement with a term of at least one year, with compensation or rent set in advance at fair market value rather than tied to referrals.
A Stark Law violation does not require proof that anyone intended to reward referrals. An arrangement that fails an exception's paperwork can be the violation.
Where Paperwork Becomes the Violation
The gap between a defensible arrangement and a violation usually sits in the file, not the underlying deal: an agreement that expired without being renewed, a signature page nobody circulated back, or a compensation formula that quietly started moving with referral volume instead of a fixed, fair-market-value rate. CMS has relaxed several of the writing, signature, and holdover rules governing these arrangements in recent years, so an expired agreement or a missing signature is not necessarily fatal under the current regulation. Whether a lapse is cured depends on the exception and the current rule text, which a practice should confirm rather than assume. Unlike the anti-kickback statute, which requires proof of intent, the Stark Law does not. A Stark violation typically drives civil False Claims Act exposure rather than the criminal restitution and forfeiture track.
Why Early Legal Counsel Is Critical
It is critical that physician practices retain experienced healthcare defense counsel before a compensation or lease arrangement is signed, not after a lapse is discovered. Early legal review can confirm which exception an arrangement is meant to satisfy, address an expired term or a missing signature while it can still be cured under the current regulation, and assess whether a referral pattern or compensation formula has drifted outside the exception's conditions. Waiting until a government inquiry or a qui tam complaint raises the question can foreclose the practice's options for addressing what the arrangement actually shows.
How Health Law Alliance Can Help
Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience.
The firm advises physician practices on structuring compensation and lease arrangements to satisfy a Stark Law exception, auditing existing arrangements for paperwork gaps, and responding once a self-referral question surfaces in an audit or investigation. Contact Health Law Alliance for a free, confidential consultation on healthcare fraud defense.
