The Stark Law, formally known as the Physician Self-Referral Law, is a United States federal statute intended to prevent conflicts of interest in healthcare decision-making. First enacted in 1989 and later expanded in the 1990s, the law is designed to ensure that physicians make referral decisions based on what is best for patients rather than on potential financial gain. The Stark Law prohibits physicians from referring Medicare or Medicaid patients for certain designated health services to entities with which the physician or an immediate family member has a financial relationship, unless a specific exception applies.
The Stark Law was enacted due to concerns that self-referrals can distort medical judgment. For example, if a physician owns a stake in a diagnostic imaging center, that physician might be more likely to order imaging tests even when they are not strictly necessary. Studies and enforcement experience suggested that such arrangements could lead to overutilization of services, higher healthcare costs, and unnecessary exposure of patients to procedures or tests. The Stark Law addresses these risks by establishing a clear rule that focuses on the existence of a financial relationship rather than on the physician’s intent.
The law applies only to physicians, which includes the medical doctors, osteopathic physicians, dentists, podiatrists, optometrists, and chiropractors. It also applies only to referrals for designated health services, a defined list that includes clinical laboratory services, radiology and imaging services such as MRI and CT scans, durable medical equipment, home health services, inpatient and outpatient hospital services, and physical therapy, among others. For instance, if a physician refers a Medicare patient to a physical therapy clinic in which the physician’s spouse has an ownership interest, that referral would generally be prohibited unless an exception applies.
Financial relationships are defined as including both ownership or investment interests and compensation arrangements. A compensation arrangement could be as straightforward as a physician receiving above-market rent for leasing office space to a hospital or as complex as a multi-layered consulting agreement. Even indirect relationships can trigger the law. For example, if a physician owns part of a management company that is paid by a hospital to manage a laboratory, referrals by that physician to the hospital’s lab may raise Stark Law concerns.
Because financial relationships are common in healthcare, the Stark Law contains numerous exceptions that allow certain arrangements if they meet specific regulatory criteria. One frequently used exception is the in-office ancillary services exception, which permits physicians to provide services like basic lab tests or X-rays within their own practice, provided certain supervision, location, and billing requirements are met. Another common exception covers bona fide employment relationships, allowing a hospital to pay an employed physician a salary and productivity bonus, as long as the compensation is fair market value and not tied to the volume or value of referrals.
A key feature of the Stark Law is that it is a strict liability statute. This means that a physician can violate the law even without intending to do so. For example, if a written agreement required by an exception expires but the parties continue operating under its terms, referrals made during that gap may be noncompliant. The penalties for violations can be severe, including denial of payment, required repayment of amounts received, civil monetary penalties, and potential exclusion from federal healthcare programs.
Although the Stark Law applies specifically to Medicare and Medicaid, many healthcare organizations apply its standards across all patients to simplify compliance. While often criticized for its complexity and rigidity, the law remains a cornerstone of federal efforts to promote ethical medical decision-making and protect patients from financially motivated care.