Stark Law and Anti-Kickback: Financial Arrangements to Avoid

Two federal laws quietly shape almost every financial arrangement a physician practice enters into: Stark Law (the physician self-referral law) and the Anti-Kickback Statute. Between them, they define which financial arrangements are permitted, which require careful structure, and which can create both civil and criminal exposure. A physician-owner in Idaho or Utah does not need to become an expert in either. They do need to know when a proposed arrangement should trigger a call to counsel before the ink dries.

This piece frames the two laws in plain language, describes the fair market value standard that protects most legitimate arrangements, walks through five financial patterns that regularly get practices in trouble, and outlines the documentation every practice should keep on file. It is written from a CPA’s perspective, not a lawyer’s, and it is not legal advice for any specific arrangement.

What Stark Law Actually Prohibits

Stark Law prohibits a physician from referring Medicare or Medicaid patients for specific “designated health services” (DHS) to an entity with which the physician (or an immediate family member) has a financial relationship, unless a specific statutory or regulatory exception applies. DHS categories include clinical laboratory services, imaging, physical and occupational therapy, home health, DME, and several others.

The critical feature of Stark is that it is a strict liability statute. Intent does not matter. If a financial arrangement fits the prohibition and no exception applies, the referral and any resulting Medicare/Medicaid claim are unlawful regardless of whether the physician intended anything improper.

This is why Stark drives so much of how physician financial arrangements are structured. Every arrangement with a referring physician has to either fit an exception or be restructured until it does.

How Anti-Kickback Differs (Intent Matters)

The Anti-Kickback Statute prohibits knowingly and willfully offering, paying, soliciting, or receiving anything of value to induce or reward referrals of federal health-care program business. It applies more broadly than Stark (all federal programs, not just Medicare/Medicaid, and to all types of services, not just DHS).

Unlike Stark, Anti-Kickback requires intent, and violations can carry criminal penalties. The statute is paired with regulatory “safe harbors” that describe specific structures that will not be prosecuted; failing to meet a safe harbor does not automatically mean a violation, but arrangements outside safe harbors are analyzed under the intent standard case by case.

For most practical purposes, arrangements that comply with Stark exceptions and Anti-Kickback safe harbors are on firm ground. Arrangements outside them require careful analysis.

Fair Market Value: The Standard That Protects Almost Everything

Fair market value (FMV) is the recurring standard across most Stark exceptions and Anti-Kickback safe harbors. Compensation, rent, purchase prices, and management fees that are at FMV, commercially reasonable, and not determined based on referral volume generally fit within protective structures.

FMV in health-care regulatory context is not the same as tax FMV. It is the value that would be paid between unrelated parties in an arm’s-length transaction, without any consideration of the parties’ referral relationship. Documenting FMV requires either:

• A written FMV analysis performed by a qualified valuation professional
• Reference to published compensation surveys or market data
• Comparable transactions between unrelated parties in the same market

The documentation is what protects the arrangement in audit or investigation. A physician who “knew it was market” and cannot produce documentation is in a materially weaker position than one who has an FMV memorandum in the file.

Five Financial Arrangements That Get Practices in Trouble

Certain patterns recur in Stark and Anti-Kickback enforcement:

• Rent paid to a referring physician (or from a referring physician) at above-market or below-market rates
• Medical directorships or consulting arrangements paid at rates that are not documented as FMV or where the physician cannot show actual services rendered
• Joint ventures with referring physicians that lack a legitimate business purpose or share profits in a way tied to referral volume
• Free or below-cost items and services provided to referring physicians (staff, space, supplies, EHR licenses)
• Bonus or productivity payments that include referrals to DHS-providing entities within the same group

Each of these can be structured to comply with the law. Each of them, structured casually, has generated significant enforcement.

The Documentation Your Practice Should Keep on File

Compliance documentation is not glamorous but is often what separates a resolved audit from a costly investigation. Every physician arrangement should have:

• A written agreement signed by both parties, dated and current
• FMV documentation appropriate to the arrangement (compensation survey, valuation memo, or comparable data)
• Evidence that services were actually rendered (time logs, deliverables, invoices)
• Board or partnership minutes approving the arrangement
• Annual review confirming continued compliance with the exception or safe harbor being relied on

The absence of any one of these is a weakness. The absence of all five is common in practices that have never worked through a compliance review, and it is worth fixing before it becomes urgent.

Cooper Norman’s healthcare accounting team reviews financial arrangements for compliance documentation and FMV support for medical practices across Idaho and Utah. This overview is general information, not legal or compliance advice. Talk with a Cooper Norman advisor and your health-care attorney about how these rules apply to your specific arrangements. Contact us to review your current file.