Stark Law & Anti-Kickback for Texas Physician Practices

Many Texas physicians assume compliance is someone else’s problem, handled by a billing department or a hospital compliance officer. That assumption is expensive. Whether you are structuring a referral arrangement, entering a joint venture, leasing office space from a hospital, or compensating an employed physician, these laws apply directly to you.

This guide breaks down exactly how Stark Law and the Anti-Kickback Statute apply to Texas physician practices, what the penalties look like, and how to structure compliant arrangements before a government investigator comes knocking.

What Is Stark Law and Why Does It Apply to Texas Physicians?

The Physician Self-Referral Law, commonly called Stark Law, prohibits physicians from referring Medicare or Medicaid patients to entities that provide Designated Health Services (DHS) if the physician or an immediate family member has a financial relationship with that entity, unless a specific exception applies.

Stark Law is a strict liability statute. That means intent does not matter. You do not need to have known you were violating the law. If the financial relationship exists and no exception covers it, the arrangement is unlawful, and the claims submitted are improper regardless of whether the medical services themselves were necessary and appropriate.

What Are Designated Health Services Under Stark Law?

Stark Law covers a defined list of services that Congress specifically identified as vulnerable to abuse through self-referral. These include:

• Clinical laboratory services
• Physical therapy, occupational therapy, and outpatient speech-language pathology
• Radiology and certain imaging services (MRI, CT, ultrasound)
• Radiation therapy services and supplies
• Durable medical equipment and supplies
• Parenteral and enteral nutrients, equipment, and supplies
• Prosthetics, orthotics, and prosthetic devices and supplies
• Home health services
• Outpatient prescription drugs
• Inpatient and outpatient hospital services

If your practice refers patients for any of these services and you have a financial relationship with the receiving entity, Stark Law is triggered. The next question becomes whether an exception saves you.

What Counts as a Financial Relationship?

The law covers two types of financial relationships:

Both directions matter. Money flowing to the physician and money flowing from the physician to the entity both create financial relationships requiring analysis.

What Is the Anti-Kickback Statute and How Is It Different?

The Anti-Kickback Statute (AKS) prohibits knowingly and willfully offering, paying, soliciting, or receiving anything of value to induce or reward referrals of federal healthcare program business. Unlike Stark Law, the AKS requires intent. But “knowing and willful” is interpreted broadly, and prosecutors have successfully argued that a physician who ignores obvious red flags acted with the required intent.

The AKS covers more than Medicare and Medicaid referrals. It reaches any arrangement where remuneration could influence the referral of business covered by a federal healthcare program, including TRICARE and CHIP.

How Do Stark Law and AKS Differ in Practice?

The critical practical difference: a single arrangement can violate both laws simultaneously. Compliance with one does not guarantee compliance with the other. Healthcare compliance counsel regularly analyzes both statutes together for any arrangement involving financial relationships and referrals.

What Are the Key Exceptions Under Stark Law?

Congress built exceptions into Stark Law to permit certain arrangements that are commercially necessary and low-risk. These exceptions are precise. Missing a single requirement disqualifies the arrangement. The most commonly used exceptions in Texas physician practices include:

In-Office Ancillary Services Exception

This exception allows physicians to refer patients for certain DHS within their own practice. Three conditions must be met:

• The service must be provided by the referring physician, another physician in the same group practice, or supervised by one of them
• The service must be furnished in the same building where the referring physician provides physician services, or in a centralized building used by the group
• The service must be billed by the referring physician, the group practice, or an entity wholly owned by them

This exception is widely used by practices that offer in-house imaging, lab work, or physical therapy. However, the Centers for Medicare and Medicaid Services (CMS) has issued guidance limiting its application to situations that do not look like standalone referral businesses dressed up as physician offices.

Physician Employment Exception

If a hospital or entity employs a physician and compensates them, that arrangement can qualify under the employment exception if:

• The employment is for identifiable services
• Compensation is consistent with fair market value and not based on the volume or value of referrals
• The arrangement would be commercially reasonable even absent any DHS referrals

Personal Services Arrangements Exception

Medical director agreements, administrative service agreements, and similar contracts between physicians and entities commonly rely on this exception. Requirements include:

• The arrangement must be in writing, signed by both parties
• The agreement must specify the services covered
• The term must be for at least one year
• Compensation must be set in advance and consistent with fair market value
• Compensation cannot be determined in a manner that takes into account the volume or value of referrals

Texas physicians who serve as medical directors for medical spas, hospitals, or surgery centers frequently use this exception. A poorly drafted agreement can disqualify the arrangement even when the parties had entirely legitimate intentions.

Fair Market Value Exception

Any compensation arrangement where the remuneration is at fair market value for actual services provided, the arrangement is in writing, and compensation is not determined based on referrals, can qualify under this general exception.

Lease Exceptions

Both equipment leases and office space leases have specific Stark exceptions requiring written agreements, fair market value rent, and terms that are commercially reasonable independent of any referral relationship.

“The most dangerous Stark Law violations we see in Texas physician practices are not from arrangements designed to circumvent the law. They come from legitimate business relationships where someone assumed a verbal agreement or informal arrangement would be fine.”

What Are the AKS Safe Harbors Relevant to Texas Physicians?

The Office of Inspector General (OIG) has established safe harbors that protect certain arrangements from AKS prosecution. Unlike Stark exceptions, safe harbors are not mandatory exemptions. Failing to fit a safe harbor does not automatically mean a violation, but fitting one provides meaningful protection.

Employment Safe Harbor

Remuneration paid by an employer to a bona fide employee for employment in the provision of covered items or services is protected. This safe harbor protects physician employment arrangements where compensation reflects fair market value and is not structured around referral volume.

Personal Services and Management Contracts Safe Harbor

This safe harbor protects service arrangements that meet requirements parallel to the Stark personal services exception, including written agreements, aggregate compensation set in advance, fair market value, and commercially reasonable purpose.

Space and Equipment Rental Safe Harbors

Leases for office space and medical equipment can qualify if they are in writing, cover at least one year, and reflect fair market value rent that does not vary based on the volume or value of referrals.

Investment Interest Safe Harbor

Investments in publicly traded companies or certain small entities can qualify if specific ownership thresholds and conditions are met. This is frequently relevant for physician-owned ambulatory surgery centers.

Managed Care Safe Harbor

Certain risk-sharing arrangements under managed care contracts are protected. This matters for Texas physician practices participating in value-based care arrangements.

Texas physicians interested in forming Management Services Organizations (MSOs) or joint ventures should analyze whether their arrangements fit within applicable safe harbors before executing any agreement.

What Penalties Can Texas Physicians Face for Violations?

The penalties for Stark Law and AKS violations are serious enough to end a medical career or destroy a practice financially. Understanding the range of consequences is essential for any physician who has or may be entering arrangements that touch these laws.

Stark Law Penalties

• Repayment of all improper claims: Every claim submitted during the period of noncompliance must be returned to the government, potentially covering years of billing
• Civil monetary penalties: Up to $15,000 per improper claim submitted
• Exclusion from Medicare and Medicaid: Exclusion is devastating for any physician practice dependent on government payer revenue
• False Claims Act liability: The government can pursue treble damages (three times the actual damages) plus penalties per claim under the False Claims Act

Anti-Kickback Statute Penalties

• Criminal prosecution: Felony conviction carrying up to 10 years imprisonment per violation
• Criminal fines: Up to $100,000 per violation
• Civil monetary penalties: Up to $100,000 per act plus three times the amount of the improper remuneration
• Exclusion from federal healthcare programs
• False Claims Act treble damages for any claims tainted by kickbacks

The government has been aggressive in Texas. The Department of Justice has expanded enforcement operations targeting Texas healthcare providers, and whistleblower claims filed under the False Claims Act by former employees or competitors continue to drive investigations.

Physicians under investigation for these violations need immediate legal counsel. Medicare fraud defense representation at the earliest stage is critical to protecting the physician’s license, practice, and freedom.

What Common Arrangements in Texas Physician Practices Trigger Scrutiny?

Several arrangements common in Texas medical practices attract regulatory attention. Identifying these situations early allows physicians to restructure or document arrangements appropriately.

Medical Director Agreements

Hospitals, surgical centers, and medical spas routinely engage physicians as medical directors. These arrangements become problematic when:

• Compensation is disproportionate to actual services performed
• The arrangement lacks a written agreement or clear scope of services
• The physician’s compensation increases in a manner correlated with referral volume
• No genuine medical director duties are performed

If you are serving as a medical director for any entity to which you refer patients, that agreement requires careful legal review.

Physician-Owned Ancillary Services

Texas physicians frequently invest in imaging centers, labs, ambulatory surgery centers, and physical therapy facilities. The business rationale is legitimate. The legal risk arises when the structure does not satisfy Stark exceptions or AKS safe harbors for investment interests.

Practice Acquisitions and Hospital Employment

When hospitals or health systems acquire physician practices in Texas, the purchase price, employment compensation, and post-acquisition referral patterns all require Stark and AKS analysis. Inflated purchase prices that effectively compensate physicians for future referrals are a documented enforcement target.

Telemedicine Arrangements

The growth of telemedicine in Texas has created new financial arrangement structures, including contracted remote physician services and technology vendor arrangements that may involve remuneration with indirect referral implications.

MSO Fee Arrangements

Management services organizations provide administrative and operational services to physician practices. When an MSO charges fees to a practice that refers patients to facilities affiliated with the MSO, the fee structure requires AKS analysis. Fees that exceed fair market value for actual services rendered or that track referral patterns raise serious concerns.

Understanding how MSOs should be properly structured is critical for any physician practice using this model.

How Does Voluntary Disclosure Work When a Violation Is Discovered?

Discovering a potential Stark or AKS violation within your own practice is alarming but manageable with the right response. The government offers mechanisms for voluntary self-disclosure that can significantly reduce exposure.

The CMS Self-Referral Disclosure Protocol (SRDP)

CMS established the SRDP to allow healthcare entities to voluntarily disclose actual or potential Stark Law violations. Providers who use this protocol in good faith may receive a reduced repayment amount. The process involves:

• Filing a written disclosure with CMS describing the violation, the entities involved, and the period of noncompliance
• Providing a financial analysis of the claims submitted during the period
• Cooperating with CMS’s review
• Reaching a settlement for repayment at a potentially reduced amount

The OIG Self-Disclosure Protocol (SDP)

The OIG’s Self-Disclosure Protocol covers potential AKS violations and other OIG-enforced fraud concerns. Voluntary disclosure through the SDP can result in reduced civil monetary penalties and may help avoid exclusion from federal programs.

The decision to self-disclose is not simple. It requires a careful legal assessment of whether a violation actually exists, the period and scope of noncompliance, and whether disclosure presents greater or lesser risk than alternative approaches. Engaging experienced healthcare investigations counsel before making any disclosure is essential.

How Should Texas Physician Practices Build Compliant Arrangements?

Prevention is dramatically less expensive than defense. Physician practices that build compliance thinking into their operational processes from the start face far fewer enforcement risks.

Start with Legal Review Before Execution

Every financial arrangement between a physician and any entity to which patients may be referred should receive legal review before execution. This includes employment agreements, medical director contracts, space leases, equipment arrangements, and joint venture structures.

Healthcare contract review focused specifically on Stark and AKS compliance is not a luxury. It is a foundational business practice for any physician practice.

Document Fair Market Value

Fair market value is the cornerstone of most Stark exceptions and AKS safe harbors. Practices should obtain and retain written fair market value opinions from qualified valuators for any arrangement involving physician compensation, real estate, or equipment. A documented FMV opinion that predates the arrangement is far more credible to regulators than one assembled after the fact.

Audit Existing Arrangements Regularly

Arrangements that were compliant when entered can drift into noncompliance as compensation changes, services expand, or referral patterns shift. Periodic compliance audits of existing financial relationships allow practices to identify and correct problems before they become government investigations.

Train Physicians and Staff

Physicians and administrative staff who understand the basic framework of these laws make better day-to-day decisions. Compliance education should be part of onboarding for new physicians and refreshed annually for existing staff.

Maintain Written Agreements

Both Stark exceptions and AKS safe harbors require written agreements for most arrangements. Verbal agreements, handshake deals, and informal understandings provide no protection. Every financial arrangement should be documented in a written contract that clearly specifies services, compensation, and term.

“The best time to address Stark and Anti-Kickback compliance is before you sign the agreement. The second-best time is right now, before anyone asks questions.”

Does Texas State Law Add Additional Compliance Layers?

Federal law is not the only concern. Texas has its own prohibitions on physician self-referral and fee-splitting that apply to non-Medicare and non-Medicaid patients.

Texas Health and Safety Code – Prohibited Conduct

Texas law prohibits physicians from referring patients to health care entities in which the physician has a financial interest unless an exception applies. The Texas Medical Board enforces these provisions and can take disciplinary action against a physician’s license independent of any federal proceeding.

Texas Occupations Code – Fee-Splitting Prohibition

Texas prohibits physicians from splitting professional fees with non-physicians and from paying or receiving remuneration for patient referrals. This prohibition has direct relevance for practices using MSO structures, contracted marketing arrangements, or any compensation model that ties payment to referral activity.

Physicians who receive a Texas Medical Board complaint arising from a financial arrangement often face parallel federal scrutiny. The intersection of state licensing consequences and federal fraud enforcement makes proper structuring of financial relationships doubly important.

What Should Texas Physicians Do If They Are Under Investigation?

Government investigations into Stark or AKS violations typically begin with a subpoena, a document request from CMS or the OIG, or notification from a whistleblower lawsuit. How a physician responds in the first days of an investigation significantly shapes the outcome.

Steps to Take Immediately

1. Do not speak with investigators without counsel present. Anything you say to government investigators can and will be used against you.
2. Preserve all documents. Do not delete emails, alter records, or destroy contracts. Document destruction can convert a civil matter into a criminal obstruction charge.
3. Retain healthcare defense counsel immediately. This is not the time to consult a general practice attorney. You need someone who understands federal healthcare fraud law.
4. Conduct an internal legal review. With counsel, assess the scope of potential exposure before the government completes its own assessment.
5. Evaluate voluntary disclosure options. Your attorney can help determine whether proactive disclosure reduces your exposure or increases it given the specific facts.

Dike Law Group represents Texas physicians and healthcare businesses in federal healthcare investigations, Medicare and Medicaid audits, and licensing defense proceedings. Early engagement with counsel is consistently the most important factor in achieving favorable outcomes.

Quick Reference: Stark Law vs. AKS Compliance Checklist for Texas Physicians

Use this checklist as a starting point for evaluating your practice’s arrangements. This is not a substitute for legal review but provides a useful framework for identifying issues that warrant attention.

Frequently Asked Questions

Does Stark Law apply to private pay patients or only Medicare and Medicaid?

Stark Law applies to Medicare and Medicaid patients specifically. However, Texas state self-referral prohibitions apply more broadly, and the AKS covers all federal healthcare programs. Practices that serve primarily private pay patients still face state law restrictions on self-referral and fee-splitting that mirror Stark Law’s structure.

Can a physician invest in an ambulatory surgery center in Texas without violating Stark Law?

Physician ownership of ambulatory surgery centers is specifically addressed in Stark Law regulations. Under the whole hospital exception and the ASC-specific investment safe harbor under the AKS, physician ownership can be structured compliantly. However, the structure must satisfy detailed requirements regarding the nature of the investment, investor composition, and the physician’s clinical role at the facility. Legal review before any investment is critical. You can learn more about how these arrangements relate to buying into a surgery center.

What is the difference between a Stark Law exception and an AKS safe harbor?

A Stark Law exception is mandatory for the arrangement to be permissible. If your arrangement does not fit an exception, it violates Stark Law regardless of intent. An AKS safe harbor is protective but not required. Failing to fit a safe harbor does not automatically mean you violated the AKS, but it means you do not have guaranteed protection. The government would still need to prove knowing and willful conduct to pursue criminal charges.

How does Stark Law apply to telemedicine arrangements in Texas?

Telemedicine services that involve the provision of Designated Health Services through remote platforms, or that involve financial relationships between referring physicians and telemedicine companies, remain subject to Stark Law analysis. Technology vendor arrangements where remuneration flows between a physician and a telemedicine platform to which the physician refers patients require careful review. The legal framework for telemedicine in Texas has expanded significantly, and compliance obligations have expanded with it.

If an arrangement was set up years ago without legal review, should I be concerned?

Yes. Arrangements that predate current legal standards, or that were set up without legal review, may not satisfy the requirements of applicable Stark exceptions or AKS safe harbors. The government has successfully pursued cases based on noncompliant arrangements that were in place for years. A proactive compliance review of existing arrangements is far preferable to discovering problems during an investigation. Dike Law Group can conduct a compliance assessment of your current financial arrangements.

What happens if I receive a subpoena related to a Stark or AKS investigation?

A subpoena is a serious development requiring immediate legal response. Do not attempt to respond to a government subpoena without healthcare defense counsel. The scope of document production, the sequencing of cooperation, and the preservation of privilege all require expert management. Contact healthcare investigations counsel on the same day you receive any government inquiry.

Can an MSO structure create Stark Law or AKS problems?

Yes. MSO arrangements can create issues when the management fees paid to the MSO are not at fair market value, when the MSO’s owners have referral relationships with the physician practice, or when the overall arrangement effectively compensates for referrals. Properly structured management services agreements with documented fair market value analysis can significantly reduce this risk.

Does the Anti-Kickback Statute apply to my relationships with pharmaceutical representatives or device companies?

Yes. The AKS covers anything of value, which includes meals, speaking fees, consulting arrangements, research grants, and educational programs from pharmaceutical and device companies. The CMS Open Payments program publicly reports these transfers of value, and arrangements that exceed fair market value or that correlate with prescribing patterns are enforcement targets.

How do I find a healthcare attorney in Texas who handles Stark and AKS compliance?

You need a healthcare attorney with specific experience in federal fraud and abuse law, not a general business attorney. Look for a firm that handles healthcare compliance, contract review, and federal investigations as core practice areas. Dike Law Group focuses exclusively on healthcare law and regularly advises Texas physician practices on Stark and AKS compliance.

Are there value-based care exceptions to Stark Law?

Yes. CMS has added value-based enterprise exceptions to Stark Law as part of modernization efforts. These exceptions allow certain financial arrangements within value-based care programs that might not fit traditional exceptions, provided specific criteria are met. Texas practices participating in accountable care organizations or other value-based payment models should analyze whether these newer exceptions apply to their arrangements.

Protect Your Texas Practice Before It Becomes a Liability

Stark Law and the Anti-Kickback Statute are the two most consequential compliance obligations facing Texas physician practices. They apply to arrangements physicians enter into every day, from employment contracts and medical director agreements to ancillary service investments and MSO fee structures. Getting them right from the beginning is not just good legal practice. It is the foundation of a sustainable healthcare business.

The consequences of getting them wrong range from repayment obligations that can bankrupt a practice to criminal prosecution that ends a medical career. Proactive legal guidance is the most efficient investment a physician can make in the long-term security of their practice.

Dike Law Group focuses exclusively on healthcare law for Texas physicians and healthcare businesses. Our team helps physician practices across Dallas, Houston, Austin, San Antonio, Frisco, and statewide analyze existing arrangements, structure compliant new relationships, respond to government investigations, and build compliance programs that protect long-term viability.

If your practice has financial arrangements that have not been reviewed for Stark and AKS compliance, or if you are planning a new arrangement and want to get it right from the start, contact Dike Law Group to schedule a consultation. Speak directly with a healthcare attorney who understands what is at stake and knows how to protect it.

Call us at (972) 290-1031 or visit our office at 6160 Warren Parkway, Suite 100, Frisco, TX 75034.

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Disclaimer: This article is intended for general educational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a qualified Texas healthcare attorney.