June 2026
TO: ALL INTERESTED PHYSICIANS
This month’s newsletter will review the “group practice” exception under the Federal Stark Law.
Physician Self-Referral Law [42 U.S.C. § 1395nn]
The Physician Self-Referral Law, commonly referred to as the Stark law, prohibits physicians from referring patients to receive “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include both ownership/investment interests and compensation arrangements. For example, if you invest in an imaging center, the Stark law requires the resulting financial relationship to fit within an exception or you may not refer patients to the facility and the entity may not bill for the referred imaging services.
“Designated health services” are:
- clinical laboratory services;
- physical therapy, occupational therapy, and outpatient speech-language pathology services;
- radiology and certain other imaging services;
- radiation therapy services and supplies;
- DME and supplies;
- parenteral and enteral nutrients, equipment, and supplies;
- prosthetics, orthotics, and prosthetic devices and supplies;
- home health services;
- outpatient prescription drugs; and
- inpatient and outpatient hospital services.
The Stark law is a strict liability statute, which means proof of specific intent to violate the law is not required. The Stark law prohibits the submission, or causing the submission, of claims in violation of the law’s restrictions on referrals. Penalties for physicians who violate the Stark law include fines as well as exclusion from participation in the Federal health care programs.
There are a number of common exceptions to the law – this newsletter will review the definition of a “group practice,” as defined by the statute.
GROUP PRACTICE
The term “group practice” is used to refer to a group of physicians and other medical practitioners working together in one office. However, under the federal Stark Law, the term “group practice” carries a specific legal definition. The Stark Law, originally enacted in 1989, prohibits physicians from referring Medicare or Medicaid patients for certain designated health services to entities in which the physicians have a financial interest, unless an exception applies. Over time, the Stark Law has evolved into a highly complex regulatory framework that imposes strict liability, meaning intent to violate the law is not required for liability.
The concept of a group practice is a key component of the Stark Law. A medical practice must qualify as a group practice in order to qualify for several important exceptions to the Stark Law, including:
- the Physician Services exception; and
- the In-Office Ancillary Services exception.
The Physician Services exception applies to physician-to-physician referrals within the same medical practice. The In-Office Ancillary Services exception allows a practice to refer patients for certain services provided within the practice, such as clinical lab tests, physical therapy, MRI services, and X-ray services. Compliance with these and other exceptions is necessary to shield physicians and their medical practices from liability under the Stark Law.
In order to qualify as a group practice under Stark, a physician practice must meet the following requirements:
- Single Legal Entity: The practice must be organized as a single legal entity operating primarily for the purpose of being a physician group practice, partnership, or other entity formed under state law.
- Two Physicians: The group must consist of a
- t least two physicians who may be owners or employees.
- Range of Care: Each physician member in the group must provide substantially the full range of patient care services that the physician typically provides through the use of shared office space, personnel, equipment, and other resources.
- Services Furnished by Group Practice Physician: Substantially all (meaning at least 75 percent) of the physician services provided by the physician members of he practice must be furnished by and billed through the group.
- Distribution of Expenses and Income: Practices must distribute overhead expenses and income according to methods set in advance.
- Unified Business: The practice must have centralized decision-making, as well as consolidated billing, accounting and financial reporting.
- Volume or Value of Referrals: Compensation of physicians in the group may not be based on volume or value of their referrals, (although bonus pools may be created).
- Physician-Patient Encounters: Physicians who are members of the group must conduct at least 75 percent of the patient encounters of the practice.
To be noted, the above is not an exhaustive list of the Stark exceptions, but it does address a common inquiry on how a practice may fit into the “group practice” exception. (A similar definition exists under the New York State version of Stark).
Respectfully submitted,
Schaum Law Offices