For the love of referrals! Can employers “require” contracted physicians to refer for health care items and services?





Short answer? Yes. Implication of the Stark Law and the federal Anti-Kickback Statute is a primary and serious concern when reviewing contracts involving physicians. In my last post, I touched upon a basic Stark Law analysis.

First note that if Stark Law is implicated in anyway, then “all” of the requirements of an exception must be met. Second, to determine which exceptions may be applicable, it is important to identify the “type” of financial relationship between the parties i.e. is it an ownership interest? An investment interest? A compensation arrangement? Or a combination of all? And last but not the least, never forget that Stark Law is a strict liability statute i.e. if you’re in violation of the law, you’re guilty – lack of intent is not a defense.

Let’s start with the bona fide employment relationship and the independent contractor personal services exceptions. Stark Law permits employers to require contracted physicians to refer health care items and services, provided that the following initial conditions are met:*

1. The agreement between the parties is for specific, identifiable services. For independent contractors, the agreement must be in writing and signed by the parties, and the aggregate services contracted for must not exceed those that are reasonable and necessary for the legitimate business purpose of the arrangement.

2. The compensation arrangement is set in advance for the term. The term must be of at least one year for independent contractors, and the parties are restricted from entering into the same or substantially same arrangement during the first year of such an arrangement.

3. The compensation is provided under an agreement that is commercially reasonable, and the amount paid is consistent with fair market value for services performed (such that the payment does not take into account the volume or value of anticipated or required referrals). This requirement does not prevent payment of a productivity bonus to a physician based on services that are “personally performed” by the physician.

4. The requirement to make referrals to a particular provider, practitioner, or supplier is set out in writing and signed by the parties.

5. The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient’s insurer determines the provider, practitioner, or supplier; or the referral is not in the patient’s best medical interests in the physician’s judgment.

6. The required referrals relate solely to the physician’s services covered by the scope of the employment, the arrangement for personal services, or the contract, and the referral requirement is reasonably necessary to effectuate the legitimate business purposes of the compensation arrangement.

7. In no event may the physician be required to make referrals that relate to services that are not provided by the physician under the scope of his or her employment, arrangement for personal services, or contract.

In closing, it is advisable that physicians and health care entities work with competent legal counsel to draft physician employment or independent contractor agreements that are compliant with not just Stark Law, but also the federal Anti-Kickback Statute, as well as state law. That said, I hope this information was helpful.✌️


Ayesha Mehdi, JD, MHSA

Attorney at Law


*See, 42 USC 1395nn(e)(2); 42 CFR 411.354(d)(4); 42 CFR 411.357(c)


Disclaimer: This post does not constitute legal advice.

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