Protecting Your Biggest Asset: Your Medical Practice

Question: Do your employment contracts, office leases, medical director agreements, joint ventures, and other contracts pass the test under "Stark Law" and the "Anti-Kickback" statute?  The answer may be more complicated than you realize. 

What is Stark Law and the AKS?

At the time Medicare passed in 1965, the government woefully underestimated how much the program would cost.   By the 1980's, the government began looking for a way to save money without stepping between doctor and patient.   In 1989, Congressman Pete Stark got the idea to thumb through a copy of the AMA Code of Ethics to find out what doctors are not supposed to do.

The "answer" was not to question the treatment decision, but to question how the patient "arrived" in the doctor's office or hospital in the first place-the "Referral."  Thus, AMA ethics opinion 8.03 ("Physician Self Referral") became a federal civil offense, "Stark Law," 42 U.S.C. 1395nn. AMA Opinions 6.02-04 ("Fee-Splitting") became a criminal felony, and a civil wrong, the "Anti-Kickback" statute, 42 U.S.C. �1320a-7b.    These two "anti-referral" statutes are made enforceable by the False Claims Act, 31 U.S.C 3729, which contains a "whistleblower" provision, allowing disgruntled employees to earn huge bounties in successful cases.  Violations of these laws carry severe penalties of between $15,000 and $50,000 for each bill submitted to the government. This can add up to tens of millions of dollars for a single physician's practice.

I am not violating the law; why do I need to worry?

As a Medicare contractor, before you may submit a bill to the government, you are required to certify that you have; (a) read "Stark Law" and the AKS together with the dozens of "Safe Harbor" exceptions, (b) understand them, and (c) verify none of your contracts have resulted in prohibited referrals of patients.  This is not as easy as it sounds.   

In the example below of a Safe Harbor for "management contracts," notice that some elements are not "facts," but "opinions": (5) fair market value, (6) no laws are being violated, and (7) services are necessary for a legitimate business purpose.

Example: 42 C.F.R. 1001.952 (d) Personal services and management contracts.  

(1) The agency agreement is set out in writing and signed by the parties.

(2) The agency agreement covers all of the services.

(3) The agreement specifies exactly the schedule of work, and the exact charge for work.

(4) The term of the agreement is for not less than one year.

(5) The aggregate compensation paid is set in advance, is consistent with fair market value in arms-length transactions and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties.

(6) The services  do not  violate any State or Federal law.

(7) The aggregate services do not exceed those reasonably necessary for legitimate business purposes.


What do I need to do to protect myself?


Simple. Before you enter into any contract, whether it is an employment agreement, joint venture, office lease, or any other type of contract, you need to contact an experienced Health Lawyer who can review the contract for compliance. If you already have a number of contracts in place, you may benefit from an annual  compliance "checkup."

At Friedman & Feiger, our experienced Health Lawyers strive to offer our clients continued success and compliance with the rapidly changing laws in this competitive industry.  As a result, our clients can devote more time to taking care of their patients' needs as we take care of our clients legal needs.



5301 Spring Valley Rd.

Suite 200

Dallas, Texas 75254


Martin Merrit



Martin R. Merritt practices in the area of Health Law and Healthcare Litigation. He represents clients in "Stark Law,"  The False Claims Act, The Anti-Kickback statute, recoupment audits,  actions before the medical board and other state and federal health law matters. He received a B.B.A. from Delta State University in 1984, and his J.D. from Ole Miss in 1986. He has been licensed to practice in the State of Texas since 1989, first having been licensed in Mississippi in 1987.

He is admitted to practice before the United States District Courts for the Northern and Eastern Districts of Texas and all Texas State Courts. He is a member of the Health Law Section of the Dallas Bar Association, the Health Law Section of the State Bar of Texas, the American Health Lawyers Association, and the North Texas Healthcare Compliance Professionals Association. He writes a weekly column for Physicians Practice Magazine.




Health Law; Healthcare Litigation