Understanding the Stark Law, Physician Ownership and Referral Act (PORA), and Anti-Kickback Statute: A Guide for California Physicians and Healthcare Providers

Patient referral laws are designed to prevent financial incentives from improperly influencing medical decision-making. For physicians and other healthcare providers in California, patient referrals and financial relationships are heavily regulated by both federal and state law.

This article breaks down three major laws you need to know:

• The Stark Law (aka Physician Self-Referral Law) (federal)
• The Anti-Kickback Statute (AKS) (federal)
• PORA (Physician Ownership and Referral Act) (California)

Each law plays a critical role in preventing fraud and abuse in healthcare.

Executive Summary: What are the rules on patient referrals?

In general, healthcare providers are prohibited from making referrals for services if they (or their immediate family members) stand to financially benefit from the referral, unless a specific legal exception or safe harbor applies. Healthcare providers must also refrain from paying to get patient referrals from others.

Can a physician refer a patient to a facility or provider they have a financial interest in?

In most cases, physicians cannot refer patients to services if they would benefit financially, unless a legal exception applies.

Under the California Physician Ownership and Referral Act (PORA), physicians are prohibited from referring any patient to certain services where the physician may receive a financial benefit. This includes patients with private insurance or who pay cash. Covered services involve imaging, outpatient surgery, radiation therapy, physical therapy, or clinical laboratory work. (California Business and Professions Code § 650.01)

Under the federal Stark Law, physicians are prohibited from referring Medicare or Medicaid patients for certain designated health services (DHS), such as imaging, physical therapy, or lab tests, to entities in which they or their immediate family members have a financial interest. (42 U.S.C. Sec 1395nn)

Unless you qualify for a specific exception under Stark or an exemption under PORA, referring to a facility where you have a financial interest is generally prohibited.

What if I’m not getting paid for the referral itself, just sharing ownership in a business?

Even indirect financial interests can create legal problems. Both Stark and PORA cover ownership and investment interests in a facility receiving referrals. It does not matter whether you receive direct compensation for a specific referral. If you benefit financially from the success of the entity you’re referring to, that counts.

For federal programs, this could also violate the Anti-Kickback Statute (AKS) (42 U.S.C. Sec 1320a-7b(b)), which prohibits offering or receiving any remuneration in exchange for referrals. AKS is broader than Stark or PORA and applies to any party involved in the referral chain, not just physicians.

Can I pay for patient referrals?

No. Offering or paying for patient referrals is generally illegal under both federal and California law.

The federal Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive anything of value in exchange for referring patients for services covered by federal healthcare programs, including Medicare and Medicaid. This includes cash, gifts, free rent, excessive compensation, or anything else of value. Violations can result in criminal prosecution, large fines, and exclusion from federal healthcare programs.

In California, Business and Professions Code Sec 650 similarly prohibits offering or accepting any type of consideration or compensation for referring patients for any healthcare service, regardless of the patient’s insurance status. The law is broad and applies to all healthcare providers and all payor types.

There are limited exceptions, such as properly structured marketing and advertising arrangements or bona fide employment relationships, but these must be carefully crafted to comply with applicable “safe harbor” or exemption rules.

The safest course is to avoid paying or receiving anything of value in exchange for referrals unless the arrangement has been reviewed by legal counsel and clearly fits within a statutory or regulatory exception.

Do these laws apply to referrals for outpatient doctor visits?

It depends on the context and the specific law.

• Under the federal Stark Law, restrictions apply only to referrals for certain Designated Health Services (DHS) paid for by Medicare or Medicaid. Routine outpatient visits to another physician (e.g., for evaluation or management) generally do not fall under Stark, unless the referred service includes DHS like lab work or imaging. If no DHS is involved, Stark usually does not apply.
• The Anti-Kickback Statute (AKS) is broader. It applies to any referrals involving federal healthcare programs (Medicare, Medicaid, TRICARE), including referrals for outpatient visits, if there is any remuneration involved. For example, if a doctor receives payment, gifts, or other benefits in exchange for sending patients to another provider, that can trigger AKS liability—even for routine office visits.
• In California, Business and Professions Code Sec 650 and PORA (Sec 650.01) may apply to referrals for outpatient doctor visits if the referring provider has a financial interest in the receiving provider’s practice. While PORA specifically targets certain services like imaging and surgery, Sec 650 is broader and prohibits paying or receiving compensation for any patient referral, including office visits, unless a legal exception applies.

In summary: While Stark often does not apply to routine outpatient referrals, both AKS and California law may apply if there’s a financial relationship or compensation involved. Even seemingly routine referrals should be carefully evaluated for compliance.

Are there any exceptions or safe harbors to these rules?

Yes, but they are strict and specific.

• Stark Law allows exceptions for things like in-office ancillary services, group practice structures, fair market value leases, and employment relationships.
• PORA incorporates many similar exceptions but only under narrow conditions.
• The Anti-Kickback Statute provides “safe harbors” for arrangements like properly structured joint ventures, lease agreements, and personal services contracts, but only if all criteria are met.

Failing to meet even one condition can result in a violation, so it is important to have legal review of any such arrangements.

Does intent matter if I accidentally make a non-compliant referral?

It depends on the law.

• Stark Law is a strict liability statute. Intent does not matter. If you make a prohibited referral, it is a violation even if you did not know it was wrong.
• PORA, by contrast, requires knowledge or intent. You must knowingly make a prohibited referral to be in violation.
• The Anti-Kickback Statute also requires knowing and willful conduct, as it is a criminal statute.

While an honest mistake might not result in a PORA or AKS conviction, it can still violate Stark and expose you to serious penalties.

What are the consequences of violating these laws?

Violations can result in severe penalties, including:

• Stark Law: Civil fines up to $15,000 per service, denial of payment, and potential exclusion from Medicare and Medicaid.
• Anti-Kickback Statute: Criminal fines up to $100,000 per violation, up to 10 years in prison, civil penalties, and exclusion from federal healthcare programs.
• PORA: Civil fines of up to $15,000 per referral, misdemeanor criminal charges, and disciplinary action by medical licensing boards.

Improper referrals can also expose you to liability under both the federal and California False Claims Acts if claims are submitted for services that stem from illegal referrals.

Does California law apply if the patient isn’t covered by Medicare or Medicaid?

Yes. PORA applies to all patients, including those with private insurance or who pay out-of-pocket. Unlike Stark or AKS, which apply only to federally funded healthcare programs, PORA has no such limitation. That makes it especially important for California providers to evaluate all referral relationships, not just those involving government payors.

What’s the general rule of thumb I should follow?

Do not refer patients to a business or service if you or your family stand to make money from that referral, unless you have confirmed the arrangement is legal under all applicable laws. Even well-meaning arrangements can result in serious legal and financial consequences if they are not carefully structured to fit within a legal exception or safe harbor.

More Details on Each Law

What is the Stark Law (Physician Self-Referral Law)?

The Stark Law is a federal statute that prohibits physicians from referring Medicare or Medicaid patients for certain designated health services (DHS) to an entity with which the physician or an immediate family member has a financial relationship, unless an exception applies.

Key Features:

• Applies only to Medicare and Medicaid.
• Covers Designated Health Services (DHS) such as:
  • Laboratory services
  • Imaging (e.g., MRI, CT, ultrasound)
  • Physical and occupational therapy
  • Durable medical equipment
  • Home health services
  • Inpatient and outpatient hospital services
• Strict liability: a healthcare professional can be in violation of the Stark Law even when they do not intend to violate the law.

Penalties:

• Claims will be denied, and those that have been paid are subject to repayment
• Civil penalties up to $15,000 per service.
• The healthcare provider may be excluded from federal healthcare programs.

What is the Anti-Kickback Statute (AKS)?

The Anti-Kickback Statute is a federal criminal law that prohibits the offer, payment, solicitation, or receipt of anything of value to induce or reward referrals for items or services reimbursable by any federal healthcare program (e.g., Medicare, Medicaid, TRICARE).

Key Features:

• Applies to any individual or entity, not just physicians.
• Covers all federal healthcare programs.
• Requires knowing and willful intent to violate the law.
• Encompasses both sides of a referral arrangement.

Penalties:

• Criminal fines up to $100,000 per violation.
• Up to 10 years in prison.
• Civil monetary penalties and program exclusion.

What is the California Physician Ownership and Referral Act (PORA)?

Under the California Physician Ownership and Referral Act (PORA), physicians may not make referrals to entities in which they (or their immediate family members) have a financial interest, regardless of the payor source.

Found in California Business & Professions Code Sec 650.01.

Key Features:

• Applies to all patients, not just those covered by federal programs—private insurance and cash-pay patients are included.
• Prohibits referrals for certain services where the referring physician (or family member) has a financial interest in the entity receiving the referral.
• Services covered include:
  • Clinical laboratory services
  • Diagnostic imaging
  • Radiation oncology
  • Physical therapy
  • Outpatient surgery services

Exceptions:

• In-office ancillary services
• Pre-existing group practice arrangements
• Lease and rental agreements meeting statutory requirements
• Certain publicly traded corporations

Penalties:

• Violation is a misdemeanor under California law.
• Fines of up to $15,000 per referral.
• Disciplinary action by medical licensing boards.
• Potential exposure under the California False Claims Act.

Side-by-Side Comparison

Compliance Best Practices for California Providers

• Review financial relationships with imaging centers, labs, therapy clinics, and outpatient surgery centers.
• Ensure that any ownership or compensation arrangement complies with both federal and state laws.
• Use written agreements that clearly meet legal exceptions.
• Conduct regular compliance audits with legal counsel.
• Train staff on referral and anti-kickback rules to avoid unintentional violations.

Further Resources

Guide to the Laws for Owners of a Medical Practice in California

HHS.gov: Healthcare Fraud & Abuse Laws

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