This article is part of our complete legal guide to selling a medical practice.
These laws are not technicalities. Stark is a strict liability civil statute, and the Anti-Kickback Statute is a criminal law. Buyers take them seriously, and sellers should too, because a structure that fails can unwind payments and create exposure for everyone involved.
What is the Stark Law?
The physician self-referral law, known as Stark, generally prohibits a physician from referring Medicare patients for certain designated health services to an entity with which the physician, or an immediate family member, has a financial relationship, unless an exception applies. Designated health services include items such as clinical laboratory services, imaging, physical therapy, and hospital services. Stark's referral and billing prohibitions do not require proof of intent, so a technical failure to meet an exception can be enough. Separate civil monetary penalties apply to conduct a person knows or should know is improper.
What is the Anti-Kickback Statute?
The Anti-Kickback Statute makes it a crime to knowingly and willfully offer, pay, solicit, or receive anything of value to induce or reward referrals of business payable by federal health care programs. Unlike Stark, it requires conduct that is knowing and willful, but it does not require actual knowledge of the statute or a specific intent to violate it. The Fourth Circuit, whose decisions govern federal courts in Virginia and North Carolina, has approved the rule that the statute is violated if at least one purpose of a payment is to induce referrals (United States v. Mallory, 2021). A claim that includes items or services resulting from a violation is also a false claim under the False Claims Act. Regulatory safe harbors protect certain arrangements that meet all of their requirements.
Where do these laws show up in a practice sale?
| Deal term | Why it matters |
|---|---|
| Purchase price | Should be supported as fair market value for the assets or business sold, often with an independent valuation, and should not reflect expected referrals to the buyer |
| Installment payments and earnouts | Stark's isolated transaction exception can cover a one-time practice sale paid in installments, but the total price must be fixed before the first payment, payment must be secured by a note or similar protection, and no additional transactions are permitted for six months except those meeting another exception. Calling an earnout deferred purchase price does not avoid these tests. |
| Post-closing compensation | Physician pay under the new employment agreement should be fair market value for services actually performed |
| Rollover equity | Equity in a platform that furnishes designated health services can be an ownership interest under Stark, and privately held platform equity does not fit the exceptions for publicly traded securities. The ownership chain and an applicable exception need to be analyzed. |
| Management fees and leases | The Anti-Kickback safe harbor for management contracts requires a signed writing for at least one year and a compensation methodology set in advance at fair market value. A percentage-of-revenue fee needs separate analysis, including under state fee-splitting rules. |
Valuation is the foundation of most of this analysis. Our guide to how a medical practice is valued explains the methods a buyer and appraiser are likely to use.
Is there a safe harbor for selling a practice?
The Anti-Kickback Statute has a sale-of-practice safe harbor, but it is narrow. A sale to another practitioner must be completed within one year, after which the seller can no longer be in a position to generate business for the buyer. A sale to a hospital or other entity, which can include an MSO, must be completed within three years, the seller generally cannot remain in a position to make or influence referrals to the buyer, and the practice must meet health professional shortage area conditions. Because most selling physicians keep practicing for the buyer, private equity and hospital acquisitions usually are not protected simply because they are practice sales. They rely instead on fair market value and the structure of each payment.
Do states have their own rules?
Yes. Virginia's Practitioner Self-Referral Act (Va. Code § 54.1-2410 et seq.) and North Carolina's self-referral statutes (N.C. Gen. Stat. § 90-405 et seq.) restrict referrals to entities in which the physician is an investor, and neither is limited to Medicare or Medicaid patients. Virginia also restricts physician fee-sharing in return for referrals (Va. Code § 54.1-2962) and the receipt of payments for referrals to certain facilities (Va. Code § 54.1-2962.1). The state rules should be reviewed alongside the federal laws for any transaction.
Who is responsible for compliance?
Both sides. Buyers usually lead the structuring and obtain the valuation, but a seller who receives payments under a non-compliant arrangement is not insulated simply because the buyer designed it. The purchase agreement's representations, indemnities, and compliance covenants also allocate who bears the cost if a problem is found later.
Related guides
- Selling a Medical Practice: The Complete Legal Guide (start here)
- 7 Common Mistakes Physicians Make When Selling a Practice
- Selling Your Practice to Private Equity
- What Is an MSO?
- How to Value a Medical Practice
- The Corporate Practice of Medicine in a Practice Sale
- Letters of Intent When Selling a Medical Practice
- Rollover Equity: What Physicians Should Know
- Your Employment Agreement After Selling Your Practice
- Non-Competes After Selling a Medical Practice
- F Reorganizations in a Medical Practice Sale
- Due Diligence When Selling a Medical Practice
- Selling to a Hospital, Private Equity, or Another Physician
About Med Contract Law. Med Contract Law is a focused practice group of McCormick Law & Consulting dedicated to physicians. We represent physicians and physician-owned practices in practice sales, private equity and MSO transactions, and hospital acquisitions. In these matters, we represent the physician side, not hospitals or health systems, so our focus is always on the physician's side of the deal.
If you are considering an offer for your practice, a fraud and abuse review of the price and post-closing arrangements should happen before the letter of intent is final. Schedule a confidential consultation to talk through your situation.
Unfamiliar with a term? See our physician contract and practice sale glossary.
Frequently asked questions
Does the Stark Law apply to selling a medical practice? It can. If the physician will have a financial relationship with the buyer after closing and refers designated health services to it, the arrangement generally must fit within a Stark exception.
What is the difference between Stark and the Anti-Kickback Statute? Stark is a strict liability civil law focused on physician self-referrals for designated health services. The Anti-Kickback Statute is a criminal law that requires intent and covers payments to induce referrals of any federal health care program business.
Why does fair market value matter so much? Both laws focus on whether payments are disguised compensation for referrals. Payments that reflect fair market value for real assets or services are much easier to defend.
Do state laws also apply? Yes. Many states have their own self-referral and anti-kickback laws, and some reach commercial and self-pay business.