Imagine trusting your doctor’s recommendation for a medical service, believing it’s based solely on your health needs. Now, imagine discovering that your physician referred you not because it was the best choice, but because they had a financial stake in the facility.
Would you feel deceived?
This is precisely the type of unethical practice that federal Stark Law regulations aim to prevent.
For healthcare providers in the Lone Star State, noncompliance isn’t just a federal issue — it can also violate the Texas Patient Solicitation Act, also known as the Texas Stark Law or Anti-Kickback Law. Both laws were created to prevent unethical medical practices and ensure fair and transparent healthcare services.
The penalties for both can be severe, with settlements reaching hundreds of millions of dollars. Let’s explore what Stark Law is, how it’s violated, the penalties for breaking it, and real-world Stark Law violation examples — particularly in Texas.
The U.S. healthcare system operates under strict regulations to protect patients from financial conflicts of interest and ensure medical referrals are made based on necessity — not personal profit. One of the most significant laws governing these ethical concerns is the Physician Self-Referral Law, commonly known as Stark Law.
The Stark Law prohibits physicians from referring Medicare or Medicaid patients to a healthcare entity where the physician or an immediate family member has a financial relationship, unless an exemption applies.
Named after Congressman Pete Stark, this law was introduced to combat financial incentives that could lead to unnecessary medical procedures and inflated healthcare costs. The law seeks to:
Ensure that medical decisions are based on patient well-being.
Prevent self-referrals that create conflicts of interest.
Reduce fraudulent billing to Medicare and Medicaid.
Physicians in private practices
Hospital-employed doctors
Medical directors and administrators
Diagnostic centers, laboratories, and imaging facilities
Stark Law applies to designated health services, including:
Laboratory testing
Radiology and imaging services
Physical and occupational therapy
Home healthcare services
Inpatient and outpatient hospital services
While Stark Law might seem straightforward, violations occur in various ways. Some of the most common infractions include:
Financial incentives for patient referrals: Physicians can’t receive kickbacks, commissions, or monetary rewards for referring patients to facilities or services in which they have ownership or financial stakes.
Improper physician compensation: Hospitals or medical groups cannot compensate doctors based on the number of referrals they make. Payments that exceed fair market value can be flagged as violations.
Billing for unnecessary services: Medical providers may submit claims for procedures that are not medically necessary or were improperly performed.
Disguised kickback schemes: Some violations occur when doctors receive indirect compensation through third-party entities, such as management service organizations (MSOs) or shell companies.
Violating Texas regulations: In addition to Stark Law, Texas healthcare providers must comply with the Anti-Kickback Statute, which closely resembles the federal law but applies to state-funded healthcare programs.
Any of these violations can trigger severe penalties, including hefty fines, loss of reimbursement rights, and even criminal charges in extreme cases.
Stark Law penalties can be devastating for both individuals and organizations. Violators may face:
Denial of payment
Mandatory refunds
Civil financial penalties.
Exclusion from federal and state healthcare programs
Hefty corporate settlements
To understand just how costly Stark Law violations can be, let's take a look at seven real-world cases, several of which involved Texas healthcare providers:
Allegations:
Failed to include the necessary code and facility location details when submitting Medicare claims for services provided at non-excepted off-campus outpatient facilities in Dallas, Richardson, and Coppell.
Entered into financial relationships with physician-owned management companies and created inappropriate equipment leasing arrangements.
Final payout: $14.2 million
Allegations:
Former CEO Jeffrey Madison orchestrated a kickback scheme from January 2015 to June 2018, leading to false Medicare, Medicaid, and TRICARE claims.
Little River Healthcare paid illegal commissions to recruiters, who used MSOs to funnel kickbacks to physicians for lab referrals.
Madison knowingly signed false Medicare certifications, misleading federal healthcare programs.
Dr. Doyce Cartrett Jr. received $2,000/month in disguised "medical director fees" to steer lab testing referrals to Little River.
Final payout: $5.34 million
Allegations:
From 2014 to 2017, Dr. Mohammad Athari and United Neurology P.A. falsely billed Medicare Part B for medically unnecessary services. These bills were either unsupported by patient records or improperly performed by unlicensed technicians.
From 2014 to 2021, Athari violated the Stark Law by referring neurology patients to diagnostic centers he owned (Universal MRI facilities in Baytown, Humble, and Conroe), creating illegal financial conflicts of interest.
Final payout: $1.8 million
Allegations:
From 2014 to 2023, Cardiac Imaging Inc. (CII) and its CEO, Sam Kancherlapalli, paid illegal kickbacks to cardiologists to secure patient referrals for PET scans.
CII overpaid physicians — $500+ per hour — to supervise PET scans, often compensating them for time when they were not on-site or not performing services.
CII relied on a fair market value analysis that it knew was inaccurate.
Final Payout: $85.5 million
Allegations:
From 2013 to 2018, Oliver Street Dermatology Management LLC (doing business as U.S. Dermatology Partners) acquired dermatology practices across the U.S. Former senior managers allegedly inflated purchase prices of 11 acquired practices in exchange for agreements that providers would refer services to USDP-affiliated entities.
Some of these referred services were later billed to Medicare.
Final payout: $8.9 million
Allegations:
Community Health Network (CHN) illegally overpaid physicians to secure lucrative patient referrals.
CHN paid salaries up to double market value and awarded bonuses tied to referral volume.
CHN misled valuation firms by providing false data to justify excessive salaries.
CHN ignored repeated warnings about the legal risks of overcompensating physicians.
CHN submitted false Medicare claims for services stemming from these arrangements.
Final payout: $345 million
Allegations:
Weirton paid physicians compensation that may have exceeded fair market value, potentially incentivizing physician referrals to the hospital.
The medical center submitted false claims to Medicare for services provided under these arrangements.
Final payout: $1.5 million
Preventing Stark Law violations requires a comprehensive and proactive approach. Texas healthcare providers should consider the following steps:
Develop a robust compliance program: Implement written policies and procedures, conduct regular staff training, and designate a compliance officer.
Regularly review financial arrangements: Ensure all physician compensation and referral agreements are at fair market value and do not include referral incentives.
Conduct internal audits: Regularly review billing practices, referral patterns, and financial records to identify potential red flags.
Seek legal counsel: Hire experienced healthcare attorneys to review contracts and ensure compliance with Stark Law and other relevant regulations.
Stay informed: Keep up-to-date on changes in Stark Law regulations and enforcement trends.
The Stark Law is not merely a technicality; it is a critical safeguard against self-dealing and financial conflicts of interest in healthcare.
These seven expensive lessons demonstrate the severe consequences of noncompliance, emphasizing the need for robust compliance programs and a culture of ethical practice. Texas healthcare providers must prioritize Stark Law compliance to avoid financial penalties and legal repercussions and ensure patient well-being remains the #1 concern.
Is your practice compliant? Contact us for a free practice analysis to identify regulatory and liability issues.
(Editor’s note: This blog was originally published in January 2022 and was updated in February 2025 with new information.)