Do Anti-Kickback and Stark Laws Apply to Direct Primary Care?
They can, and in more situations than the membership model suggests. The federal Anti-Kickback Statute covers anything of value offered or received to induce referrals of items or services paid by Medicare, Medicaid or another Federal health care program, and the Stark law covers referrals of Medicare patients for lab work, imaging and other designated health services to entities you have a financial relationship with. Opting out of Medicare ends your own billing, but the labs, imaging centers, specialists and hospitals you send Medicare and Medicaid patients to still bill those programs, so the rules can still reach those referrals. State patient-brokering and fee-splitting laws can reach cash-pay arrangements too.
This guide explains each rule in plain language and links every point to the statute, regulation or agency page it comes from. It is general information, not legal advice. These rules turn on the exact facts of an arrangement, so have a health care attorney in your state review any deal that involves referrals before you sign it. The good news is that a few places to check in a membership practice are easy to spot, such as referral rewards, space shared with a referral source, payments from labs or vendors, and ownership in anything you refer patients to.
The Fraud and Abuse Rules a DPC Should Know at a Glance
OIG's physician education page on fraud and abuse laws names five federal laws that matter most to physicians. For a DPC, the referral rules below come up most, plus state laws, which can reach further than federal ones.
| Rule | What it prohibits | Which patients it covers | Intent required | Where it touches a DPC |
|---|---|---|---|---|
| Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b) | Offering, paying, soliciting or receiving anything of value to induce or reward referrals | Items and services paid by a Federal health care program | Knowing and willful | Referrals you make for labs, imaging, specialists and drugs for Medicare and Medicaid patients |
| Stark law, 42 U.S.C. 1395nn | Referring Medicare patients for designated health services to an entity you or a family member have a financial relationship with | Medicare, with certain aspects applied to Medicaid | None, strict liability | Owning, investing in or being paid by a lab, imaging center, PT clinic or hospital you refer to |
| Beneficiary inducement law, 42 U.S.C. 1320a-7a(a)(5) | Giving Medicare or Medicaid patients something of value likely to influence their choice of provider | Medicare and state health care program beneficiaries | Knows or should know | Gifts, free services and copay waivers, especially in hybrid practices |
| Eliminating Kickbacks in Recovery Act, 18 U.S.C. 220 | Paying or receiving remuneration for referrals to labs, recovery homes and clinical treatment facilities | Any public or private health care benefit program | Knowing and willful | Any offer from a lab to pay you per specimen or per patient |
| State patient-brokering laws, such as Florida 817.505 and Texas Occupations Code 102.001 | Paying or accepting anything of value for securing or referring patients | Written without a payer limit, with exceptions | Varies by state | Referral rewards, marketers paid per patient, fee splitting |
What Is the Federal Anti-Kickback Statute?
The Anti-Kickback Statute is a criminal law. It makes it a felony to knowingly and willfully offer or pay, or solicit or receive, any remuneration (including any kickback, bribe or rebate) to induce or reward the referral of an individual for an item or service paid by a Federal health care program, or for purchasing, ordering or recommending one. Both sides of the deal are covered, the one who pays and the one who receives.
"Remuneration" is broader than cash. OIG's General Compliance Program Guidance describes it as anything of value, including cash equivalents, space, equipment, services and the opportunity to earn a fee, and notes that courts have read the statute to cover any arrangement where one purpose of the payment is to induce referrals. Under subsection (h), a person does not need actual knowledge of the statute or a specific intent to violate it.
The statute sets the criminal penalty at a fine of up to $100,000, up to 10 years in prison, or both.
OIG's guidance adds that a conviction leads to mandatory exclusion from Federal health care programs, and under subsection (g) a claim that results from a kickback is also a false claim under the False Claims Act.
On the civil side, 42 U.S.C. 1320a-7a(a)(7) sets a penalty of up to $100,000 for each act, plus up to three times the total remuneration.
Which programs count as a "Federal health care program"?
Subsection (f) defines it as any plan or program providing health benefits that is funded in whole or in part by the U.S. government, plus state health care programs, so Medicare, Medicaid and TRICARE all count. It expressly excludes the Federal Employees Health Benefits Program (chapter 89 of title 5). Private insurance and self-funded employer plans fall outside it, which is why state laws and the lab law below matter for cash and commercial arrangements.
What are the safe harbors?
Safe harbors are arrangements OIG will not treat as kickbacks, and OIG's physician page says an arrangement must fit squarely in one and satisfy all of its requirements. They live in 42 CFR 1001.952, and three a DPC may meet are these:
- Space rental, 1001.952(b). A written, signed lease of at least a year at fair market value set in advance, not tied to referrals. Our guide to DPC office space covers it.
- Personal services and management contracts, 1001.952(d). Medical directorships and consulting under a signed written agreement of at least a year, with the pay method set in advance at fair market value and not tied to referrals.
- Employees, 1001.952(i). Pay to bona fide employees for furnishing covered items or services.
Falling outside a safe harbor does not make an arrangement illegal by itself, but it will be judged on its facts and intent.
What Is the Stark Law, and Does It Apply If You Opted Out of Medicare?
The physician self-referral law, known as the Stark law, is narrower and stricter than the Anti-Kickback Statute. CMS's Physician Self-Referral page says it prohibits a physician from making referrals for certain designated health services payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship, unless an exception applies, and that Congress applied certain aspects of it to Medicaid.
A financial relationship is either an ownership or investment interest in the entity or a compensation arrangement with it. The designated health services listed in subsection (h)(6) are these:
- Clinical laboratory services
- Physical, occupational and outpatient speech-language therapy
- Radiology and certain other imaging services, and radiation therapy
- Durable medical equipment and supplies, and parenteral and enteral nutrients
- Prosthetics, orthotics and prosthetic devices
- Home health services
- Outpatient prescription drugs
- Inpatient and outpatient hospital services
OIG's General Compliance Program Guidance calls the Stark law a strict liability statute and suggests reviewing an arrangement under Stark first, then separately under the Anti-Kickback Statute. Under subsection (g), claims from a prohibited referral are not paid and amounts collected must be refunded.
The statute sets a civil penalty of up to $15,000 for each service billed in violation and up to $100,000 for each circumvention scheme.
Those civil amounts are adjusted for inflation every year in 45 CFR 102.3, so the current maximums are higher than the figures written in the statute.
What changes when your practice has opted out?
Opting out does not stop you from ordering care that Medicare pays for. Under 42 CFR 405.425(i), an opted-out physician who is not excluded (and whose Medicare enrollment is not revoked) may still order, certify, prescribe and refer for Medicare-covered items, services and drugs, as long as the physician is not paid, directly or indirectly, for those services. Our guide on how to opt out of Medicare for a DPC covers that rule.
The Stark law is written around the referral and the entity that bills Medicare for it. When you send a Medicare patient to a lab, imaging center or hospital, that entity still submits the claim. So if you or a family member own part of that lab, or the imaging center pays you a monthly fee, the arrangement needs a Stark review even though your membership fees never touch Medicare. The in-office ancillary services exception in subsection (b)(2) covers some services inside your own practice, with detailed conditions.
How Each Rule Applies to Different Kinds of DPC Practices
Most of the confusion comes from treating "DPC" as one thing. This table is a starting map for a conversation with your attorney, not a conclusion about any one practice.
| Practice setup | Anti-Kickback Statute | Stark law | Beneficiary inducement | State laws |
|---|---|---|---|---|
| Opted out, no Medicare, Medicaid or TRICARE patients | Rarely, since few of your referrals are federally paid | Not for your own patients, since it covers Medicare referrals | Mostly not | Still apply where the state's law has no payer limit |
| Opted out, with Medicare patients under private contracts | Can apply to referrals for labs, imaging, specialists and drugs Medicare pays for | Can apply to referrals of those patients to entities you have a financial relationship with | Worth reviewing for gifts and perks to Medicare members | Still apply |
| Hybrid practice that bills Medicare or Medicaid for some services | Applies fully, including to the services you bill | Applies fully, including in-office lab and imaging | Applies fully, including routine copay waivers | Still apply |
| Employer and broker deals | Only if the deal touches federal program business | Not directly | Not directly | Worth an attorney's review, especially per-member broker fees |
Our 2027 guide to starting a DPC and the article on DPC for seniors on Medicare show how the Medicare decision shapes the rest.
Gifts, Free Services and the Beneficiary Inducement Rule
The beneficiary inducement provision in 42 U.S.C. 1320a-7a(a)(5) covers offering remuneration to a Medicare or state health care program beneficiary that you know or should know is likely to influence their choice of provider for services those programs pay for. Here "remuneration" includes waiving coinsurance and deductibles and giving items or services free or below fair market value, with exceptions in subsection (i)(6), such as non-routine, unadvertised waivers for patients in financial need.
The statute sets a civil penalty of up to $20,000 for each item or service, before the annual inflation adjustment.
Small thank-yous are not the target. OIG's December 2016 policy statement on gifts of nominal value, which its 2023 compliance guidance still cites, says gifts under the nominal value threshold do not need to fit an exception.
That threshold is a retail value of no more than $15 per item or $75 in total per patient per year.
The items cannot be cash or cash equivalents, so a gift card does not qualify however small it is. For a hybrid practice that bills Medicare, routine copay waivers are the classic problem, one more reason to keep the membership and any billed services clearly separate.
Can a DPC Offer Patients a Reward for Referrals?
Asking happy members to tell their friends is fine and costs nothing. The legal questions start when a reward is attached, such as a free month, a discount, a gift card or a cash bonus for each new member.
If any of your members are on Medicare, Medicaid or TRICARE, a reward for bringing in patients can raise Anti-Kickback and beneficiary inducement questions, especially when the new patient will receive services those programs pay for. Even for a cash-only, fully opted-out practice, state law is the next thing to check. Florida's Patient Brokering Act makes it unlawful for any person, including a health care provider, to offer or pay a commission, bonus, rebate, kickback or bribe to induce patient referrals, with exceptions that include payment practices the federal Anti-Kickback Statute does not prohibit. Texas Occupations Code 102.001 makes it an offense to pay or accept remuneration "for securing or soliciting a patient or patronage" for a licensed provider, and section 102.003 permits what the federal statute permits.
How those exceptions apply to a cash-pay membership is a question for a health care attorney in your state before you launch a program. In the meantime, a few lower-risk habits keep referrals growing:
- Ask every member the same way for an introduction or a review, and make it easy with a short link or a card they can hand a friend.
- Thank people with a handwritten note rather than money, credits, gift cards or anything that grows with the number of people they send.
- Track how each new member heard about you, without paying anyone per patient.
Our first-year DPC marketing plan covers the referral habit and the separate rules on incentivizing reviews.
Paying Marketers, Brokers, Labs and Other Doctors
Business relationships deserve the same care as patient rewards. Take a second look at these before you sign:
- Labs that offer to pay you. The Eliminating Kickbacks in Recovery Act makes it a federal crime to pay or receive remuneration for referrals to a laboratory for services covered by a health care benefit program, which 18 U.S.C. 24(b) defines to include private plans. A per-specimen fee or free staff from a lab deserves an attorney's review whatever the payer. Our guide to in-office dispensing and labs covers how DPCs usually buy lab work.
- Marketers and brokers paid per member. Florida's and Texas's patient-brokering laws speak of paying to refer or secure a patient or patronage, so ask your attorney how they apply to a per-member or per-employer fee. Flat fees at fair market value for real services are closer to what the federal personal services safe harbor describes. Our guide on selling DPC to employers explains how brokers fit in.
- Specialists and other physicians. Florida's medical practice act, for example, lists "paying or receiving any commission, bonus, kickback, or rebate, or engaging in any split-fee arrangement" for patient referrals as grounds for discipline in section 458.331(1)(i).
- Ownership stakes. Owning part of a lab, imaging center, pharmacy or PT clinic you refer to is the core Stark scenario. Our guide to choosing a PLLC or LLC touches on how ownership interacts with these rules.
State Anti-Kickback and Fee-Splitting Laws
State rules such as Florida's and Texas's are written without the federal-program limit in the Anti-Kickback Statute, though Florida carves out what that statute doesn't prohibit and Texas what it permits, and the penalties are real. Texas treats a first offense under 102.001 as a Class A misdemeanor and a repeat offense as a third-degree felony. Florida treats a violation of 817.505 as a third-degree felony, rising to a second-degree felony at 10 patients and a first-degree felony at 20 or more.
The base Florida fine is $50,000, rising to $100,000 and then $500,000 at those higher patient counts.
Medical practice acts add fee-splitting rules like Florida's 458.331(1)(i) above. Our DPC laws by state guide and the state pages at /start-a-dpc are good places to start, and your state's statutes are the final word.
A Short Checklist Before You Sign Anything
A few habits help keep you on the clear path:
- Write it down. Every lease, directorship, consulting deal or vendor arrangement with someone who sends you patients, or receives them, belongs in a signed agreement with terms set in advance.
- Pay fair market value, never per referral. Pay that rises with the number of patients, specimens or orders is what the space rental and personal services safe harbors above don't protect.
- Know which patients are federal program beneficiaries. Medicare, Medicaid and TRICARE members change the analysis, so keep that flag in your records.
- Screen your team. OIG's exclusions database shows whether a new hire or contractor is excluded from Federal health care programs.
- Ask before you reward. Run any referral reward or gift program past a health care attorney in your state first.
- Review once a year. Put a renewal date and a fair market value note on every agreement.
Keeping the Paper Trail Simple
Staying on the clear path is also about follow-through, since leases need renewal dates and every outside agreement needs a place the whole team can find it. When that information is spread across an EHR, a billing tool, a shared drive and a message thread, small things slip, because the tools were never built to talk to each other.
Tabflows is a dedicated tech team that connects the tools your clinic already uses, like your EHR, billing and messaging, so follow-ups, tasks and patient context live in one place. It will not replace your attorney, but it can help track whether the referral you sent got scheduled. Our specialist referral tracking workflow is a good place to start.
FAQs
Does the Anti-Kickback Statute apply to a direct primary care practice?
It can. The federal Anti-Kickback Statute (42 U.S.C. 1320a-7b(b)) makes it a felony to knowingly and willfully offer, pay, solicit or receive anything of value to induce or reward referrals of items or services paid for by a Federal health care program, such as Medicare or Medicaid. A cash-only DPC membership is not paid by those programs, but the labs, imaging, specialist visits, hospital care and prescriptions you order for Medicare and Medicaid patients usually are, so a payment or perk tied to those referrals can fall under it.
Does the Stark law apply if I opted out of Medicare?
Opting out does not, on its own, take you outside the Stark law. The physician self-referral law (42 U.S.C. 1395nn) bars a physician from referring Medicare patients for designated health services, such as clinical lab work, imaging, physical therapy and hospital services, to an entity the physician or an immediate family member has a financial relationship with, unless an exception applies. Opted-out physicians can still order and refer for Medicare-covered services under 42 CFR 405.425(i), and the lab or hospital still bills Medicare, so ownership or pay arrangements with those entities need a Stark review with a health care attorney.
Can a DPC give patients a free month for referring a friend?
Be careful. If any of your patients are covered by Medicare, Medicaid or another Federal health care program, a reward for bringing in patients can raise questions under the Anti-Kickback Statute and the beneficiary inducement law (42 U.S.C. 1320a-7a(a)(5)). Some states, including Florida (Statutes 817.505) and Texas (Occupations Code 102.001), also have patient-brokering or patient-solicitation laws written without a federal-program limit, with carve-outs for what the federal Anti-Kickback Statute doesn't prohibit (Florida) or permits (Texas). Ask a health care attorney in your state how those apply before launching any paid or discounted referral program.
What is the nominal value limit for gifts to Medicare patients?
In its December 7, 2016 policy statement, still cited in its 2023 General Compliance Program Guidance, the HHS Office of Inspector General interprets nominal value as no more than $15 per item or $75 in total per patient per year, and the items may not be cash or cash equivalents. Gifts at or under those amounts do not need to fit an exception to the beneficiary inducement law.
Is the Stark law strict liability?
Yes. OIG's General Compliance Program Guidance calls the physician self-referral law a strict liability statute, which means intent does not matter if an arrangement fails an exception. The Anti-Kickback Statute is intent-based, but under 42 U.S.C. 1320a-7b(h) a person does not need to know about the statute or specifically intend to violate it. OIG suggests reviewing an arrangement under Stark first and then separately under the Anti-Kickback Statute.
Can a lab pay my DPC for sending it specimens?
Treat that as off limits unless a health care attorney has approved the exact arrangement. The Eliminating Kickbacks in Recovery Act (18 U.S.C. 220) makes it a federal crime to pay or receive remuneration for referrals to a laboratory for services covered by any health care benefit program, and its definition in 18 U.S.C. 24(b) includes private plans as well as public ones. If the patients are on Medicare or Medicaid, the Anti-Kickback Statute and Stark law can apply too.