By Fisher, JD, CHC, CCEP
When Can an Employer Require Referrals from Employed Physicians Under the Stark Law?
The Stark Law, also known as the Physician Self-Referral Law, generally prohibits physicians from referring Medicare or Medicaid patients for designated health services (DHS) to an entity with which the physician—or an immediate family member—has a financial relationship, unless an exception applies. The law is intended to protect clinical decision-making from improper financial influence while recognizing that legitimate employment relationships are common in healthcare.
For healthcare organizations, a recurring question is whether an employer may require employed physicians to refer patients to specific providers, facilities, or services. The answer depends on whether the arrangement satisfies a Stark Law exception. For employed physicians, the most relevant exception is the bona fide employment exception.
The Bona Fide Employment Exception
Under the bona fide employment exception, an employer may direct referrals from employed physicians to the employer, its affiliates, or other specified providers, but only if the arrangement includes appropriate safeguards. In general, a referral requirement should meet the following conditions:
- The employment arrangement covers identifiable services.
- The physician’s compensation is consistent with fair market value and is not based on the volume or value of referrals, except for permissible productivity bonuses tied to personally performed services.
- The referral requirement is set out in writing, typically in the employment agreement.
- The requirement does not apply when the patient chooses another provider, the patient’s insurer directs the referral elsewhere, or the referral would not be in the patient’s best medical interests.
In other words, an employer may impose a referral requirement only within carefully defined limits. The requirement cannot override patient choice, payer requirements, or the physician’s independent clinical judgment. These safeguards help ensure that patient welfare remains paramount and that referrals are not driven solely by business interests.
Practical Compliance Considerations
Healthcare organizations should document referral requirements clearly in employment agreements and train physicians on when those requirements do—and do not—apply. Organizations should also review compensation structures carefully to avoid any appearance that physicians are being rewarded for the volume or value of referrals.
In summary, the Stark Law may permit an employer to require referrals from employed physicians under the bona fide employment exception, but only if the requirement is carefully limited. Patient preference, payer rules, and the patient’s best medical interests must always take priority.
