Minimizing Stark Law and Anti-Kickback Statute Liability In California

When trying to make business arraignments between a healthcare provider or agency and another party, liability issues can get pretty hairy quickly. Well known laws that affect most healthcare providers and their practices are Stark Law (physician self-referral) and the Federal Anti-Kickback Statutes (fee-splitting). Since both of these laws are Federal, they will govern a situation if there is any federal money involved as reimbursement, namely, Medicare and Medicaid.

That being said, 37 states, including California, have enacted their own particular laws that that govern self-referrals and fee splitting. Many times the state law may even be stricter than the Federal one, as in the case of California.

This article is not intended to be a definitive guide on fee-splitting or kickbacks and will not talk about ‘safe harbors’ that could protect the interests of providers. However, hopefully it serves more as a broad-brush quick overview of main California law and some guidelines on how to stay within State regulator scrutiny free boundaries.

California Fee-Splitting and Anti-Kickback Laws

First and foremost is California Business & Professions Code Section 650 (B&P 650) and is the law that largely governs in the State of California fee-splitting and kickback practices for healthcare practitioners.

B&P 650:

“(a) …the offer, delivery, receipt, or acceptance by any person licensed under this division or the Chiropractic Initiative Act of any rebate, refund, commission, preference, patronage dividend, discount, or other consideration, whether in the form of money or otherwise, as compensation or inducement for referring patients, clients, or customers to any person, irrespective of any membership, proprietary interest, or coownership in or with any person to whom these patients, clients, or customers are referred is unlawful.
(b) The payment or receipt of consideration for services other than the referral of patients which is based on a percentage of gross revenue or similar type of contractual arrangement shall not be unlawful if the consideration is commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided by the recipient to the payer. “

This is California’s version of the Anti-Kickback statute, and is tougher than the Federal equivalents because not only does it cover reimbursements from Medicare and Medi-Cal (California’s Medicaid), but it also covers any reimbursements or transactions from private health insurance and Workers Compensation.

The next law to be aware of is California Health & Safety Code Section 445 (H&S 445) which covers medical referrals:

“No person, firm, partnership, association or corporation, or agent or employee thereof, shall for profit refer or recommend a person to a physician, hospital, health-related facility, or dispensary for any form of medical care or treatment of any ailment or physical condition.”

It’s pretty clear that California will not tolerate any referrals that were given or made from inducements of any kind.

The Corporate Practice of Medicine

There is a doctrine known as the Corporate Practice of Medicine, where non-physicians employ physicians specifically to practice medicine. The theoretical danger is that the corporation can put pressure on the physician to make decisions about patient care that are not in the best interests of the patient, but rather in the interest of making money for the corporation.

This concept is prohibited in California with California Corporations Code, Section 13408.5:

“No professional corporation may be formed so as to cause any violation of law, or any applicable rules and regulations, relating to fee splitting, kickbacks, or other similar practices by physicians and surgeons or psychologists, including, but not limited to, Section 650 or subdivision (e) of Section 2960 of the Business and Professions Code. A violation of any such provisions shall be grounds for the suspension or revocation of the certificate of registration of the professional corporation. The Commissioner of Corporations or the Director of the Department of Managed Health Care may refer any suspected violation of such provisions to the governmental agency regulating the profession in which the corporation is, or proposes to be engaged.”

Broad Guidelines to Remain In Bounds of the Law

While it may seem tricky to make a business arraignment as a healthcare provider, here are some simple guidelines that can get you on the road to legal compliance and crate a structure that can be justifiable to state regulator scrutiny.

1. Make sure whatever fees for services that are negotiated and contracted in an agreement with a third parties for services are:

  • Is a pre-negotiated flat fee
  • Fair market value.

(1) cannot be emphasized enough. For instance, you ought to seriously consider having in your contract a statement that says for x many injections, you get y $, or for x many hours, you get y $ per hour, or for x many months you get y $ pay and the dollar amounts are largely similar to the same fees of the area that the agency is geographically situated in.

  1. Make sure that your contract clearly says that there is no control or undue influence over a physician when it comes to treatment of patients from another party. This includes proprietary interests by a physician into another agency or service they are referring patients to and vice-versa.


While the subjects of fair market value, inducements, Corporate Practice of Medicine, self-referrals, and fee-splitting are vast and can be discussed in volumes, this article was meant to be a very brief introduction to the laws of California fee-splitting and referrals. If you have questions about your arraignments, a smart and capable healthcare attorney should look over whatever contracts you make so that you don’t violate and Federal or State laws or to see if you are able to structure your contracts to fit within a ‘safe harbor’ that protects your interests.


Other California Anti-Kickback and Fee-splitting Laws

California Business & Professions Code, Section 2273(a) states:

“Except as otherwise allowed by law, the employment of runners, cappers, steerers, or other persons to procure patients constitutes unprofessional conduct.”

California Health & Safety Section 445 (“Medical Referral Services”), states:

“No person, firm, partnership, association or corporation, or agent or employee thereof, shall for profit refer or recommend a person to a physician, hospital, health-related facility, or dispensary for any form of medical care or treatment of any ailment or physical condition.”

California Welfare and Institutions Code Section 14107.2:

Prohibits kickbacks in the context of public health services such as Medicaid and Medi-Cal.

In contrast, Section 14107.2 provides that the prohibitions in 14107.2(a) do not apply to:

“Any amount paid by an employer to an employee, who has a bona fide relationship with that employer, for employment with provision of covered items or services.”