Physician Investment in MSOs, Laboratories, and Other Medical Companies

If you are a physician looking to invest, or a lay person wanting a wanting a partnership or investment from a physician, for medical companies like labs, MSOs, surgical centers, etc, there are several laws that you must be aware of when you are going into such ventures--the federal Anti-Kickback Statute (AKS) and Stark Law (physician self-referral), and state's with a 'mini AKS' or 'mini Stark Law.' The federal government, and some state governments, through these laws regulate these arrangements to limit 'kickbacks' or 'referral fees' based on medical services. One 'safe harbor' exception is for physician investment.

The typical investment is in a Management Services Organization (MSO) (See my article), laboratory, or having a business with a lay person.

Luckily for us, the law is clear in regards to Safe Harbors. One of those safe harbors is legitimate investments, as laid out in 42 CFR 1001.952. Please keep in mind each state may have its own kickback or self referral laws, in addition to the federal AKS or Stark law.

What is a kickback or 'remuneration?' under the AKS?

The AKS makes illegal any remunerations to be given to a physician as a kickback. The AKS is a criminal law that prohibits the knowing and willful payment of "remuneration" to induce or reward patient referrals or the generation of business involving any item or service payable by the Federal health care programs (e.g., drugs, supplies, or health care services for Medicare or Medicaid patients).

Remuneration includes anything of value and can take many forms besides cash, such as free rent, expensive hotel stays and meals, and excessive compensation for medical directorships or consultancies. 

In some industries, it is acceptable to reward those who refer business to you. However, in the Federal health care programs, paying for referrals is a crime. The statute covers the payers of kickbacks-those who offer or pay remuneration- as well as the recipients of kickbacks-those who solicit or receive remuneration. Each party's intent is a key element of their liability under the AKS.

Investment Safe Harbor

If a physician wants to make money from a business investment, they may try to squeeze the arrangement in the ‘Investment Safe Harbor’ to stay compliant with the law.

As used in section 1128B of the AKS, “remuneration” does not include any payment that is a return on an investment interest, such as a dividend or interest income, made to an investor as long as all of the applicable standards are met within one of the 3 following standards:

(1) the company is a publicly traded company making more that $50M a year.

  • (i) the share price and terms must be the same for everyone, and not something special to just the investor and must be paid in the same way and time as everyone else who invested. There is more to this standard.

 (2) If the physician possesses investment interests that are held by either active or passive investors, all of the following eight applicable standards must be metL

  • (i) No more than 40 percent of the value of the investment interests of each class of investment interests may be held in the previous fiscal year or previous 12 month period by investors who are in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the company

  • (ii) The terms must be no different from the terms offered to other passive investors.

  • (iii) The terms must not be related to the previous or expected volume of referrals, items or services furnished, or the amount of business otherwise generated from that investor to the company.

  • (iv) There is no requirement that a passive investor, if any, make referrals as a condition for remaining as an investor.

  • (v) The company or any investor must not market or furnish the company's items or services (or those of another company as part of a cross referral agreement) to passive investors differently than to non-investors.

  • and 3 others.

(3) This 3rd standard involves an investment in a 'underserved' area defined by the law.


There are many way for a physician to get involved in owning part of a company, under the AKS and Stark Law. One of them is being a ‘investor.’ However, these types of arrangements and contracts have to be carefully analyzed and constructed, and consulting a healthcare attorney would be worth your time.

If you have any questions or comments, please contact my office at any time.,