Stark Law Compliance Guide for Independent Contractor (1099) Surgeons

How to Stay Compliant While Structuring Independent Contracts (Surgeons)

Authored and reviewed by the DIN team, August 2025

Executive Summary

The Stark Law—officially the Physician Self-Referral Law—prohibits physicians from referring Medicare or Medicaid patients for designated health services (DHS) to entities with which they have a financial relationship unless a statutory or regulatory exception applies (CMS, 2021). In simpler terms, it means a surgeon cannot send patients to a facility they have a financial stake in, unless the arrangement clearly fits within one of the law’s safe harbors. This law applies equally to independent contractor surgeons across specialties, including ophthalmology, general surgery, orthopedic surgery, and more.

Independent contractor arrangements are common because they allow hospitals and health systems to address patient care needs with flexibility, especially in rural or resource-limited settings. That flexibility must be balanced with strict compliance. The most relevant Stark exceptions for these arrangements are the Personal Services Exception and the Fair Market Value (FMV) Exception.

This guide distills the key rules, highlights the most commonly used exceptions, flags high-risk practices, and offers practical strategies for structuring compliant agreements. The aim is to help surgeons and institutions protect themselves from penalties while ensuring continuity of care.

Introduction

Independent contractor surgeons often work across multiple facilities, sometimes in multiple states. This model supports hospital staffing needs and patient access. It also creates complex financial and legal arrangements.

When Stark Law requirements are overlooked, both the physician and the contracting entity face significant penalties, including repayment, civil fines, and potential exclusion from federal healthcare programs.

This guide provides practical direction on structuring independent contractor agreements that comply with Stark Law while maintaining operational flexibility.

Key Points

• Written, signed contracts are required for almost all independent contractor arrangements (42 C.F.R. §411.357; Holland & Hart, 2015).

• Compensation must be FMV, set in advance, and cannot be determined by the volume or value of referrals (Federal Register, 2020; K&L Gates, 2020).

• Commercial reasonableness: The arrangement must make sense operationally and financially even without any referrals (Federal Register, 2020).

• Common red flags: no written contract, compensation far above or below market rates, referral-based incentives, sham duties, or excessive non-monetary benefits (OIG, 2011; Becker’s, 2024).

• Recent updates (CMS, 2021) clarify FMV and commercial reasonableness, add flexibility through new exceptions (e.g., limited remuneration under $5,000, cybersecurity donations), and refine the test for referral-linked compensation.

Practical Checklist

While the legal standards provide the framework, day-to-day compliance depends on disciplined execution. A well-structured independent contractor arrangement is built on clear documentation, consistent monitoring, and proactive communication. The following checklist offers a practical reference for maintaining alignment with Stark requirements throughout the life of the agreement.

• Execute a clear, written, signed contract covering all services to be provided.

• Ensure a term of at least one year (or meet short-term exception criteria).

• Set compensation at FMV, supported by documentation such as market surveys or independent valuations.

• Avoid formulas that link compensation to referral volume or value.

• Maintain detailed service records (Dorsey & Whitney, 2021).

• Audit agreements regularly to ensure compliance and renew contracts before expiration.

• Include explicit Stark compliance language and specify the exception being used.

Red Flags

• No written contract or reliance on an expired agreement.

• Compensation not aligned with FMV—either far above or below market value without credible support (OIG, 2011).

• Compensation tied to referrals, directly or indirectly (Dorsey & Whitney, 2021).

• Sham arrangements—being paid for duties not performed.

• Excessive gifts or perks that exceed Stark thresholds (Becker’s, 2024).

• Ownership interests in DHS entities without a valid exception.

Key Stark Exceptions

Stark Law compliance hinges on fitting financial arrangements into well-defined exceptions. These safe harbors outline the conditions under which physicians may maintain financial relationships with entities that provide DHS without violating the law. For independent contractor surgeons, a handful of exceptions are most frequently applicable.

DIN prioritizes these exceptions because they align with the operational realities of Rotating Surgeon agreements, offering hospitals and surgeons the flexibility they need while remaining compliant.

• Personal Services Exception (42 C.F.R. §411.357(d))
  The Personal Services Exception applies when a physician provides services to an entity under a formal written arrangement. In this context, personal services means professional services performed by a physician—such as surgical consultations, operative procedures, on-call coverage, or administrative work—under a signed agreement. Payment must be consistent with FMV and cannot depend on referrals to the contracting entity.

  • Requirements: Written contract, term of at least one year, aggregate compensation set in advance at FMV, commercially reasonable terms, and no referral-based payment.

• FMV Exception (42 C.F.R. §411.357(l))
  Written agreement, compensation set at FMV, commercially reasonable, and independent of referral volume or value.

• Rental of Office Space/Equipment Exception (42 C.F.R. §411.357(a)-(b))
  FMV rent, at least a one-year term, no referral-contingent terms.

• Non-Monetary Compensation Exception
  Permits up to approximately $500 annually (2024 threshold) in allowable non-cash benefits (Becker’s, 2024).
  

2020–2025 Stark Updates

• FMV and commercial reasonableness clarified as independent from referral patterns (Federal Register, 2020).

• Referral-linked pay test refined: Violations occur only when referrals are explicitly part of the formula and influence payment (CMS, 2021).

• Additional flexibility introduced: $5,000 limited remuneration exception, cybersecurity technology donation exception, and value-based care exceptions (K&L Gates, 2020).

Conclusion

Stark Law compliance protects patients, physicians, and institutions by ensuring that referrals are based on clinical judgment, not financial incentives. For independent contractor surgeons, compliance begins with thoughtful contract structuring: written terms, compensation consistent with FMV, commercially reasonable arrangements, and a clear separation from referral-based compensation.

The evolving Stark framework offers more clarity and flexibility than in prior years. That flexibility is only beneficial if agreements are monitored, regularly reviewed, and updated in line with current rules. Independent contractor surgeons who approach compliance deliberately reduce risk, strengthen institutional partnerships, and ensure patient care remains uncompromised.

At DIN, we work with Rotating Surgeons and hospitals to structure these agreements carefully—balancing flexibility with compliance so that both surgeons and facilities can focus on what matters most: expanding access to high-quality surgical care.

Works Cited

• CMS. Physician Self-Referral (Stark) FAQs. CMS.gov, 2021.

• Federal Register. 85 Fed. Reg. 77492. Dec 2, 2020.

• 42 C.F.R. §411.357 (current through 2025 updates).

• Holland & Hart LLP (Kim Stanger). Stark Requirements for Physician Contracts. 2015.

• K&L Gates. CMS Finalizes Updates to the Stark Law. 2020.

• Dorsey & Whitney. Understanding the Final Rules to Revise Stark Regulations. 2021.

• OIG. Roadmap for New Physicians: Avoiding Fraud and Abuse. 2011.

• Becker’s Hospital Review (Amelia Ickes). What to Know About Stark Law in 2024. Jan 17, 2024.