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June 01, 2021

Potential False Claims Act Liability Under The New Stark Law and AKS Final Rules

By Rachel V. Rose, Attorney at Law PLLC, Houston, TX and Don Barbo, VMG Health, Dallas, TX

This article is Part I of a three-part series.


As the healthcare industry shifts away from a provider reimbursement model that rewards quantity and moves towards a model that incentivizes providers for better clinical outcomes, quality of care, cost reduction, and coordination of care, the Centers for Medicare & Medicaid Services (CMS) and the United States Department of Health and Human Services’ Office of  Inspector General (OIG) published two important final rules. On December 2, 2020, CMS published the long-anticipated Final Rule that addressed changes to the Physician Self-Referral Law (Stark Law), a fundamental fraud, waste, and abuse law with civil penalties that prohibits physicians from referring Medicare patients for designated health services (i.e., specific services stated in 42 C.F.R. § 411.351) in exchange for remuneration that exceeds fair market value and/or is based on the volume or value of referrals.1 Simultaneously, OIG published another awaited Final Rule addressing changes to the Anti-Kickback Statute (AKS) – another basic fraud, waste, and abuse law that carries either criminal and/or civil penalties and prohibits anyone from paying any form of remuneration, either in cash or in-kind, directly or indirectly to either induce referrals or generate federal healthcare program business.2 Collectively, the Stark Law Final Rule and the AKS Final Rule are referred to as the “Final Rules.” 

The majority of the provisions in the respective Final Rules became effective on January 19, 2021. They include new safe harbors and exceptions, as well as modifications to existing ones. As indicated above, the primary purpose of the Final Rules is to align with the transition to value-based healthcare delivery and payment systems.3

One critical item to note is that the Final Rules do not change the “golden rule” that compensation is not determined in any manner that takes into account the volume or value of the physician’s referrals to the entity.4 The difference is that the term “volume or value” now has a separate provision in the Stark Law Final Rule, whereas before the term only appeared in the definition of “general market value.”  Given that the term appears over 300 times in the Stark Final Rule, it is worth paying attention to. Violations of referrals based on “volume or value” frequently result in a whistleblower filing a False Claims Act case under the qui tam provision of the False Claims Act.5 Often qui tam cases lead to the U.S. Department of Justice (DOJ) taking either civil and/or criminal action in cases where the AKS and Stark Law violations lead to the submission of false and fraudulent claims.6 Recently, the DOJ announced that for Fiscal Year 2020, it recovered $2.2 billion as a result of False Claims Act cases.7 Of that amount, healthcare fraud in civil cases (not including Medicaid) amounted to over $1.8 billion, and $1.6 billion was due to whistleblower qui tam suits.8 A significant number of cases involving the Stark Law and AKS violations were included in the report.

What is the impact of the Final Rules on False Claims Act cases? Fundamentally, the premise that as long as the relevant safe harbors are met under the AKS and the relevant exceptions are met under the Stark Law, the likelihood of liability under the False Claims Act for either Stark Law or AKS violations is greatly diminished is still relevant. As this article illustrates, there are some key considerations associated with the new value-based provisions, which differ between the Stark Law Final Rule and AKS Final Rule and give providers new options for arrangements, so long as the required provisions are met. General market value, fair market value, and volume or value are now parsed out and better defined. The article also provides two examples of recent Stark and AKS case outcomes which would remain unchanged if the same conduct occurred under the Final Rules.

Notable Revisions to the Stark Law and AKS

Presently, there are more than 3,000 hospitals across the United States participating in the Hospital Value-Based Purchasing Program, which seeks to improve patient outcomes and experience. “Under this program, Medicare rewards hospitals with payment based on either how well they perform on certain quality measures or how much they improve their performance.”9 In light of this, two areas of the Final Rules are particularly notable: Value-Based Enterprises (VBEs)/Value-Based Agreements (VBAs); and (2) Cybersecurity Donations. This article will focus on value-based arrangements, which “provides relief for parties [that participate in VBEs/VBAs which were previously not] protected by the fraud and abuse waivers [(i.e., exceptions available under Section 1115A(d)(1) of the Social Security Act for certain fraud and abuse laws when participating in select value-based programs)] for CMS-sponsored value-based programs and models.”10

The term VBE appears in both Final Rules; however, there are both similarities and differences. The similarities between the Stark and AKS Final Rules include:11

  • A VBE means two or more VBE participants: (1) Collaborating to achieve at least one value-based purpose; (2) Each of which is a party to value-based arrangement with the other or at least one other VBE participant in the value-based enterprise; (3) That have an accountable body or person responsible for the financial and operational oversight of the VBE; and (4) That have a governing document that describes the VBE and how VBE participants intend to achieve its value-based purpose(s).
  • A VBE participant is defined as “a person or entity that engages in at least one value-based activity as part of a value-based enterprise.” 12
  • A value-based purpose means any of the following: (1) Coordinating and managing the care of a target patient population; (2) Improving the quality of care for a target patient population; (3) Appropriately reducing the costs to or growth in expenditures of payors without reducing the quality of care for a target patient population; or (4) Transitioning from healthcare delivery and payment mechanisms based on the volume of items and services provided to mechanisms based on the quality of care and control of costs of care for a target patient population.

Because the Stark Law and the AKS have inherent differences, it is not surprising that the Final Rules vary. For example, the OIG definition of participant is more limited in that it excludes patients:

Stark Law (42 C.F.R. § 411.351)

AKS (42 C.F.R. § 1001.942(ee)(14)(ix))

VBE participant means a person or entity that engages in at least one value-based activity as part of a value-based enterprise.

Value-based enterprise participant or VBE participant means an individual or entity that engages in at least one value-based activity as part of a value-based enterprise, other than a patient acting in their capacity as a patient.

The differences in the Final Rules are crucial for compliance purposes and forming a legitimate VBE.13 As the table below demonstrates,

Stark Law


At final §411.351, CMS defined “VBE participant” to mean a person or entity that engages in at least one value-based activity as part of a value-based enterprise.

The definition of “VBE participant” finalized here does not exclude any specific persons, entities, or organizations from qualifying as a VBE participant.14

Unlike CMS, OIG created an “ineligible entity list” which means that the following entities do not qualify for the value-based safe harbors:

1.       Pharmaceutical manufacturers, distributors, and wholesalers (referred to generally throughout this preamble as “pharmaceutical companies”);

2.       PBMs (Pharmacy Benefit Managers);

3.       Laboratory companies;

4.       Pharmacies that primarily compound drugs or primarily dispense compounded drugs (sometimes referred to generally in this rule as “compounding pharmacies”);

5.       Manufacturers of devices or medical supplies;

6.       Entities or individuals that sell or rent DMEPOS, other than a pharmacy or a physician, provider, or other entity that primarily furnishes services, all of which remain eligible (referred to generally throughout this preamble as “DMEPOS companies”);

7.       Medical device distributors or wholesalers that are not otherwise manufacturers of devices or medical supplies (for example, some physician-owned distributors).15

Just because a manufacturer of a device or a medical supply cannot be a party to a VBE or enter into a value-based arrangement under the AKS does not mean that a medical device company or a software company cannot still be a valuable asset. It does mean that this area is ripe for scrutiny and False Claims Act cases.

Recent False Claims Act Settlements

Despite the December 2, 2020 Final Rule changes to the Stark Law and the AKS, it is important for lawyers, compliance officers, valuation experts, and healthcare industry participants to appreciate that many of the established provisions still apply. Two cases illustrate situations where the liability would have remained unchanged, even if they were brought after the January 19, 2021 effective dates of the Final Rules.

In September 2020, the DOJ settled with Wheeling Hospital, Inc. for $50 million “to resolve claims that it violated the FCA by knowingly submitting claims to Medicare that resulted from violations of the Stark Law and the AKS.”16 The DOJ’s press release further explained, “Wheeling Hospital systematically violated the Stark Law and Anti-Kickback Statute by knowingly and willfully paying improper compensation to referring physicians that was based on the volume or value of the physicians’ referrals or was above fair market value.”17

Wheeling Hospital’s compensation of referring physicians failed to meet the requirements of any exception to the Stark Law. In its Complaint in Intervention, the United States alleged that more than a dozen physicians had employment arrangements with Wheeling Hospital that determined compensation by taking into account the volume or value of the physician’s referrals.18  Although the Stark Law provides an exception for numerous common hospital-physician arrangements, Wheeling Hospital’s arrangements with referring physicians fell outside of that exception, which specifically prohibits remuneration to referring physicians that is “determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician.”19 The allegations in Wheeling Hospital’s case are similar to those in United States ex rel. Drakeford v. Tuomey Healthcare System, Inc., which included payments that the hospital made to referring physicians that were not fair market value and took into account the volume or value of the physicians’ referrals.20

One of CMS's clarifications in its December 2, 2020 Final Rule explains that when (1) the compensation is from an entity to a physician, (2) the formula used to calculate compensation includes as a variable the physician’s referrals, and (3) the compensation positively correlates with the volume or value of the referrals to the entity, then the compensation is not permissible under the bona fide employment exception.21  Even if the clarification had been in force at the time of Wheeling Hospital's conduct, its employment arrangements with the referring physicians would still violate the Stark Law because the physicians “received incentive compensation in the form of a percentage of the ‘net revenue’ or ‘net income’ attributable to their DHS referrals.”22  Therefore their compensation was positively correlated to the volume or value of their referrals.

In November 2019, the DOJ settled with Sutter Health and Sacramento Cardiovascular Surgeons Medical Group Inc. (Sac Cardio) for $46,123,516 to resolve violations of the AKS and the Stark Law.23 The DOJ’s press release explains that Sutter Health and Sac Cardio paid physicians amounts exceeding fair market value for their services.24 The relator’s complaint alleges, “Sutter Health created a financial relationship with the [Sac Cardio] physicians that was commercially unreasonable, grossly in excess of fair market value, and a financial relationship that violates the Stark Statute because no exception applied.”25 The relator’s complaint continues, “Sutter Health intended to reward [Sac Cardio] for its high-volume referrals with the preferential Physician Assistants Agreement,” . . . “the lucrative and duplicative Medical Director Agreements,” . . . and “a preferential and above-market Call Coverage Agreement.”26  In sum, the DOJ found a positive correlation between the physicians’ compensation and the volume or value of their referrals to Sutter.

Even if the clarification found in the new Final Rules had been in force at the time of the Wheeling, Sutter Health, and Sac Cardio agreements, the employment arrangements with the referring physicians would still violate the Stark Law because the physicians “received incentive compensation in the form of a percentage of the ‘net revenue’ or ‘net income’ attributable to their DHS referrals.”27

The Clarification of Referrals Based on Volume or Value

For the Volume and Value requirement, the Final Rules still require that compensation may not be determined in any manner that takes into account the volume or value of the physician’s referrals to the entity or the other business generated by the referring physician.28 However, instead of this volume and value requirement being included in the definition of General Market Value, it is now considered to be separate from General Market Value, which is a value of an asset on a particular date as a result of bona fide negotiations between well-informed parties, and Fair Market Value, which is an arm’s length transaction, consistent with the general market value of the transaction.

Prior to the Stark Final Rule, 42 CFR § 411.351 defined General Market Value as follows:

The price that an asset would bring as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of the acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition...where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.

Now, compensation is considered to take into account the volume or value of referrals if the compensation formula includes referrals or other business generated as a variable, resulting in an increase or decrease in compensation that positively correlates to the number or value of referrals or other business generated. Also, two new specific nuances have been created in the Stark Final Rule, including one for compensation paid to a physician29 and another for compensation paid from a physician.30 For compensation paid to a physician, the compensation would improperly take into account the volume or value of referrals if the compensation formula used results in an increase in compensation if the physician’s referrals increase, which would be a positive correlation. For compensation paid from a physician, the compensation would improperly take into account the volume or value of referrals if the compensation formula used results in a decrease in compensation if the physician’s referrals increase, which would be a negative correlation.

Sutter Health’s and Sac Cardio’s compensation arrangements with referring physicians failed to meet any AKS safe harbor. The AKS makes it illegal to “knowingly and willfully offer, pay, solicit or receive any remuneration to induce a person: (1) to refer an individual to a person for the furnishing of any item or service covered under a federal health care program.”31  Under the AKS, “any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services” is an exception which will not be considered illegal remuneration.32  However, medical directorships and other remuneration provided to referring physicians do not qualify as bona fide employment relationships when the compensation was in excess of fair market value and takes into account “volume or value” of referrals for the services provided. This appears to remain consistent with the implementation of the AKS Final Rule.


Both the Stark Final Rule and the AKS Final Rule have categorical changes, which include new safe harbors/exceptions and modifications to existing ones. All of these changes should be taken into account when both bringing and defending a False Claims Act case. Stay tuned, as Part 2 of this series focuses on the implications of the new Final Rules on the valuation side of the equation in the context of fair market value, general market value, and commercial reasonableness, while Part 3 addresses the potential landmines which may arise for plaintiffs and defendants in False Claims Act cases. 


  1. 85 Fed. Reg. 77492 (Dec. 2, 2020),
  2. 85 Fed. Reg. 77684 (Dec. 2, 2020),
  3. Rose, R.V., New Stark Law and Anti-Kickback Statute Final Rules: Part 1 – Key Items (Dec. 3, 2020),
  4. R.V. Rose, Two recent False Claims Act settlements underscore the DOJ’s continued focus on Stark Law and Anti-kickback Statute violations (Jan. 28, 2021),
  5. U.S. Department of Justice, The False Claims Act: A Primer, (last visited Mar. 24, 2021).
  6. Id.
  7. U.S. Department of Justice, Justice Department Recovers Over $2.2 Billion from False Claims Act Cases in Fiscal Year 2020 (Jan. 14, 2021),
  8. Id.
  9. American Hospital Association, Hospital Value-Based Purchasing, (last visited Mar. 23, 2021).
  10. Polacheck, J., et al., CMS Completes Sprint to Modernize Stark Law – Part II (Feb. 1, 2021),
  11. See 42 C.F.R. § 411.351 (Stark Law); 42 C.F.R. § 1001.952(ee)(14)(viii) (AKS).
  12. 85 Fed. Reg. at 77695; 85 Fed. Reg. at 77497.   
  13. See (Dec. 3, 2020).
  14. Emphasis added.
  15. 85 Fed. Reg. at 77685.
  16. West Virginia Hospital Agrees To Pay $50 Million To Settle Allegations Concerning Improper Compensation To Referring Physicians, U.S. DEP’T OF JUSTICE (Sept. 9, 2020),
  17. Id.
  18. United States ex rel. Longo v. Wheeling Hospital, Case No. 2:17-cv-01654, United States’ Complaint in Intervention at 27, 33-34 (W.D. Pa. 2019), ECF No. 19.
  19. 42 U.S.C. § 1395nn(e)(2).
  20. U.S. Department of Justice, United States Resolves $237 Million False Claims Act Judgment against South Carolina Hospital that Made Illegal Payments to Referring Physicians (Oct. 16, 2015),
  21. Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations, 85 Fed. Reg. 77,492 (Dec. 2, 2020) codified at 42 C.F.R. § 411.
  22. See supra n. 18, Longo, United States’ Complaint in Intervention at 25.
  23. California Health System and Surgical Group Agree to Settle Claims Arising from Improper Compensation Arrangements, U.S. Dep’t of Justice (Nov. 15, 2019),
  24. Id.
  25. Complaint at 25, U.S. ex rel. Hanvey v. Sutter Health et al., Case No. 4:14-cv-04100 (N.D. Cal. 2020), ECF No. 1.
  26. Id. at 29, 30.
  27. See supra n. 17 at Para. 107.
  28. 85 Fed. Reg. 77535 (Dec. 2, 2020).
  29. 42 C.F.R. § 411.354(d)(5).
  30. Id.
  31. See supra n. 25, Complaint at 24, Sutter, 4:14-CV-04100 (citing 42 U.S.C. § 1320a-7b(b)(1)).
  32. 42 U.S.C. § 1320a-7b(b)(3)(B).
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Rachel V. Rose


Rachel V. Rose, JD, MBA, is a principal at Rachel V. Rose – Attorney at Law, PLLC (Houston, Texas). She advises clients on compliance, transactions, and litigation in healthcare, cybersecurity, corporate and securities, False Claims Act and Dodd-Frank whistleblower areas of law. She also teaches bioethics at Baylor College of Medicine in Houston. She may be reached through her website,

Don Barbo


Don Barbo, CPA/ABV, MBA, is a managing director with VMG Health (Dallas, Texas). He specializes in healthcare business valuations and leads the firm’s litigation and disputes practice. Mr. Barbo has spoken extensively to various legal and valuation organizations and has published articles regarding business valuation issues. He also serves as an expert witness in litigated matters. He may be reached at [email protected]