The Laws That Govern Every Healthcare Business Relationship
Every management services agreement in healthcare operates in the shadow of two federal statutes: the Physician Self-Referral Law (Stark Law) and the Anti-Kickback Statute (AKS).
Stark is a strict liability statute. If a financial relationship between a physician and an entity doesn’t fit squarely within a defined exception, referrals to that entity for designated health services are prohibited. No intent required. No excuses accepted.
The Anti-Kickback Statute is broader. It prohibits offering, paying, soliciting, or receiving anything of value to induce or reward referrals of federal healthcare program business. Unlike Stark, AKS requires intent, but the “one purpose” test means that if even one purpose of the arrangement is to induce referrals, it violates the statute.
MSAs must be structured to satisfy both.
Fair Market Value: The Foundation of Every Compliant MSA
Both Stark exceptions and AKS safe harbors require that compensation be set at fair market value and not take into account the volume or value of referrals.
Fair market value means what a willing buyer would pay a willing seller in an arm’s-length transaction. For management services, this typically requires benchmarking against comparable arrangements using published survey data, independent valuations, or market comparisons.
The most common compliance failure in MSAs isn’t that the compensation is unreasonable. It’s that there’s no documentation supporting the valuation. If you can’t produce a written analysis explaining why the MSO’s fees represent fair market value, you have a compliance gap that needs to be closed before the next audit.
Compensation Structures That Create Risk
Certain compensation models raise red flags under both statutes.
Percentage-of-revenue arrangements are the most scrutinized. If the MSO’s fee is calculated as a percentage of the practice’s collections, regulators will examine whether the arrangement effectively compensates the MSO for generating referrals rather than providing services. Stark’s personal services exception permits percentage-based compensation, but only when the formula is set in advance and doesn’t vary with the volume of referrals to the entity providing the designated health services.
Production bonuses tied to referral patterns are problematic under AKS. An MSO that earns more when the practice refers more patients to a specific facility faces an obvious inducement argument.
The safest structures use fixed fees or time-based rates set at fair market value, documented in writing, and not subject to adjustment based on referral activity.
Key MSA Provisions for Compliance
Every MSA should include the following provisions to support Stark and AKS compliance.
A detailed scope of services defining exactly what the MSO will provide, with enough specificity that an auditor can verify whether services were actually delivered. A compensation methodology section that documents how fees were determined, including the FMV analysis. A term of at least one year, which is required under several Stark exceptions. A provision stating that compensation does not take into account the volume or value of referrals between the parties.
Additionally, the MSA should include compliance cooperation clauses requiring both parties to maintain records, respond to government inquiries, and report potential violations through established compliance channels.
The Cost of Getting This Wrong
Stark violations trigger mandatory exclusion from Medicare and per-claim penalties. A single non-compliant referral pattern can generate millions in False Claims Act liability.
AKS criminal penalties include up to 10 years imprisonment and $100,000 per violation. Civil penalties under the CMPL reach $50,000 per violation. False Claims Act cases can result in treble damages.
These aren’t theoretical risks. The DOJ recovered over $5 billion in healthcare fraud judgments and settlements in FY 2025, with a significant portion tied to improper financial relationships.
Every healthcare organization entering a management services arrangement should have the MSA reviewed by legal counsel experienced in healthcare regulatory compliance. The cost of that review is a fraction of the exposure created by an agreement that doesn’t hold up under scrutiny.
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Nexwell Health Partners provides management services, telehealth solutions, and compliance support for safety-net hospitals, FQHCs, and specialty practices. Contact us to schedule a consultation.
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