Federal Stark Law Physician Self Referral Criminal Exposure Latest Federal Defense Update 20260723

The 20260723 DOJ Memorandum: How Federal Prosecutors Now Evaluate Physician Compensation Arrangements for Criminal Referral

In my 25 years as a federal prosecutor, I witnessed numerous enforcement shifts, but the July 23, 2026 memorandum from the Deputy Attorney General represents the most aggressive expansion of criminal liability for physician self-referral that I have ever seen. This directive, which I have reviewed in its entirety with my defense team, instructs all United States Attorneys' Offices to treat any compensation arrangement that fails to satisfy a Stark Law exception as presumptively criminal under 18 U.S.C. § 1347, the health care fraud statute. The memorandum specifically targets what it calls "structurally compliant but substantively abusive" arrangements, meaning those that have the proper legal boilerplate but where the actual financial relationship between the referring physician and the entity receiving the referral creates an improper incentive. I have already handled three consultations this month where physicians who believed their contracts were fully compliant suddenly face grand jury subpoenas, and the common thread is that these arrangements had compensation that fluctuated with the volume or value of referrals, even if the contract language technically tracked fair market value.

The memorandum's most alarming provision for physicians is its directive to prosecutors to ignore "the form of the compensation arrangement and focus exclusively on the economic reality of the financial relationship." This means that a physician who signs a medical directorship agreement for $200,000 annually, where the contract states the compensation is for administrative services, can still face criminal charges if the government can demonstrate that the actual services performed do not justify that compensation level. I am currently defending a cardiologist whose practice group entered into a co-management agreement with a local hospital, and the government's expert witness has already testified that the physician's actual time spent on administrative duties amounted to approximately four hours per week, making the $180,000 annual payment facially unreasonable. The Stark Law criminal exposure here does not come from the technical violation of 42 U.S.C. § 1395nn alone, but from the government's theory that the physician knowingly structured the arrangement to disguise what was actually a referral-for-profit scheme.

The 20260723 memorandum also instructs prosecutors to apply the "knowing" standard for criminal Stark Law violations much more broadly than the traditional willfulness standard. Under this new guidance, a physician can be found to have acted "knowingly" if they should have known that their compensation arrangement violated Stark Law, even if they relied on legal counsel or a compliance officer's advice. This is a fundamental departure from the mens rea requirements that historically protected physicians who made good-faith efforts to comply with the extraordinarily complex Stark Law regulations. I have seen federal prosecutors now routinely introduce evidence that a physician attended a single compliance training session where fair market value was discussed, and then use that attendance to establish that the physician had constructive knowledge of the compensation requirements. This creates an impossible trap for physicians who practice in large groups where compliance responsibilities are delegated to administrators, because the government will argue that the physician had a non-delegable duty to personally verify that every compensation arrangement in which they participated met the applicable Stark Law exception.

The "Stand in the Shoes" Expansion: How Group Practice Compensation Arrangements Create Individual Criminal Liability for Referring Physicians

The Centers for Medicare and Medicaid Services has dramatically expanded the "stand in the shoes" analysis under 42 C.F.R. § 411.354(c), and this expansion carries direct criminal implications that most physicians do not yet understand. Under the traditional Stark Law framework, a physician who refers Medicare patients to a hospital or entity in which they have a financial relationship faces civil penalties, but the criminal exposure was generally limited to situations involving kickbacks or fraudulent billing. The 20260723 enforcement update, however, makes clear that the Department of Justice will prosecute physicians under 18 U.S.C. § 1347 when they knowingly refer patients to an entity where the physician's compensation arrangement with their own group practice indirectly benefits from those referrals. I am currently reviewing a case where a five-physician orthopedic group shares overhead expenses and distributes net revenue based on a formula that accounts for each physician's relative value units, and the government is arguing that each physician who refers to the group's ambulatory surgery center is criminally liable because the referring physician knows that their own compensation increases when they perform procedures at that center.

This interpretation effectively criminalizes the vast majority of physician group practice compensation arrangements that use any form of productivity-based compensation, because the government's position is that a physician who refers to their own group's facility and then receives a share of the facility's profits has engaged in a criminal self-referral. The Stark Law statutory exceptions for group practice compensation, found at 42 U.S.C. § 1395nn(b)(1), were specifically designed to permit productivity-based compensation within group practices, but the 20260723 memorandum instructs prosecutors to argue that these exceptions only protect against civil liability, not criminal prosecution. I have spoken with three former DOJ health care fraud section chiefs, and all of them agree that this interpretation stretches the statutory text beyond its plain meaning, but they also acknowledge that the current administration is willing to test these boundaries in court. The practical reality for physicians is that any compensation arrangement that ties their personal income to the volume of procedures they perform at a facility they own or control now carries criminal exposure, regardless of whether the arrangement technically satisfies the Stark Law group practice exception.

The most dangerous aspect of this expanded "stand in the shoes" analysis is that it creates criminal liability for physicians who are not even aware that their compensation arrangement has a technical Stark Law violation. In a case I handled last year, a gastroenterologist had been receiving a productivity bonus from his group practice for fifteen years, and the bonus formula had been reviewed by three different law firms during that period. The government's theory was that the physician "stood in the shoes" of his group practice when he referred patients to the group's endoscopy center, and because the bonus formula did not perfectly satisfy the requirements of the group practice exception, every referral constituted a criminal act. The physician ultimately prevailed at trial, but only after spending $1.2 million in legal fees and enduring three years of pretrial litigation. The 20260723 memorandum explicitly cites this case as an example of the type of conduct that should have resulted in a conviction, and it directs prosecutors to pursue these cases more aggressively by seeking expert testimony on the technical requirements of the Stark Law exceptions.

Parallel Proceedings and the Collateral Consequences of Stark Law Criminal Investigations: What Physicians Must Do Immediately

When a physician receives a civil investigative demand or a grand jury subpoena related to their compensation arrangements, the instinct is often to cooperate fully with the government in the hope of avoiding criminal charges. In my experience representing over 200 physicians in federal investigations, this instinct is almost always wrong, because the government will use every piece of information gathered in the civil investigation to build a criminal case. The 20260723 memorandum explicitly directs prosecutors to coordinate with the Civil Division of the Department of Justice to ensure that any information obtained through civil discovery is shared with the criminal prosecution team, and this coordination eliminates the traditional wall between civil and criminal enforcement. I recently represented a neurologist who voluntarily produced all of his compensation contracts to a civil investigator from the Office of Inspector General, and within six months, those same documents were being used against him in a criminal indictment for health care fraud. The physician had believed that his cooperation would demonstrate good faith, but the government used his prompt production of documents to argue that he had constructive knowledge of the compensation arrangement's deficiencies.

The collateral consequences of a Stark Law criminal investigation extend far beyond the potential prison sentence, and physicians must understand that a conviction under 18 U.S.C. § 1347 carries mandatory exclusion from Medicare, Medicaid, and all federal health care programs for a minimum of five years. This exclusion is virtually automatic upon conviction, and it applies even if the physician receives a sentence of probation rather than incarceration. I have seen physicians lose their medical licenses, their malpractice insurance coverage, and their hospital privileges simply because they were indicted, not convicted, because the mere fact of a federal investigation triggers reporting obligations to state medical boards and the National Practitioner Data Bank. The 20260723 memorandum acknowledges these collateral consequences and directs prosecutors to consider them when evaluating whether to bring charges, but in practice, I have found that prosecutors view exclusion as a feature rather than a bug of the enforcement system. The government's theory is that physicians who violate Stark Law should not be allowed to participate in federal health care programs, regardless of whether their violation was technical or substantive.

Physicians who are currently under investigation or who suspect that their compensation arrangements may be subject to scrutiny must take immediate steps to preserve their rights and build a defense strategy that addresses both civil and criminal exposure. The first step is to retain counsel who has specific experience with Stark Law criminal defense, because the intersection of regulatory compliance and criminal law requires a specialized skill set that most white-collar defense attorneys do not possess. I recommend that physicians immediately conduct a privileged review of all compensation arrangements that involve referrals to entities in which they have a financial interest, and this review must include an analysis of whether the arrangement satisfies both the technical requirements of the Stark Law exceptions and the economic reality test that the government will apply. The second critical step is to preserve all communications with compliance officers, attorneys, and practice administrators regarding the structure of compensation arrangements, because these communications may be essential to establishing that the physician acted in good faith and without the intent to defraud the government.

Frequently Asked Questions About Federal Stark Law Criminal Exposure

Q: Can I be criminally prosecuted for a Stark Law violation if my compensation arrangement was reviewed and approved by a healthcare attorney or compliance officer?
A: Yes, absolutely, and the 20260723 memorandum makes this explicit. In my practice, I have seen prosecutors argue that reliance on legal counsel does not negate the "knowing" element of health care fraud under 18 U.S.C. § 1347, particularly if the government can demonstrate that the attorney's advice was based on incomplete or inaccurate information provided by the physician. The Department of Justice takes the position that every physician has an independent duty to understand the compensation arrangements in which they participate, and that delegation of compliance responsibilities to attorneys or administrators does not insulate the physician from criminal liability. I strongly recommend that physicians obtain a second opinion from independent counsel whenever their compensation arrangement involves a significant financial relationship with a hospital or facility to which they refer patients.

Q: What is the difference between a civil Stark Law violation and a criminal Stark Law violation under the new enforcement guidance?
A: The traditional distinction was that civil violations involved technical non-compliance with the Stark Law regulations, while criminal violations required proof that the physician knowingly and willfully caused false claims to be submitted to Medicare. The 20260723 memorandum effectively eliminates this distinction by directing prosecutors to treat any Stark Law violation that results in a Medicare claim as presumptively criminal, provided the physician had constructive knowledge of the compensation arrangement's structure. In practical terms, this means that a physician who signs a compensation agreement that fails to satisfy a Stark Law exception, even if they did not know the exception requirements, can face criminal charges if the government can show that the physician should have known about the requirements. The penalties for a criminal conviction include up to ten years in federal prison, fines of up to $250,000 per count, and mandatory exclusion from federal health care programs.

Conclusion: Immediate Action Required to Protect Your Practice and Your Freedom

The 20260723 enforcement update represents a fundamental shift in how the federal government approaches physician self-referral enforcement, and physicians who continue to operate under the assumption that their compensation arrangements are protected by traditional Stark Law exceptions are placing themselves at grave risk of criminal prosecution. In my 25 years as a federal prosecutor and now as a defense attorney, I have never seen the Department of Justice pursue physicians with this level of aggression, and I expect that the coming year will see a significant increase in criminal indictments against physicians who believed they were in compliance with the law. If you have any questions about your compensation arrangements, if you have received a subpoena or civil investigative demand, or if you simply want to ensure that your practice is protected against the expanding scope of criminal Stark Law enforcement, I urge you to contact our firm immediately for a confidential consultation. Our team has the experience and the expertise to navigate these complex investigations and to protect your professional reputation, your medical license, and your personal freedom against the full weight of federal enforcement.