In-Office Ancillary Services Exception: Same Group, Same Building, Valid Biller?

In-office ancillary services exception fraud can arise when a practice knowingly bills Medicare for referred services while relying on an exception its operations do not satisfy. The exception has separate requirements for who furnishes or supervises the service, where it happens and who bills it. If you run the practice, schedule its staff or submit its claims, you may know where the explanation given by management parts company with the work actually done.

Can a Physician Refer a Patient to a Designated Health Service?

A physician can refer a patient to a designated health service when the financial relationship meets an applicable exception. The Stark Law restricts Medicare referrals for these services when the physician or an immediate family member has a financial relationship with the receiving entity, unless an exception applies. Laboratory tests, imaging and therapy are among the services covered. The law also restricts bills resulting from prohibited referrals, and the referral prohibition extends to Medicaid.

A practice may own the scanner, employ the referring physician and receive the payment. Each fact answers only part of the question. We examine the ownership documents alongside the staffing, service and billing records because an in-house label cannot supply the conditions those records must show.

Does the Practice Qualify as a Stark Group Practice?

A practice relying on the exception’s group provisions must meet the Stark definition of a group practice. That definition reaches how the business operates, how its physicians work and how it handles money. Separate practices under common management do not become one qualifying group merely because they share an owner or management company.

The Centers for Medicare & Medicaid Services rule requires a single legal entity operating primarily as a physician group practice, with at least two physician members. Each member must provide substantially the full range of the patient care services they routinely furnish through shared space, equipment and personnel. The group must function as a unified business, with centralized decisions and consolidated billing, accounting and financial reporting.

The group tests look at how much of the members’ patient care runs through the group’s services, billing and receipts, and how many of the group’s patient visits its members personally conduct. We compare schedules and accounting records with the incorporation papers to see whether the business operates as the group it claims to be.

Income and expense distribution methods must be set before the practice receives the associated payments. Profit shares and productivity bonuses have their own conditions, including restrictions on linking pay to referrals. A spreadsheet paying a physician for tests ordered deserves attention even when its heading calls the payment productivity.

Family Dermatology agreed to pay $3,247,835 in 2015 to resolve allegations involving physician financial relationships and referrals to its in-house pathology laboratory. The Justice Department alleged that the independent-contractor arrangements failed Stark requirements while specimens routinely went to the laboratory.

Who Furnished or Supervised the Service?

The in-office ancillary exception permits services furnished personally by the referring physician, by a member of the same group, or by an individual under qualifying physician supervision. The supervision must satisfy the Medicare payment and coverage rules for that service. Ordering a test, performing it and supervising its performance are different jobs.

A physician contractor may qualify to supervise services without counting as a member for the group tests. We examine the direct contract, the care furnished to the group’s patients in its facilities, and the compensation and payment arrangements. A roster listing everyone as providers cannot answer those questions.

Supervision also depends on the service date. In its 2026 physician payment rule, CMS permanently allowed real-time audiovisual direct supervision for applicable incident-to services and diagnostic tests, with specified surgical-service exclusions. Audio-only supervision does not satisfy that provision. We connect the service, date and applicable supervision standard to the staffing record, including how the supervisor was available.

For incident-to services, the physician’s initial service and continuing involvement in treatment remain part of the picture. A later co-signature cannot supply care or supervision that never occurred. The person who managed the schedule may know whether the arrangement described on paper was the arrangement patients actually received.

Where Was the Service Furnished?

The exception offers alternative same-building routes and a separate centralized-building route. It follows where the service was actually performed on the patient or where the item was dispensed under Medicare’s payment and coverage rules. A claim’s address has to be connected to that physical event.

One same-building route turns on the office’s regular hours and the physician services provided there. Another adds whether the patient usually receives physician care from the referring physician or group members. A third turns on the physician’s presence when ordering or furnishing the service, alongside office and physician-service hours. Each requires some physician work unrelated to furnishing the designated health services.

We compare the lease with appointment and staffing records to establish who worked in the space and what they did. An office used only to deliver referred tests does not supply that separate physician-service requirement.

A centralized building can hold the group’s laboratory or other designated health services. The definition requires full-time ownership or leasing and exclusive use by the group, with a lease term of at least six months. Shared diagnostic space and a few reserved sessions raise different facts from a facility the group controls full time. We compare the lease with actual occupancy and use.

What Notice Must MRI, CT and PET Patients Receive?

For covered MRI, CT and PET referrals under the exception, the referring physician must give written notice at the time of referral that the patient can obtain the service elsewhere. Ordinarily, the notice includes at least five other suppliers within 25 miles of the referring physician’s office, with their names, addresses and telephone numbers. If fewer suppliers are available, the list includes all of them. If none are available, the list is not required.

The notice gives the patient a choice at the moment the referral is made. Its content and timing also give an insider something concrete to compare with the referral workflow. The question reaches the form patients received and when they received it, alongside the claim for the scan.

Who Was the Authorized Biller?

The exception permits billing by the performing or supervising physician, the qualifying group under its assigned number, or a qualifying entity wholly owned by the physician or group. It also permits a third-party billing company to act as an agent under the appropriate physician, group or entity billing number and the applicable billing-agent rules. The company transmitting the claim and the entity entitled to bill the service can be different businesses.

A management services organization can control billing operations without answering who furnished the service or whether the practice qualifies as a group. The management agreement, ownership documents and enrollment information identify different parts of that arrangement. We connect them to the submitted claim and payment recipient rather than accept the management company’s name as the answer to all of them.

What Is the Stark Law Loophole?

The in-office ancillary services exception is the opening in Stark that lets a physician refer patients to services the practice profits from, when its conditions are met. The claim still needs to describe medically necessary work, performed by qualified people, with the required documentation and correct units. The exception addresses the referral relationship. The payment rules address what Medicare is being asked to buy.

Medical necessity fraud can involve a fabricated symptom, measurement, test result or treatment response used to justify payment. That false clinical premise is a separate question from the office’s ownership and location. We connect the explanation for the service to the patient record and to what the treating staff saw.

Durable medical equipment has especially narrow coverage under the in-office ancillary exception. Its limited categories include certain walking aids, blood glucose monitors and qualifying infusion pumps, each with conditions. We examine the item and how it reached the patient, alongside the furnishing, location and supplier requirements.

How Referral Money Hides in Ordinary Business Terms

Ancillary services can add revenue without adding an equivalent amount of physician time. A 2008 Robert Wood Johnson Foundation research synthesis described the attraction of technical imaging income and profits from owned facilities. It identified incentives to order more services and steer patients to an owned facility, including services they may not need. When those incentives drive false Medicare claims, patients get the unnecessary tests and taxpayers get the bill.

The report identified the economic attraction plainly:

That distinction matters when a compensation formula rewards tests ordered rather than work performed. The group-profit rules effective in 2022 require profits from all designated health services within a qualifying physician pool to be combined before distribution. CMS gives a concrete example: a practice cannot distribute laboratory profits to one set of physicians and imaging profits to another. The rules require reasonable, verifiable distributions without directly tying a physician’s share to referral volume or value.

Physician Partners of America agreed to a $24.5 million settlement in 2022 covering several allegations. The Justice Department alleged that physicians received 40% of presumptive-testing profits in violation of Stark, alongside allegations of unnecessary urine, genetic and psychological testing. The resolution also covered unnecessarily frequent high-level visits, connecting the testing allegations to the level and frequency of office-visit claims. The compensation formula and the testing orders supplied different parts of the alleged scheme.

Rent and supervision contracts can carry referral money too. Gramercy Cardiac Diagnostic Services and its owner agreed to a $6.5 million settlement in 2023 and admitted conduct involving referral-based rental arrangements and physician payments. The admitted arrangements included over $11 million in rental payments to referring practices and purported supervision that often was not performed. The whistleblower’s complaint had described the gap between the contract and the sales pitch:

We see the absurdity: the contract called for supervision, while the sales pitch described comforting the patient. What triggered the payment matters more than the reassuring title on the agreement.

The Anti-Kickback Statute separately addresses payments intended to buy federally funded referrals, including benefits supplied in kind. The inspector general’s guidance on fair market value explains that even a market-rate payment can violate that law, depending on the arrangement and the parties’ intent. The price of the lease or service is one question. What the payment was buying is another.

What Evidence Does a Whistleblower Need?

The useful evidence connects the referral, the financial relationship, the service and the government claim. We compare the lease with actual occupancy, the supervision agreement with staffing and treatment records, and the physician’s compensation statement with laboratory orders. Billing records show what the practice told Medicare. Internal instructions and warnings can show who understood the arrangement and why it continued.

For a False Claims Act case, we examine whether the practice knew the bills were wrong, deliberately avoided knowing or recklessly ignored the truth, and whether the falsehood mattered to payment. Your knowledge of the practice can connect documents that otherwise sit in separate departments. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Know How the Ancillary Business Runs

If you know who staffed the service, where it happened or how referral money reached the physicians, speak with our Whistleblower Experts about how the ancillary business runs. We stay beside you to build your strongest physician-practice whistleblower case and bring in healthcare fraud whistleblower lawyers who understand physician compensation and ancillary billing.