Fraud and Abuse Risks in Wound Care: Stark Law and Anti-Kickback Considerations

Government oversight of wound care providers has intensified in 2026. Enforcement efforts are increasingly focused on whether referrals, ownership interests, and compensation arrangements comply with regulations such as the Stark Law and the Anti-Kickback Statute. 

Major regulatory bodies are now prioritizing wound care fraud investigations following a nearly 40-fold increase in skin substitute expenditures since 2019.

For physicians and practice owners, even routine contracts and joint ventures can create immediate compliance risk if they are not structured to meet strict statutory requirements.

Impact of Stark Law and Anti-Kickback Law on Physicians

Government regulations ensure that clinical decisions are driven by patient needs rather than financial incentives.

Non-compliance often results in a cascade of legal and administrative burdens, including:

• Financial Penalties: Under civil authorities, fines can exceed $100,000 per violation. In a high-scrutiny year like 2026, even small billing errors can result in significant liabilities that threaten a practice’s cash flow.
• Program Exclusion: The OIG can exclude physicians from participating in Medicare and Medicaid, effectively ending their ability to practice in most clinical settings.
• Criminal Liability: The Anti-Kickback Statute is a criminal law; convictions are felonies that can result in prison time and significant criminal fines. 
• Operational Scrutiny: Flagged practices may face Targeted, Probe and Educate (TPE) audits, leading to payment suspensions while investigations are ongoing.

Stark Law Compliance Risks in Wound Care

The Physician Self-Referral Law, commonly known as the Stark Law, prohibits physicians from referring Medicare patients for designated health services (DHS) to an entity with which they or an immediate family member have a financial relationship, unless a specific exception applies. 

In practice, these risks most often arise from internal practice structures, including physician ownership and compensation arrangements:

1. The Strict Liability Trap

The Stark Law is a strict liability statute. This means the government does not have to prove an intent to defraud, only that a prohibited referral occurred without a qualifying exception. In the context of wound care, lack of intent is not a legal defense. 

If a prohibited financial relationship exists and a referral is made, the violation is automatic. This necessitates proactive auditing of all financial ties to ensure long-term stability.

2. Restricted Products and Services in Practice

Wound care often involves DHS such as clinical laboratory services and outpatient hospital services. If a physician refers a patient for these services to an entity with which they have a financial relationship, the arrangement must be meticulously documented to ensure compliance. 

Common examples in this field include:

• Clinical laboratory tests for wound cultures or blood work.
• Durable Medical Equipment (DME), such as specialized pressure-reducing surfaces.
• Outpatient services involving the application of skin substitutes.

3. Volume or Value Restrictions in Physician Referrals

Compensation models fluctuating based on the volume or value of referrals are non-compliant. If a physician-owner’s bonuses or profit distributions are tied to high-cost skin substitute utilization or affiliated wound center referrals, the arrangement is problematic. 

4. Commercial Reasonableness in Wound Care Contracts

Financial arrangements must be commercially reasonable, meaning the deal must make sense even if no referrals are ever generated. For example, if medical directorship pay exceeds actual administrative work, regulators may view the excess as a disguised reward for referrals.

Anti-Kickback Statute Considerations

While the Stark Law focuses specifically on physician referrals, the Anti-Kickback Statute (AKS) is a broader criminal law. It prohibits the exchange of anything of value to induce or reward referrals for any item or service covered by federal healthcare programs, including Medicare and Medicaid.

Regulators typically scrutinize compensation and contracting arrangements that may influence how federally reimbursed items or services are ordered or used:

1. The One Purpose Rule

Federal case law dictates that if one purpose of a financial arrangement is to induce referrals, the entire deal is illegal regardless of other legitimate motives. For wound care, this makes marketing or consulting fees linked to product utilization high-risk.

2. Defining Illegal Remuneration

Under the Anti-Kickback Statute, remuneration is interpreted broadly and includes more than just cash payments. In the wound care field, regulators have flagged several high-risk forms of remuneration such as:

• Prohibit free supplies tied to product use.
• Limit travel/meals during product training events.
• Eliminate routine co-pay waivers for high-cost products.

3. Equipment Leasing and Facility Partnership Contracts

Common risk indicators include:

• Above-market rent or lease payments to referral sources
• Payments tied to volume, value, or utilization of grafts or services
• Profit-sharing arrangements lacking true ownership or risk
• Per-use or variable fee structures that reward referrals
• Poorly documented or commercially unjustified agreements

To prevent legitimate arrangements from being mischaracterized, the government created Safe Harbors or narrow regulatory exceptions that protect businesses from prosecution only if every requirement is strictly met.

Frequently Asked Questions