In our healthcare law practice here in New Jersey, we often work with physicians and practice owners who are surprised to learn that complying with federal fraud and abuse laws isn’t enough—they also have to navigate our state’s own, often stricter, rules. One of the most common sources of confusion is the difference between the federal Stark Law and New Jersey’s Codey Law. Both are intended to prevent self-dealing in healthcare, but they approach it in different ways, and providers must understand how to stay compliant with both simultaneously.

The Stark Law, at the federal level, prohibits physicians from referring Medicare or Medicaid patients to entities with which they have a financial relationship for certain designated health services, unless a specific exception applies. It’s a strict liability statute—meaning you can violate it without intending to do so—and the penalties can be significant, including repayment obligations, civil fines, and even exclusion from federal healthcare programs. The law is designed to protect patients from financial conflicts of interest and prevent unnecessary utilization of services driven by profit motives rather than medical necessity.

But here in New Jersey, the Codey Law adds another layer. This state statute, formally known as the New Jersey Health Care Practitioner Referral Law, restricts healthcare professionals from referring patients to healthcare services—such as labs, imaging centers, or physical therapy clinics—if they or their immediate family members have a financial interest in that entity. Unlike the Stark Law, the Codey Law applies to all patients, not just those covered under Medicare or Medicaid. It’s enforced by the New Jersey Board of Medical Examiners, and while there are several exceptions, they are narrow and must be met precisely.

For example, while both laws permit referrals within a group practice or for services provided personally by the referring physician, the definitions of what qualifies as a “group practice” can differ slightly between the two. Similarly, New Jersey’s Codey Law allows for referrals if the provider discloses their financial interest to the patient in writing, but that alone isn’t enough to protect against Stark Law liability if federal funds are involved. So even when a provider thinks they’re complying under state rules, they may still be exposed federally—or vice versa.

This dual compliance challenge is especially important for practices that are expanding their service lines. We regularly assist clients in structuring ancillary service arrangements—like in-house diagnostics, physical therapy, or durable medical equipment—in a way that is both operationally sound and legally compliant. It’s not enough to meet the requirements of one law; you have to ensure your business model is shielded under both frameworks.

When it comes to enforcement, both the federal and state governments are active. We’ve seen a rise in audits and whistleblower cases targeting financial relationships that even appear to cross the line. That’s why it’s critical to get legal advice early—ideally, before entering into a new venture or compensation arrangement. We help our clients assess their risk, implement safeguards, and, when necessary, revise their contracts or business structures to stay compliant.

For New Jersey healthcare providers, understanding the interplay between the Stark and Codey Laws is not optional—it’s essential. And given the complexity of both statutes, it’s not something you should have to figure out alone. Our firm is here to help you navigate these regulatory hurdles so you can focus on what matters most: delivering excellent care to your patients.

If you’re considering a new referral arrangement or have questions about your existing setup, reach out to us. Let’s make sure your practice is protected—on both the federal and state level.