In today’s healthcare landscape, regulatory compliance is no longer just a back-office concern—it’s front and center in every business decision a provider makes. Among the most critical and complex areas of regulation are self-referral laws, which aim to protect patients from biased medical recommendations driven by financial interests. For healthcare providers in New York and New Jersey, understanding how these laws apply at both the state and federal level is essential to avoid costly missteps.

New Jersey’s Codey Law is one of the strictest state-level self-referral prohibitions in the country. It prohibits licensed healthcare professionals from referring patients to healthcare service providers in which they, or their immediate family members, have a financial interest. These services include imaging facilities, clinical labs, physical therapy providers, and more. Even if the referral is medically appropriate and the patient consents, the law still considers the financial connection a conflict of interest. Violating the Codey Law can result in disciplinary action, civil fines, and damage to a provider’s professional standing.

Many providers are surprised to discover how easily a seemingly routine business arrangement can fall afoul of the Codey Law. For example, a physician who owns shares in a diagnostic imaging center may think it’s acceptable to refer patients there for MRIs or CT scans. But if that ownership interest is not structured within one of the law’s narrow exceptions—such as in-office ancillary services or a group practice arrangement—the referral could be illegal under state law. The key is not just in the services being offered, but how the arrangement is structured and disclosed.

New York, on the other hand, approaches self-referrals through Public Health Law § 238-a, a statute that similarly bars providers from referring patients to entities in which they or their family members have a financial stake. The law covers a wide range of services, including radiology, lab testing, physical therapy, and pharmacy services. It also defines financial relationships broadly—covering ownership, investment interests, and compensation arrangements. Like New Jersey’s Codey Law, New York’s law includes several exceptions, such as referrals within the same group practice or for in-office ancillary services.

One key difference between New York’s law and its federal counterpart—the Stark Law—is the scope of enforcement. The Stark Law applies only to physicians referring Medicare or Medicaid patients for designated health services, and operates as a strict liability statute, meaning that intent to violate the law is irrelevant. New York’s law, in contrast, applies to all payors and may require evidence of intent in some cases. Violations of New York’s statute can result in repayment of improperly billed amounts, disciplinary action by the Department of Health, and scrutiny under state anti-kickback laws.

For healthcare providers operating in either state—or both—the bottom line is the same: self-referral laws are complex, and noncompliance can be costly. Relying on general legal knowledge or federal compliance alone is not enough. Each state has its own unique framework, and even small differences in ownership, billing, or service arrangements can shift a compliant referral into risky territory.

At our firm, we help clients across New York and New Jersey evaluate their business models to ensure they are structured in accordance with both state and federal law. We assist in drafting compliant agreements, evaluating joint ventures, and reviewing existing relationships to identify areas of risk before they become liabilities. Our goal isn’t to limit your growth—it’s to help you build a foundation that supports both your business objectives and your legal obligations.

If you’re unsure whether your referral arrangements comply with state law—or if you’re planning a new partnership or investment—reach out. The earlier you involve legal counsel, the better equipped you’ll be to protect your practice and your professional reputation.