As physician practices across the United States navigate increasingly complex regulatory and enforcement environments, 2026 promises to be a pivotal year from a legal risk perspective. Recent reporting from Becker’s ASC Transactions & Valuation Issues highlights five core areas where physicians face heightened exposure to audits, penalties, and liability — whether in ambulatory surgery centers (ASCs), private practices, or multispecialty groups. Providers who take a proactive, structured approach now can mitigate these risks, strengthen compliance infrastructure, and protect both clinical autonomy and financial sustainability.
This analysis examines each of the five risk domains, places them in broader legal and operational context, and offers actionable interpretation for physician leaders preparing for 2026.
1. Evolving HIPAA Security and Privacy Expectations
For decades, HIPAA compliance operated as a checklist — clinicians ensured basic administrative, physical, and technical safeguards were in place. That paradigm has shifted. HIPAA is increasingly described not as a static set of boxes to tick but as a living security framework that must adapt to contemporary threats. This shift has been catalyzed by both enforcement intensity from federal authorities and the pervasive risk of cyberattacks on healthcare entities.
Key anticipated requirements include:
Mandatory multi-factor authentication (MFA) for all systems accessing electronic protected health information (ePHI)
Encryption of ePHI at rest and in transit
Updated Notices of Privacy Practices reflecting expanded patient rights, with compliance deadlines reported through February 2026
Physician practices that deflect responsibility solely to an IT vendor — without documented governance, testing, and leadership accountability — may find themselves exposed when audits or breaches occur. The era in which basic perimeter defenses sufficed is over; comprehensive risk assessments, penetration testing, and executive oversight must be institutionalized.
Strategic Considerations:
Conduct a formal HIPAA security risk assessment by a qualified compliance professional.
Establish board-level reporting on risk mitigation and breach preparedness.
Execute documented policies for MFA, encryption, breach response, and employee training.
2. Medicare Audit Risk: Routine Foot Care and Documentation Scrutiny
Medicare contractors and oversight bodies have repeatedly underscored certain services as high audit risks — notably routine foot care in podiatry and related specialties. Medicare generally does not cover routine services such as nail trimming or callus care unless there is clear, medically necessary linkage to a qualifying systemic condition (e.g., diabetes or peripheral vascular disease).
Failure to document medical necessity has historically been a principal driver of audit referrals and recoupments. The correct use of Q modifiers (Q7, Q8, Q9) tied to systemic conditions, and clinical findings that explicitly support medical necessity, is not optional — it is required for defensible billing.
Strategic Considerations:
Implement targeted documentation training for clinicians in high-risk specialties.
Conduct internal claims audits focused on modifier use and medical necessity language.
Engage coding specialists with payer-specific expertise.
3. Stark Law Exposure: Strict Liability Beyond Intent
The federal Physician Self-Referral Law (Stark Law) continues to be a significant legal risk for physician practices, particularly those with ownership interests in entities providing Designated Health Services (DHS). Under Stark, a violation can occur without any intent to violate the rule — meaning even well-intentioned arrangements can trigger liability if they do not strictly satisfy an exception.
Common risk vectors include:
Lease arrangements that are not demonstrably at fair market value or that vary with referral volume
Management agreements with compensation that deviates from fair market value or lacks clarity and advance documentation
Referral patterns that touch affiliated DHS entities without a robust exception
Even ancillary services or real estate arrangements can be implicated if they have referral-producing potential.
Strategic Considerations:
Conduct independent fair market value (FMV) assessments annually.
Standardize contract templates vetted by health law counsel.
Document rationale and compliance testing before executing related-party agreements.
4. False Claims Act Enforcement: When Mistakes Become Fraud
Repeated billing errors — such as unbundling or upcoding — can escalate from procedural mistakes to claims of fraud under the federal False Claims Act (FCA). In recent years, FCA enforcement has been leveraged not just against deliberate misconduct, but against billing patterns interpreted as reckless disregard for compliance standards.
The potential consequences are steep: FCA penalties can include treble damages and significant per-claim fines, which quickly outstrip the underlying value of the allegedly misbilled services.
High-risk patterns include:
Unbundling services that should be reported under a global code
Upcoding to higher-paying procedures without clinical justification
Billing non-covered services without proper beneficiary notice and consent
Strategic Considerations:
Invest in regular coding audits and provider education.
Develop internal mechanisms for self-disclosure of potential overpayments.
Engage compliance partners with experience defending FCA investigations.
5. Business Associate Agreements: Liability in the Event of Breach
Healthcare practices routinely outsource functions — billing, IT hosting, cloud storage — to third-party vendors. Under HIPAA, these entities are business associates, and practices are responsible for ensuring that agreements governing them are up-to-date and compliant. If a business associate agreement (BAA) is outdated, generic, or lacking essential protections, the practice itself can be held liable for breaches or misuse of patient data.
Given the rise in ransomware attacks and cloud-based data breaches, this is not theoretical: vendors’ cybersecurity posture and contractual commitments now factor directly into risk exposure.
Strategic Considerations:
Review and update all BAAs to ensure they incorporate current HIPAA and HHS Security Rule requirements.
Assess vendors’ security controls and incident response capabilities.
Consider contractual rights to indemnification and cooperation in breach investigations.
Compliance as Strategy
The five legal risk areas outlined above should be seen not as isolated regulatory issues, but as integral drivers of practice stability and reputation. Practices that embed legal compliance into operations not only reduce downside exposure but also enhance valuation, attract partners, and build greater resilience in a rapidly evolving healthcare economy.
Forward-looking physician leaders will:
Treat compliance as a board-level priority with dedicated governance and accountability.
Invest in both internal capabilities and external expertise.
Link operational decisions (billing, IT, contracts) to legal risk scenarios.
As 2026 approaches, the choice is clear: proactive preparation today can be the difference between audit readiness and costly disruption tomorrow.
Sources
1. 5 Legal Risks for Physicians to Prepare for in 2026, Becker’s ASC Transactions & Valuation Issues (Patsy Newitt).
2. ASC Strategic Transactions — Common Mistakes, ASCRealtyAdvisors.com (context on valuation and compliance drivers).
3. Due Diligence and Physician Financial Arrangements, Health Care Compliance Association / JD Supra (overview of self-referral and fraud risks).
