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Structuring Physician Sublease Arrangements in Compliance with the Anti-Kickback Statute and Self-Referral Laws

If you are a physician or healthcare provider who is renting space to or from healthcare facilities or other practitioners, it is important that you be aware of the potential compliance risks associated with such arrangements, as the government continues to scrutinize these relationships. In particular, if a practitioner rents or leases office space in a physician’s office, and provides health care services to patients that are referred by the physician-landlord, such a relationship potentially implicates federal fraud and abuse laws, including, but not limited to, the federal Anti-Kickback Statute (AKS), the Stark Law (Stark), and state self-referral laws. We have seen firsthand that the government is actively investigating such arrangements, and physicians could face criminal liability for paying or receiving rental payments that were arguably above fair market value, in violation of the AKS.

Under the federal Stark Law, a physician may not “refer” patients to an entity for the furnishing of Designated Health Services (DHS) if there is a financial relationship between the referring physician (or his or her immediate family member) and the entity, unless the financial relationship fits within an exception. Similarly, the AKS prohibits the knowing and willful offer, solicitation, payment or receipt of direct or indirect remuneration in exchange for, or to induce the referral of, items or services covered under any federal health care program. The AKS is generally deemed to be violated if “one purpose” of the transaction is to generate referrals between the parties for items or services payable by federal programs unless the transaction is structured to fit within a safe harbor. 

The Space Rental Safe Harbor allows for physicians and medical groups to lease or rent office space to or from other medical groups, physicians, and facilities to which they refer patients, provided certain key components exist, which are as follows:

  • There is a written rental or lease agreement between the parties;
  • The agreement describes the specific premises rented or leased;
  • The term of the agreement is at least one year in duration, and if the agreement is terminated during the term, the parties are restricted from entering into a new agreement during the first year of the original term of the agreement;
  • The space rented or leased does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease or rental arrangement;
  • The space is used exclusively by the lessee when being used by the lessee;
  • Rental charges over the term are sent in advance, consistent with fair market value, and do not take into account the volume or value of any referrals or other business generated between the parties, such that the agreement would be commercially reasonable even if no referrals were made between the parties. As a matter of principle, a fair market value rent would contemplate a pure pass-through of the lessor’s expenses based on the amount of space and duration of time the lessee actually utilizes the space.

The Office of the Inspector General (OIG) identified rental arrangements as particularly vulnerable to abuse and set forth explicit criteria to consider when entering into any leasing or subleasing arrangements which also involve a referral relationship between healthcare providers. These criteria include, without limitation, the fact that the rental amount be consistent with fair market value, as any rental arrangement between two physicians risks running afoul of applicable laws should it be deemed that the rental payment is a kickback intended to induce referrals.

If you have a space rental or intend to enter into any sublease, space rental, or other timeshare arrangement with a laboratory, imaging, or other healthcare provider, including another physician, Frier Levitt recommends that the arrangement, and any underlying contracts, be reviewed by a qualified healthcare attorney to ensure compliance with the OIG’s guidelines. Contact us today to develop your agreements in accordance with applicable federal and state laws and regulations.