Tread Carefully When Renting Space

Copyright 2022

As you may know, medical practitioners are subject to a federal law that makes it a felony to influence the referral of federal health care business, including Medicare and Medicaid.

For example, if a physician refers a patient to a specialist and receives part of the specialist's Medicare payment in exchange, the doctor has committed a felony under the Anti-Kickback Statute and could be subject to criminal and civil charges. The physician could also be excluded from Medicare and other federally funded health care programs.

But you may not be aware that the law includes medical providers who accept other items of value, such as drug samples, durable medical equipment or certain favorable lease terms in exchange for a referral.

Rental agreements are one area of major concern. The federal Office of the Inspector General (OIG) is so concerned about the potential for abuse that it issued a special fraud alert on the subject of suppliers who provide health care items or services and rent space in the offices of physicians or other practitioners. The alert outlines the safe harbor steps required to ensure that a rental contract is legal:

1. Put the agreement in writing and have all parties sign it.

2. Make sure the agreement specifies all the premises rented and that they are covered for the term of the contract.

3. If there is a part-time lessee, the agreement must specify the schedule of access and corresponding rent.

4. Set rent in advance, and make it consistent with fair market value. Do not link the rent to the volume or value of referrals or other business between the parties.

"We have received reports that some suppliers whose businesses depend on physician referrals are paying excessive rent for office space to their physician-landlords to keep referrals flowing," according to Inspector General June Gibbs Brown.

"Kickbacks can distort medical decision-making, cause overutilization, increase costs and freeze out competitors who refuse to pay kickbacks for referrals."

5. Make sure the rental space is not larger than necessary for the "commercially reasonable business purpose." It may be assumed that rent for space that isn't necessary or used is a pretext to induce referrals.

6. The term of the rental agreement cannot be less than one year.

When examining rental payments, the OIG determines whether payment is appropriate at all. Payments of "rent" for space that traditionally has been provided for free, or at a nominal charge, such as consignment closets for durable-medical equipment, may be disguised kickbacks. "In general, rental payments for consignment closets in physicians' offices are suspect," according to the OIG.

Another questionable rental arrangement cited by the OIG involves mobile diagnostic equipment suppliers who perform diagnostic related tests in physicians' offices.

Violations of the Anti-Kickback Statute are punishable by up to five years in prison, criminal fines up to $25,000, administrative civil money penalties up to $50,000 and exclusion from participation in federal health care programs.

Get professional help to ensure that your rentals and other business practices meet the requirements of the kickback laws. For more information, click here to read the OIG Special Fraud Alert.