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Understanding Fair Market Value: A Guide for Physicians


Here are six steps to make sure your medical practice office lease is safe, especially when it comes to "fair market value."

Last week, I detailed recent case law regarding medical practice leases and avoiding big trouble from the federal government. Now let's look at what you can do to stay safe:

Step One: Is Medicare/Medicaid involved? Are you accepting Medicare and Medicaid patients which you may refer to your landlord for treatment? If the answer is “no,” federal law is not implicated.

Step Two: Understand, the law. You are required to know it. In fact the OIG takes the position that below-market office space rental is offered for the purpose of inducing referrals.

Step Three: Do not assume every business lawyer, medical malpractice defense lawyer, or real estate professional does know the law. I have personally spoken with many malpractice lawyers who ask, “What’s a Stark Law?”

Step Four: Do your “due diligence.” During negotiations, you must find out what fair market value is for office space in your location. This may require the retention of a Health Lawyer or a fair-market-value expert who specializes in hospital lease negotiations. While this is a pain, if you haven’t already, you must think of “compliance” as simply a cost of doing business.

Step Five: Haggle (and document the haggling). The hallmark of a “sweetheart deal” would be that an offer is made to you, and you replied, “Wow, that is too good a deal to pass up.” This isn’t always a bad thing – is simply could be. The offer of office space should start with a proposal per square foot, with provisions for finish out. The rate per square foot should be in line with other rates for comparable space. Naturally, finish out allowance will depend upon whether or not the landlord must pay to make the space suitable. If the space was vacated by a prior tenant and nearly perfect “as is,” then you should get a lower rate per square foot.

Step Six: Document the Safe Harbors in the lease. Recall that a violation of the False Claims Act or the Civil Monetary Penalties Statute law usually requires some showing of a “Knowing” violation. It is therefore important to show in the lease that “compliance” was top of mind. This will not be a problem if your landlord is a hospital. The hospital will certainly include this language in the contract. But if your lease is with a smaller practice, either a single doctor or a small group, you may be handed a standard real estate lease form. Put an addendum on it which complies with Stark and Anti-Kickback Statute Safe Harbors.

Understand, none of these steps will absolutely guarantee you won’t be sued. You cannot control whistleblowers. You can only control your actions. Adopting and implementing good compliance practices simply offers your best chance that a whistleblower law firm will decline to accept the case, or that an OIG agent will elect to quietly pass you by.

Find out more about Martin Merritt and our other Practice Notes bloggers.

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