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Is Your Medical Practice Lease Safe?


Recent legal cases should cause physicians to take a fresh look at their medical practice lease and make needed changes immediately.

Since 1863, the False Claims Act has made it illegal to “lie” to the government in order to get paid for services which were clearly unnecessary, or never performed. Because it was difficult to prove that a patient really didn’t need the services once he appears in a doctor's office, Congress began looking for other ways to limit payment for services. The “answer,” was in how the patient arrived in the doctor’s office or hospital for treatment in the first place.

The AMA Code of Medical Ethics has always prohibited kickbacks and referrals where there existed a conflict of interest. See Opinions 4.02-04 and 8.032. Trouble was, no one was being prosecuted at the state level. As federal spending on Medicare doubled, then tripled, over the decade between the 70s and 80s, the federal government took matters into their own hands and converted sections 4.02-04 and 8.032 of the AMA Code of ethics into federal offenses known as Stark Law and the Anti-Kickback Statute, which made ethics enforceable under the FCA.

Stark Law outlaws referrals, if a prohibited “relationship” exists, the AKS outlaws kickbacks for referrals. Both of which are pure “facts,” as to how the patient arrived at the doctor's office or hospital admissions. Or, are they? Certainly the payment of money for referrals is always bad. The trouble comes with the concept of “in-kind” payments, (a term borrowed from the tax code.)

Office space leases are a prime example. Suppose, instead of giving you $5,000 to refer patients, a hospital were to give you free rent. Clearly this kind of “in-kind” payment is no different than writing you a check in the same amount. But what if the hospital charges you some amount for rent? How do you know the hospital is charging enough? That’s where the “Safe Harbors” come into play. The Safe Harbors for “space rental” under the Anti-kickback Statute are located at 42 C.F.R. §1001.952(b) which are identical to the safe harbor under Stark Law, 42 U.S.C. 1395nn. In addition to the requirement that an office lease be in writing, for a term of at least one year, at a rate set in advance, which does not take into account the value of referrals or the proximity of the space to the hospital, the provision which causes the most trouble is the requirement that the amount be at “Fair Market Value.”

The trouble lies in the fact that “Fair Market Value” is itself nothing more than an “opinion,” or at least mixed questions of “fact” and “opinion.” How do you know your lease is safe?

On July 12, 2012 an opinion was handed down in UNITED STATES OF AMERICA, ex rel., MARC OSHEROFF v. Tenent, which should give every physician cause for concern. In Osheroff, Tenet’s hospitals do in fact take patient referrals from physicians who lease space from Defendants. Some of these patients were Medicaid and Medicare patients, which implicates Stark Law and the AKS. There is nothing wrong with this practice, as long as provisions of the Safe Harbor are met. (This is the very reason the Safe Harbor exists, to permit physicians to office very close to the hospital.)

Tenent hired a real estate firm to blast e-mails to 3,300 potential tenants, inviting them to visit the website, which advertised office lease rates. (Full disclosure: While Tenent is based in Dallas, and I am personally acquainted with many Tenent in-house counsel, I do not represent any party in this case, and only know of the facts from reading the opinion.) What I can tell you is this: Normally, no hospital chain on Earth would think of advertising rates on a website, without first running the whole affair through the legal department. I can therefore only guess, that probably Tenet did not think it was doing anything wrong.

But here is where the matter gets messy. “Fair Market Value” for office space rental is not a “number,” it is a range of numbers which depends upon several factors: 1.) what are others charging; 2.) what is the finish-out allowance; and 3.) what miscellaneous amenities are included?

The whistleblower’s complaint in Osheroff detailed allegations of what he believed were below-market rental rates in two substantially similar buildings, understating the size of the premises, charging higher rental rates to non-referral tenants, providing excessive tenant finish out allowances. Although the court dismissed the case on technical grounds, the court left open the possibility the whistleblower could have stated a case.

If the whistleblower was correct, everyone involved, including all the physician tenants could be in big trouble. If the allegations of a knowing violation proved true, both the hospital and each physician involved could be liable for between $11,000 and $50,000 under the False Claims Act and the Civil Monetary Penalties Statute for each claim submitted. The question remains: “How do you protect yourself?”

Next week, I'll outline six steps on how you can protect yourself from avoiding similar trouble.

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

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