Health Law Blog

The Office of the Inspector General of the New York State Department of Health (the “OIG”) has expressed concern with rental arrangements between physicians and other health-related providers.  Specifically, the OIG has issued Special Fraud Alerts noting that the rental payments are frequently disguised kickbacks to induce patient referrals.  The OIG has elaborated on some of not so definitive factors considered when evaluating a specific rental arrangement that include the appropriateness of the agreement, the rental amount as well as time and space referenced, and combination of the factors involved. 

Due to heightened government scrutiny of medical practices in NYS, many physicians and other health care professionals are aware of some of the regulatory requirements pertaining to physician lease agreements such the fact that the rent must be fixed at a fair market value and that the size of the rented premises and the rental period must be reasonably necessary to carry out the renter’s legitimate business purpose for the rented space. However, few are recognizant of the subtleties involved in the specific approach the OIG takes in assessing physician lease agreements.  For instance, it is essential to keep in mind that in the event that a physician-tenant rent that is either above or below the fair market value for the leased premises then the OIG shall assume that some violation of the Anti-Kickback statute is taking place.  Similarly, there are specific warnings issued by the OIG with respect to premises size and rental time referencing a presumption of violations in the event of any discrepancies between the use of the rented space and  its legitimate business usage.  The OIG has issued a specific but complex formula for calculation of what would be considered appropriate rent and all healthcare providers would be well-advised to comply with this regulatory guidance. 

Physicians need to be aware that while numerous safe harbor criteria exist, which if met would render the lease agreement to be immune from prosecution under the anti-kickback statute, application and adequacy of these must be carefully analyzed by a knowledgeable attorney with particular expertise in the healthcare regulatory domain.  This is particularly true in light of the recent sharp increase in governmental audits and investigations of various healthcare providers, and considering the fact that a violation of the federal anti-kickback statute constitutes a serious crime punishable by a fine of up to $25,000, imprisonment or both, in addition to potential exclusion from Federal health care programs, investigations by other third party payors and referral to the Office of Professional Medical Conduct for initiation of disciplinary proceedings.

The complexity of compliance with federal laws and regulations and the potentially devastating consequences of violations should not be ignored.  Physicians who are renting space from or to other healthcare providers are strongly advised to review the details of their rental agreements with an experienced healthcare attorney.