Medical Office Lease Contracts

Medical Office Lease and Medical Facilities Lease Contracts are among the many types of agreements which must be reviewed by a Health Lawyer, such as Martin Merritt, who specializes in Stark Law and Federal Fraud and Abuse Compliance to ensure that the client is not committing a felony or otherwise subjecting itself to millions of dollars in civil monetary penalties (and possible exclusion from the Medicare program.)

Medical Offices/Facilities  Leases usually fall into one of three categories: (1) a physician is leasing office space from a hospital, (2) a physician is leasing a portion of his own office to another health care provider, or (3) a physician owns a free-standing piece of real estate which is being rented by another medical provider, such as another physician,  hospital or clinic. The Center for Medicaid and Medicare Services (CMS) has published a dizzying array of Special Fraud Alters, Bulletins which supplement the ever changing Medicare Manual as to what types of real estate arrangements violate federal law under the Safe Harbor provisions of the Stark Act and the Anti-Kickback Statute (AKS).

Under recent federal legislation, including PPACA, federal enforcement agencies are given financial incentives to prosecute even the most technical violation of federal law, and the defense of “unknowingly” violating federal law has been largely decimated by a new rule under the False Claims Act which guilt merely requires intentionally entering into a contract– regardless of whether the physician knew the contract was illegal.

The reason the federal government considers real estate leases problematic under both Stark Law and the AKS, (and the reason ordinary rules of real estate law do not apply,) is the fear that “sweetheart” deals will lead to over-prescribing of unnecessary treatment– which will be paid by the government.  Because the patient largely does not pay the bill, it is felt that free-market principles do not apply. The physician controls both supply and demand, unchecked by customer’s sense of frugality.

While most non-health lawyers are unaware that payment of money or gifts for referrals is actually illegal, even fewer are aware of the special rules prohibiting “in kind” payment for referrals.   An “in kind” payment for referral occurs where the payment is hidden in the lease arrangement. (The most obvious would be free rent, in the hopes that the tenant will refer patients.) 

While common sense might dictate that all referrals between parties to a medical real estate contract should be forbidden, common sense does not apply here. Nor do the dictates of ordinary real estate transactional law apply. Many real estate leases between medical providers are perfectly legal, even though they are clearly intended to capture a stream of referrals. 

Adding to the complexity, the Office of Inspector General takes the position that even reliance upon the OIG’s and CMS’s own Bulletins and Fraud Alerts will not insulate a physician from liability unless the statutes, regulations and safe harbors are strictly followed.

In order to protect physicians from possible criminal and civil liability, Martin Merritt maintains a hard copy and searchable database of the CMS Manual, every federal statute, state statute, federal regulation, special fraud alert, bulletin, OIG Letter, US Department of Justice Open Letter, and every state and federal lawsuit on the subject of the Real Estate Safe Harbor under Stark Law and the Anti-Kickback Statute. He regularly assists clients in Texas and across the United States in Stark Law and Federal Fraud and Abuse issues.




Martin Merritt, PLLC - Dallas Physician Law. Copyright 2012. All Rights Reserved.