Introduction
In February 2000 the Office of Inspector General (.OIG.), the governmental agency responsible for conducting Medicare audits, investigations and inspections, issued a Special Fraud Alert applicable to the rental of space in physicians. offices by persons or entities that may stand to benefit from the physician/landlord.s referral of patients.1The OIG periodically issues Special Fraud Alerts to identify segments of the health care industry that are particularly vulnerable to abuse and to inform health care providers of the OIG.s position on such issues. This most recent Special Fraud Alert puts health care providers and physicians involved in rental arrangements for space in physicians. offices on notice that in the year 2000 they can expect increased scrutiny of such arrangements.
Federal Anti-Kickback Statute
The federal Anti-Kickback Statute prohibits knowingly and willfully soliciting, receiving, offering, or paying anything of value to induce referrals of items or services payable by a federal health care program.2 Both parties to an impermissible kickback transaction are liable. Violations of the Anti-Kickback Statute constitute a felony punishable by a maximum fine of $25,000, imprisonment of up to five years, or both. The OIG also may impose civil penalties including the initiation of administrative proceedings to exclude the offender from federal health care programs or the imposition of civil money penalties for fraud, kickbacks, and other prohibited activities. The Anti-Kickback Statute is intended to prevent payments to induce referrals because such .kickbacks. can distort medical decision-making, cause over-utilization, increase costs, and result in unfair competition by eliminating competitors from the market because they are unwilling to pay kickbacks.
Specifics of the Recent Special Fraud Alert
The recent Special Fraud Alert is aimed at the rental of space in physicians. offices by health care providers or suppliers that offer health care items or services to patients that are referred either directly or indirectly to such health care providers/suppliers by the physician/landlords. The OIG is concerned that either the .renting. health care provider/supplier will offer to pay excessive rent to the physician/landlord in exchange for referrals or that the physician/landlord will demand payment of excess rent from the health care provider/supplier as payment for referrals. Clearly, payments under such arrangements would constitute kickbacks and violate the Anti-Kickback Statute and subject the health care provider/supplier or the physician/landlord, or both, to penalties under the Anti-Kickback Statute.
Specific Areas of Concern to the OIG
As set forth in the Special Fraud Alert, the OIG is specifically concerned with: (1) the appropriateness of rental agreements; (2) the rental amounts; and (3) time and space considerations regarding rental of space in physician offices.
1. Appropriateness of Rental Agreements. The OIG first will review a proposed lease transaction in order to determine if the payment of rent by the health care provider/supplier to the physician/landlord is appropriate in the first instance or whether such .rental. payment constitutes a disguised kickback. For example, if space traditionally has been provided for free or for a nominal charge as an accommodation between the parties for the benefit of the physician.s patients, then the charging of rent may not be appropriate. An example of this would be a consignment closet established by a durable medical equipment, prosthetics, or orthotics supplier in a physician.s office.
2. Rental Amounts. Rental amounts must be at fair market value, be fixed in advance, and not take into account, directly or indirectly, the volume or value of referrals or other business generated between the parties. The OIG wants to ensure that fair market rental payments do not exceed the amount paid for rental at comparable properties. Accordingly, to demonstrate compliance with these standards, we recommend that health care providers and physicians have a third party real estate appraiser evaluate the fair market value rent for the premises prior to entering into the lease, that such evaluation is kept in the file with the lease and then ensure that such fair market value is incorporated in the lease.
In addition, rental amounts that are subject to modification more often than annually, that vary with the number of patients or referrals, or that are paid if only a certain number of federal health care beneficiaries are referred each month are per se illegal.
3. Time and Space Considerations. Finally, the OIG is concerned with time and space considerations. In short, health care providers/suppliers should only rent premises from referring physicians of a size and for a time that is reasonable and necessary for their business purpose. Rental of excess space by a health care provider/supplier creates a presumption that such payments are actually a payment to the physician by the health care provider/supplier in exchange for referrals. Moreover, the health care provider/supplier should only pay for the time that such provider/supplier uses the physician.s office space. The Special Fraud Alert provides specific advice regarding how payments should be calculated to pro-rate rent based upon the amount of space and duration of time the premises are used, including advice regarding apportionment of exclusive office space, of interior office common space, and of building common space.
Space Rental Safe Harbor
Currently, there are several .safe harbors. embodied in regulations to the Anti-Kickback Statute that protect arrangements that otherwise would violate the broad prohibitions of the Anti-Kickback Statute. The Space Rental Safe Harbor is one of the existing safe harbors that may be relied upon by participants to a lease arrangement to ensure compliance with the Anti-Kickback Statute and address the concerns raised by the OIG in the recent Special Fraud Alert. This safe harbor has the following requirements: (i) that the rental agreement be set out in writing and signed by the parties; (ii) that the agreement covers all of the premises rented by the parties for the term of the agreement and specifies the premises covered by the agreement; (iii) if the agreement is intended to provide the lessee with access to the premises for periodic intervals of time rather than on a full-time basis for the term of the rental agreement, the rental agreement specifies exactly the schedule of such intervals, their precise length, and the exact rent for such intervals; (iv) the term of the rental agreement is for not less than one year; and (v) the aggregate rental charge is set in advance, is consistent with fair market value in an arms-length transaction and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare or a state health care program; and (vi) the aggregate space rented does not exceed that which is reasonably necessary to accomplish the current commercially reasonable business purpose of the rental.3 Accordingly, rental arrangements by and between health care providers/suppliers and referring physician/landlords must comply with both the requirements of the Space Rental Safe Harbor and the OIG.s concerns as expressed in the Special Fraud Alert.
Conclusion
With the issuance of this Special Fraud Alert, the OIG has put health care providers and suppliers that rent space from physicians and receive referrals from physicians (i.e., suppliers of durable medical equipment, prosthetics, orthotics and supplies; mobile diagnostic equipment suppliers; clinical laboratories; and comprehensive outpatient rehabilitation facilities) and physicians on notice that the OIG considers certain aspects of such lease arrangements to be suspect. The Special Fraud Alert provides these lease participants with specific advice regarding how such lease arrangements can be structured to comply with the requirements of the Anti-Kickback Statute and the Space Rental Safe Harbor. Accordingly, with some advance planning, health care providers, suppliers, and physicians can better ensure that their lease arrangements do not expose them to liability under the Anti-Kickback Statute.
1. The complete text of the Special Fraud Alert can be found at www.hhs.gov/oig.
2. 42 USC Section 1320a-7b.
3. 42 CFR 1001.952(b), as amended by 64 FR 63518 (November 19, 1999)
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