“Stark” Rules: Navigating Physician Leases and Subleases

Tucker Arensberg, P.C.
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Tucker Arensberg, P.C.

Under the Federal Ethics in Patient Referrals Act (more commonly known as “Stark”), if a physician[1] has a financial relationship with an entity, the physician may not refer patients to the entity for medical services payable by Medicare unless the financial relationship complies with the Stark safe harbors.  Thus, entities that lease or sublease space or equipment to or from physicians must ensure the terms of those agreements comply with Stark if they are planning to bill Medicare for services rendered or referred by the physicians.

For these agreements to comply with Stark, all the following must be satisfied:

1.  The agreement must be in writing, signed by the parties, and specify the premises or equipment involved.  Beware of situations in which the lease generalizes the space or equipment utilized or the parties continue to use the space or equipment after the written lease has terminated.[2] 

2.  The term of the agreement must be at least one year[3], and compensation terms may not be amended during the first year. The parties may terminate the agreement within the first year of the arrangement, but if they do, the parties may not enter into a new agreement until after the first year expires.

3.  The space or equipment must not exceed that which is reasonable for legitimate business purposes.

4.  The space or equipment must be used exclusively by the lessee during the time the space or equipment is leased, except that the lessee may make payments, representing lessee’s pro rata share of expenses, for the use of common areas.

5.  The rental charges over the term of the agreement must be set in advance and consistent with fair market value and they must not be determined in a manner that considers the volume or value of any referrals or other business generated between the parties.

6.  The agreement must be commercially reasonable for each party, even if no referrals were made between them.

Stark is a strict liability statute, meaning that a person is held liable if they violate it, even if that person did not intentionally violate it.  Entities which bill Medicare for services improperly referred must repay amounts improperly received.  Failure to do so within 60 days may result in additional penalties of $15,000 per claim as well as potential False Claims Act liability.  For these reasons, it is critical that physician arrangements be structured to comply with Stark and to fit within the above-listed safe harbors.

In addition to Stark, entities must ensure that their space and equipment arrangements comply with other relevant laws, including the federal Anti-Kickback Statute and any applicable state laws. The Anti-Kickback Statute generally prohibits offering, paying, soliciting, or receiving compensation to induce or reward referrals for items or services payable by government programs, such as Medicare and Medicaid. The federal Anti-Kickback Statute is violated if even one purpose of the transaction is to induce prohibited referrals unless the arrangement is structured to fit within a regulatory safe harbor.  However, unlike Stark, the Anti-Kickback Statute is a criminal statute and requires intent.  Although the Anti-Kickback safe harbor for space and equipment rentals requirements vary to some extent from those in Stark, entities are likely to be in compliance with the Anti-Kickback Statute if they structure their arrangements to comply with Stark.

As you can see, entities and physicians alike must diligently review their leases and subleases to ensure compliance with the applicable laws. 


[1] Stark also applies to a member of the physician’s family.

[2] A holdover month-to-month rental is permitted for up to six months immediately following the expiration of an agreement that otherwise complied with Stark requirements, provided that the holdover rental is on the same terms and conditions as the immediately preceding agreement

[3] The agreement may provide for renewal terms, but the adjusted base rent during any renewal term should be based upon a new appraisal at the time of each renewal.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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