Negotiating a lease? "Fair market value" is the mantra

Whether you're the tenant or the landlord, setting the correct lease value can save you from Stark law scrutiny.

By Mike Norbut, AMNews staff. Jan. 27, 2003.

If you're renting your office, or if you own a building with space to lease, health care attorneys say you should remember three magic words.

Fair market value.

In the complicated world of Stark laws and anti-kickback legislation, it's easy for a physician to get in trouble without even trying, and it's difficult to explain misunderstandings or misconceptions if government investigators come calling, as they did in a recent South Dakota case that resulted in hefty fines for a hospital and a physician group.

Attorneys preach vigilance and a conscientious attitude to ensure that lease agreements stand up to investigator scrutiny. Even if the onus of preparing the documents and researching rental rates falls on the other party, such as a hospital or another medical group, investigators will still demand explanations from everyone involved, attorneys said.

"We live in a world of glass houses, and when these kinds of rules aren't really complied with, both parties will be asked questions," said Tom Crane, a Boston-based attorney with the firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. "No one wants to be on the receiving end of a subpoena."

The key to avoiding that situation is to make sure the rent you're paying or charging is consistent with market rates and that you have a current, signed lease, attorneys said. Those are the first tests to see if there are any special financial arrangements that could be attached to referrals.

Stark "self-referral" laws, which are pursued in civil court, generally prohibit physicians from referring Medicare or Medicaid patients to a facility for "designated health services" -- most laboratory or diagnostic services offered by a hospital or clinic -- if the physician has a financial interest in that particular facility.