Are you a physician renting medical office space in a complex owned by a hospital with whom you have a referral relationship? Do you have a lease with another provider with whom you have a referral relationship where space or equipment is shared? The long-anticipated Phase III final rule took effect December 4, 2007. However, I have found that many providers--and even their attorneys--are not aware of, or seemingly unconcerned with, the regulations as they affect leases. The Stark regulations impose strict requirements upon leases. Therefore, if a provider is attempting to fit within the narrowly-interpreted lease exception to the anti-referral prohibition, a lease amendment may be necessary. The rental of office space exception provides that a prohibited financial relationship excludes payments for the use of office space if:
A similar exception also exists for the rental of equipment.
The Stark III final rule does not make any substantive changes to the space and equipment lease exceptions as adopted in Phase II. However, what is most notable to me is the exclusivity requirement. The lessee must have exclusive use of the space or equipment when using it. Most commentators are interpreting this to require “block leases”, where the lease includes clearly delineated blocks of time for each party to exclusively use the space. Therefore, if an exam room is used by two parties, they will need to determine at what times of the day or week each party will have exclusive use of it.
In the commentary to Stark III, many commenters pointed out that “sharing of facilities is extremely common for physicians and may not readily fit into the leasing exceptions. CMS’ response was: “Irrespective of whether the office-sharing arrangements described by the commenters are common, both the statute and our regulations require that the lessee have exclusive use of the leased space or equipment when the lessee uses the space or equipment. In effect, [these exceptions] require that space and equipment leases be for established blocks of time.”
Also, subleases are allowed. The commentary notes that a lease (or sublease) is considered to satisfy the “exclusive use test” provided that the lessee (or sublessee) does not share the rented space or equipment with the lessor during the time it is rented or used by the lessee (or sublessee). However, CMS correctly points out that “a subleasing arrangement could create a separate indirect compensation arrangement between the lessor and a sublessee that would need to be evaluated under the indirect compensation rules.”
This exception contains some defined terms not elaborated on here, and also will affect certain lease amendments, as may other provisions in Stark III.
At the end of a busy shift providing medical services, the last thing a physician will probably feel like doing is pulling out and studying her or his lease agreement. However, since the regulations stem from a strict liability statute imposing harsh civil monetary penalties and possible disciplinary action under Michigan licensing laws, it is better to be safe than sorry and have an attorney review your lease to ensure compliance.