AMARILLO, TX – This article discusses how a lease arrangement between a hospital (“Hospital”) and a DME supplier (“DME Supplier”) can be structured so that it does not violate either the federal Anti-Kickback Statute (“AKS”) or the federal Stark physician self-referral statute (“Stark”). Assume the following:

• Hospital owns a building primarily used for physician offices (“Physician Office Building”).
• DME Supplier will enter into a lease agreement with Hospital for space in the Physician Office Building.
• DME Supplier will open a location in the Physician Office Building, and will secure a Medicare PTAN for the location.
• Hospital will likely refer patients to DME Supplier.
• Physicians affiliated with the Hospital, and possibly located in the Physician Office Building, will likely refer patients to DME Supplier.

Federal Anti-Kickback Statute

The AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce referrals of items or services, including to purchase, lease, or arrange for or recommend leasing for which payment may be made under a federal health care program. The AKS ascribes criminal liability to both sides of an impermissible transaction.  For purposes of the AKS, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. Therefore, where remuneration is paid purposefully to induce referrals for items or services for which payment is made by a federal health care program, the AKS is violated.

Due to the broad language of the AKS, regulations have been adopted that provide “safe harbors” to protect certain types of arrangements.  If an arrangement falls within one of the enumerated safe harbors, the arrangement will not violate the AKS.  The Space Rental Safe Harbor is applicable to the lease arrangement described above. This safe harbor states that an arrangement does not violate the AKS if the following conditions are met:

• The lease agreement is set out in writing and signed by the parties.
• The lease covers all of the premises leased between the parties for the term and specifies the premises covered by the lease.
• If the lease 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 lease, the lease specifies exactly the schedule of such intervals, their precise length, and the exact rent for such intervals.
• The term of the lease is not less than one year.
• The aggregate rental charge is set in advance, consistent with fair market value in arms-length transactions 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, Medicaid, or other federal health care programs.  Note that the term fair market value means the value of the rental property for general commercial purposes and cannot not be adjusted to reflect the additional value that one party (either the prospective lessee or lessor) would attribute to the property as a result of its proximity or convenience to sources of referrals or business otherwise generated for which payment may be made in whole or part under Medicare, Medicaid and all other federal health care programs.

The aggregate space rented does not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental. An arrangement does not have to meet every element of a safe harbor in order to be permissible.  Rather, an arrangement that does not meet each element of a safe harbor is reviewed based on the facts and circumstances to determine whether it violates the AKS.

Therefore, if the arrangement between Hospital and DME Supplier meets, or substantially complies with, the elements of the Space Rental Safe Harbor, the arrangement will have a low risk of violating the AKS.

Stark

Under Stark, if a physician or physician’s immediate family member has a financial relationship with an entity that provides designated health services (“DHS”) (which include DME), then the physician is prohibited from referring a Medicare (and arguably Medicaid) patient to that entity for a DHS unless one of the enumerated Stark exceptions applies. “Financial relationship” means a direct or indirect ownership or investment interest in, or a direct or indirect compensation arrangement with, an entity that furnishes DHS.

Assume that in our hypothetical arrangement, no referring physician, or immediate family member of a referring physician, has an ownership or investment interest in the DME Supplier.  Therefore, we only need to be concerned about whether the lease arrangement between DME Supplier and Hospital will result in direct or indirect compensation to referring physicians.

Since the lease agreement will be between DME Supplier and Hospital, there will not be a direct compensation arrangement between DME Supplier and any referring physician.  There could be an indirect compensation arrangement between DME Supplier and a referring physician if the referring physician has a financial relationship with the Hospital and such physician’s aggregate compensation from the Hospital varies with, or takes into account, the volume or value of referrals or other business generated by the referring physicians for DME Supplier.

Under Stark, an arrangement that meets the Rental of Office Space exception will not constitute a “financial relationship” if the following requirements are met:

• The lease arrangement is set out in writing, is signed by the parties, and specifies the premises it covers.
• The duration of the lease arrangement is at least one year.  To meet this requirement, if the lease arrangement is terminated with or without cause, the parties may not enter into a new lease arrangement for the same space during the first year of the original lease arrangement.
• The space rented or leased does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease arrangement and is used exclusively by the lessee when being used by the lessee (and is not shared with or used by the lessor or any person or entity related to the lessor), except that the lessee may make payments for the use of space consisting of common areas if the payments do not exceed the lessee’s pro rata share of expenses for the space.
• The rental charges over the term of the lease arrangement are consistent with fair market value.
• The rental charges over the term of the lease arrangement are not determined (i) in a manner that takes into account the volume or value of any referrals or other business generated between the parties; or (ii) using a formula based on (A) a percentage of the revenue, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space or (B) per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.
• The lease arrangement would be commercially reasonable even if no referrals were made between the lessee and the lessor.

If the lease between Hospital and DME Supplier complies with the Stark exception for the Rental of Office Space, then such lease will not result in a Stark law violation.

Jeff Baird and Denise Leard will present the following webinar:

AAHOMECARE’S EDUCATIONAL WEBINAR

Targeted Probe and Education Review:  What it Is and How to Respond

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Denise M. Leard, Esq., Brown & Fortunato, P.C.

Tuesday, August 7, 2018

2:30-3:30 p.m. EASTERN TIME

Over the past 10 years, DME suppliers have been subjected to aggressive post-payment audits and prepayment reviews. In responding to a post-payment audit, the supplier is required to justify claims that were submitted years earlier. With a prepayment review, even though the supplier has furnished the equipment to the patient, Medicare will not pay the supplier until the supplier submits documentation that, in the eyes of Medicare, supports the claim. A frustrating byproduct of all of this is the three to four year ALJ backlog. Fortunately, Medicare has taken a step in the right direction by implementing the Targeted Probe and Educate (“TPE”) program. Under the TPE program, the supplier will not be subjected to unlimited requests for documentation…followed by vague denials. Rather, under the program the DME MAC will (i) request a limited number of patient files, (ii) review the files, (iii) explain any denials, and (iv) provide education to the supplier that addresses the denials. This webinar will discuss what the TPE program is and how the DME supplier should respond to a TPE request. Equally as important, this webinar will talk about the steps the supplier should take to ensure that its documentation will pass TPE review. 

Register for Targeted Probe and Education Review:  What it Is and How to Respond on Tuesday, August 7, 2018, 2:30-3:30 p.m. ET, with Jeffrey S. Baird, Esq. and Denise M. Leard, Esq., of  Brown & Fortunato, PC.

FEES:  Member: $99.00; Non-Member: $129.00

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or [email protected].