§ 8A.02 Regulated Transactions

• Jurisdiction: United States
• Publication year: 2022

§ 8A.02 Regulated Transactions

Federal and state anti-kickback laws frequently apply to lease or sublease arrangements between hospitals, physicians, healthcare providers, or entities owned by a physician or an immediate family member when providers refer Medicare and Medicaid patients to the hospital, physician, or other healthcare provider. Whether an arrangement is subject to these anti-kickback regulations is fact-specific and healthcare regulatory counsel should be sought to determine whether the arrangement is governed by such regulations. Furthermore, it is important to understand that a medical office lease can trigger other state fraud and abuse laws. Therefore, the legislative framework described below must be considered in tandem with state fraud and abuse and healthcare compliance issues.¹

Noncompliance with the healthcare regulatory laws at the federal and state level can result in substantial fines and, in some cases, criminal penalties. The medical industry is under increasing scrutiny by federal and state enforcement agencies with respect to such regulations and landlord-tenant arrangements can be subject to close-examination as part of that process.² The potential for substantial fines associated with noncompliant leases and real estate arrangements warrants a critical review and analysis of the parties and stream of referrals involved, as well as the structure of the arrangement.

[1]—The Legislative Framework/Anti-Kickback Regulations

The three federal statutes that may impact medical office leases involving healthcare providers include: (1) the False Claims Act ("FCA"),³ (2) the Physician Self-Referral Act (the "Stark Law"),⁴ and (3) the Federal Fraud and Abuse Laws and the safe harbor regulations promulgated thereunder,⁵ which is commonly referred to as the Anti-Kickback Statute ("AKS").⁶ The Stark Law and AKS are anti-kickback prevention statutes aimed at preventing payment or other remuneration in exchange for referrals of patients. The FCA governs the submission of payments for reimbursement by the federal government, including payments under Medicare and Medicaid and makes operating under a noncompliant lease a potential violation of these reimbursement regulations.⁷ Landlords and tenants can be held liable under the FCA, AKS and the Stark Law, which liability can range from fines and civil monetary penalties to exclusion from federal healthcare programs and even imprisonment.⁸ The Stark Law contains exceptions and the AKS contains safe harbor provisions that allow federal reimbursement if the arrangement, such as a lease or sublease, in question meets certain requirements.⁹

[a]—The False Claim Act

The FCA provides the federal government with the authority to impose civil and criminal penalties on entities that submit false or fraudulent claims under federal healthcare programs, such as Medicare and Medicaid.¹⁰ In submitting claims for reimbursement, healthcare providers are required to certify compliance with the Stark Law and AKS.¹¹ Falsely certifying compliance with the Stark Law and AKS gives rise to a claim under the FCA.¹² Additionally, a violation of the AKS is a per se violation of the FCA.¹³ Under the civil FCA, specific intent is not required, as a person acting in deliberate ignorance or reckless disregard of the truth or falsity of the information can be considered "knowingly" having submitted a false or fraudulent claim.¹⁴ A claim arising from a kickback or violation of the Stark Law, such as entering into a leasing arrangement that does not comply with a Stark Law exception or AKS safe harbor, as further discussed below, gives rise to an FCA violation.¹⁵ Civil fines can include up to three times the federal healthcare program's loss, plus up to $10,957 to $21,916 per claim billed to Medicare or Medicaid.¹⁶ The statute of limitations for filing an action under the FCA are as follows: (1) "not more 6 years after the date on which the violation of section 3729 is committed" or (2) "more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last."¹⁷ Therefore, FCA fines can mount quickly during the term of a noncompliant leasing arrangement.

There is also a whistleblower provision under the FCA that permits a private individual to bring a qui tam suit on behalf of the federal government and receive a percentage of the recovery.¹⁸ Appraisers, real estate brokers, and other non-healthcare professionals are in a position to bring whistleblower suits if real estate arrangements are not properly structured.¹⁹

[b]—The Stark Law²⁰

Under the Stark Law, a physician is prohibited from referring Medicare or Medicaid patients for designated health services ("DHS")²¹ to an entity with which the physician or an immediate family member²² has a financial relationship, unless an exception applies.²³ To analyze whether a lease or sublease arrangement is governed by the Stark Law, the referring physician or its attorney should ask: (1) does the arrangement involve a referral of a Medicare or Medicaid patient for DHS and (2) is there a financial relationship of any kind between the referring physician or an immediate family member of the physician and the entity to which the referral is being made? If both are answered in the affirmative, then the Stark Law may govern the arrangement.

Under the Stark Law, financial relationships can take one of two direct or indirect forms.²⁴ The statute defines a financial relationship between a physician and a DHS entity as a physician (or immediate family member of physician) having either (1) "a direct or indirect ownership or investment interest in any entity that furnishes DHS" or (2) "a direct or indirect compensation arrangement with an entity that furnishes DHS."²⁵ A direct financial relationship exists if remuneration passes between the referring physician (or immediate family member, as defined by the statute) and the DHS entity without any intervening entity or party. An indirect financial relationship exists if there are one or more entities or persons between the referring physician and the DHS entity.²⁶

Whether a lease constitutes an indirect compensation arrangement requires the review of three elements.²⁷ First, it must be determined whether there exists an unbroken chain of persons or entities that have financial relationships (even if it is an excepted financial relationship under the Stark Law, it is a link in the chain).²⁸ Second, it must be determined whether the aggregate compensation received by the referring physician from the entity with which he or she has a financial relationship varies with, or otherwise reflects, the volume or value of referrals or other business generated between the physician and the DHS entity.²⁹ Finally, it must be determined whether the DHS entity had "actual knowledge" or "act[ed] in reckless disregard or deliberate ignorance" that the referring physician receives compensation.³⁰ If a lease constitutes an indirect compensation arrangement, it must meet the following criteria to avoid liability under the Stark Law:³¹ (1) the compensation must be at fair market value and cannot take into account the volume or value of referrals for the entity furnishing designated health services; (2) the agreement must be set out in signed writing that specifies the services; and (3) the agreement must not violate AKS or any laws or statutes governing billing or claims submission.³² It is also important to note that any financial relationships between a referring physician and a DHS entity implicates the Stark Law, even if the relationship itself is unrelated to the DHS payable by Medicare or Medicaid.³³

The Stark Law is a strict liability statute so that no intent to violate the statute is required.³⁴ If the parties enter into a noncompliant lease or sublease, the entity providing DHS is prohibited from submitting claims to Medicare and Medicaid for services during the time the leasing arrangement is noncompliant.³⁵ Violations regarding submittal of claims can result in FCA liability and requirements to refund the Medicare and Medicaid reimbursements received.³⁶ Knowing violations can result in potential exclusion from federal healthcare programs and civil monetary penalties of up to $24,253 per claim and three times the amount of each submitted claim.³⁷ Fines can be based per DHS billed during the term of the noncompliant arrangement subject to applicable statutes of limitations.

[c]—The Anti-Kickback Statute³⁸

The AKS is an intent-based statute that prohibits anyone from knowingly and willfully offering, paying, soliciting or receiving any remuneration (e.g., cash or in-kind), directly or indirectly, to induce or reward referrals of items or services reimbursable by any federal healthcare program, including Medicare, Medicaid, TRICARE, S-CHIP, Veterans Administration or Indian Health Services programs, unless a safe harbor applies.³⁹ The presence of legitimate business reasons for the arrangement is not a defense if one purpose of the arrangement is to induce referrals.⁴⁰ Safe harbors are available that permit certain financial arrangements that could otherwise be construed as a violation of AKS, including a leasing safe harbor.⁴¹ On the civil side, violations of AKS can result in FCA liability, federal healthcare program exclusion, and fines of up to $74,792 per violation and up to three times the amount of the kickback. Criminal liability can include fines and up to a five-year prison sentence per violation.

The following chart provides a comparison of AKS lease safe harbor⁴² and the Stark Law lease exception:⁴³

	AKS	STARK
Prohibition	Prohibits offering, paying, soliciting or receiving anything of value to induce or reward referrals or ...