Operational challenges and potential pitfalls can arise when real estate decisions are made in the healthcare environment due to regulations including the Stark Law and the Anti-Kickback Statute.
The Stark Law, also known as the physician self-referral law, governs physician self-referral for Medicare and Medicaid patients. Recent amendments to the law have significant implications for healthcare real estate transactions, according to a Savills white paper. These changes include an updated definition of fair market value (FMV) and general market value to be more specific to healthcare transactions, which impacts how lease and service agreements are structured under the Stark Law exceptions.
“For instance, rental agreements must strictly adhere to FMV, which is not influenced by the volume or value of physician referrals,” said Savills. “This ensures that transactions are purely based on economic value, not potential referral business.”
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In addition the updates also introduce more flexibility in using leased spaces, which aligns with the commercial reasonableness required under Stark Law exceptions. These changes permit more practical and cost-effective arrangements, such as shared space agreements, that were previously challenging under stricter interpretations of the law,” said Savills.
Documenting compliance has become more important than ever with the updates, said Savills. Healthcare providers must maintain precise records demonstrating adherence to the Stark Law’s exceptions, including detailed written agreements for all financial relationships covered under the exceptions, such as leases and service contracts.
Meanwhile, the Anti-Kickback Statute prohibits the exchange or offer to exchange anything of value to induce the referral of business in a federal healthcare program, such as Medicare and Medicaid. While violations of these laws with respect to real estate are not as commonplace as other violations, the financial and reputational fallout can be significant, and potential penalties apply to both parties to a real estate transaction, including the hospital or healthcare system and the physician, said the white paper.
“Whether you are a healthcare in-house real estate executive or in-house legal counsel, it is important to know how the laws impact potential real estate arrangements and seek expert real estate advice in all transactions involving physicians or other potential referring providers,” said Savills.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
