Understanding the Retail Based Clinic Debate

By Mathew Levy, Esq.
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In recent years, more and more Americans who visit their local retail pharmacy are presented with the option of seeing a nurse practitioner or doctor for a primary care visit instead of scheduling an appointment with their primary care provider at these retail based clinics (RBCs).  RBCs have emerged in several states, including New York.  These clinics have been met with public praise, public outcry and varied responses from local and state governments, practitioners and medical societies.  This article is intended to provide the basic information on RBCs necessary to facilitate a discussion as to how to address RBCs from a health policy standpoint.

Retail Based Clinic Set-Up

RBCs are generally located in an existing retail drug store or supermarket and consist of a reception area and examination rooms. RBCs are typically staffed with nurse practitioners who are supervised via the telephone by off-site physicians. Sometimes full-time physicians staff the RBCs.  The nurse practitioners in many RBCs use computer software during patient consultations that serve as both a diagnostic tool and check and balance on the limitation of the scope of the nurse practitioner’s medical practice.  This practice raises questions as to whether primary care provided primarily by nurse practitioners in a clinic setting, in the absence of on-site physicians, is appropriate or instead constitutes an inappropriate and illegal practice of medicine by nurse practitioners.[1] Uninsured patients are charged between $50 and $80 per visit; however, many RBCs have established contractual relationships with insurance companies and therefore, accept health care insurance. RBCs such as MinuteClinic argue that they provide affordable, accessible care for health problems such as urinary tract infections and minor bacterial infections in a clinic structure where more serious health issues are triaged and referred appropriately to qualified professionals.

New York State Law

A physician interested in contracting with an RBC to supervise the work done by nurse practitioners should consult competent counsel to review all contracts and agreements for the purpose of making sure that the work expected of the physician does not offend New York State Law. New York Education Law § 6902, which outlines the scope of practice of nursing, provides in pertinent part that, “A certified nurse practitioner may diagnose illness and physical conditions, and perform therapeutic and corrective measures within a specialty area of practice in collaboration with a licensed physician qualified to collaborate in the specialty involved, provided such services are performed in accordance with a written practice agreement and written practice protocols.”  Further, patient records must be reviewed by the collaborating physician in some manner no less than every three months.  Finally, “no physician shall enter into practice agreements with more than four nurse practitioners who are not located on the same physical premises as the collaborating physician,” which can arguably be interpreted to mean that as long as a doctor is collaborating with less than four, the physician does not have to be physically present on the premises.

Even though the definition of the practice of nursing allows for a nurse practitioner to practice under the supervision of a physician, New York Education Law § 6530(33), which defines Physician Misconduct states that “[f]ailing to exercise appropriate supervision over persons who are authorized to practice only under the supervision of the licensee” constitutes misconduct.  Therefore, it is advisable that a consulting physician at an RBC must take care to adequately supervise the RBC’s nurse practitioners and document his or her supervision meticulously. 

Continuity of Patient Care and the Quality of Medical Care Debate

The cause of the heated debate over RBCs stems from the balance between the need for affordable care that is readily accessible (absent extensive wait-times), and the need for continuity of care, the provision of high-quality medical care and appropriate case management. Additionally, RBCs are a source of competition to primary care physicians who are already struggling in a health care economy where reimbursements for primary care are often low.  The American Medical Association (AMA) [3] and the American Academy of Family Physicians (AAFP) [4] have issued guidelines advising that, among other standards, retail based health clinics meet high quality standards, adhere to appropriate scope of practice standards, and address continuity of care issues.  However, the American Academy of Pediatrics (AAP) has opposed RBCs and strongly discourages their use, citing continuity of care issues.[5] The AAP is particularly concerned with the following aspects of RBC care: (1) Fragmentation and possible lower quality of care, (2) Care for children with special health care needs, (3) Lack of access to a central health record, (3) Use of tests and diagnosis without proper follow-up, and (4) Public health issues surrounding exposure to contagious diseases in a retail environment.

Locally, The Medical Society of the State of New York has inquired of the New York State Department of Health to ascertain how, if Minute Clinic (an RBC company) was not an Article 28 Facility, it could own and operate RBCs and employ physicians or nurse practitioners to staff clinics while operating in accordance with New York State Law.

In conclusion retail based clinics present a variety of issues for New York practitioners, particularly primary care providers.  Doctors seeking to supervise RBCs should seek competent counsel to ensure that RBC agreements comply with New York State Law. Practitioners must ensure that care provided in RBCs meets acceptable quality standards and those RBCs communicate with patients’ primary care providers. Patient education on the uses and limitations of RBCs is also advisable in order to ensure that New Yorkers continue to receive the highest quality medical care.

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-926-3320 or email: mlevy@weisszarett.com.


[1] Kershaw, Sarah “Drugstore Clinics Spread, and Scrutiny Grows,” New York Times Online,

http://www.nytimes.com/2007/08/23/nyregion/23clinic.html?_r=2&ref=health&oref=slogin, Accessed on August 24, 2007. 

[2] New York Education Law § 6902.

[3] See, http://www.ama-assn.org/amednews/2007/07/16/prl20716.htm, Accessed August 24, 2007.

[4] See, http://www.aafp.org/online/en/home/policy/policies/r/retailhealthclinics.html, Accessed August 24, 2007.

[5] See, http://aap.org/advocacy/releases/retailclinics.htm, Accessed August 24, 2007.

Understanding Asset Protection and Family Limited Partnerships

By: Mathew J. Levy, Esq.

The assets of physicians have always been at risk to predators and this disastrous trend has recently been confirmed.  In a recent survey, 600 practicing physicians and surgeons nationwide were queried on their asset protection practices.  The survey found that approximately twenty percent of the nation’s physicians have either lost personal assets in civil litigation or personally know a colleague who has.  In all fifty states, a court has the ability, to varying degrees depending on the state, to seize the personal assets of physicians to pay for malpractice judgments. Some states protect a physician’s primary home, life insurance policies and/or retirement plans.  The trial layers continue to claim that there is no proof that any physician’s assets are being seized post-judgment.  They continually deny the disastrous impact of multi-million dollar jury awards and the resulting double-digit malpractice premium increases in their wake.

It is no secret that a responsible physician must guard against these predators and protect the hard-earned assets for the family.  In this regard, a useful mechanism in the protection of assets from malpractice suits is the creation of an entity known as the Family Limited Partnership, or “FLP.”  This mechanism allows for the transfer of assets without creating undivided interests and incurring transaction costs.  The transferred assets are protected from malpractice suits because the assets, as well as the future appreciation in the value of these assets, are removed from the donor’s gross estate.  In addition, the FLP confers certain tax benefits.

To create an FLP, a limited partnership is first formed under the laws of the state of New York. Such an entity provides the limited partners with protection from liability to third parties for actions taken in operating the entity’s business (like a corporation) but is taxed on a “pass-through” basis. The FLP confers a layer of protection from malpractice suits because the assets of the entity may not be seized by or ordered to be paid to creditors. Furthermore, the general partners cannot be ordered or compelled to transfer the assets of the company or a limited partner’s interest therein to creditors. However, a court is permitted to award a charging order in favor of a judgment creditor. This means that if the general partners order a distribution to be paid to partners, the debtor partner’s share of the distribution must be paid to the creditor, pursuant to the charging order.

In the FLP mechanism, the donors (usually the parents) and a wholly-owned “S” corporation formed by the donors transfer designated assets (real estate, stocks, bonds, etc.) to fund a capital contribution to the FLP in exchange for voting general partnership interests and non-voting limited partnership interests in the entity. The voting interest would represent only 1% of the total value of the company, and would be owned by the corporation. The donor would own the 99% non-voting interest.  The interests transferred to children and grandchildren are non-voting minority interests, and children, generally, do not have any management or voting interests in the company.  Under this approach, the corporation controls the company by reason of its ownership of all the voting general partnership interests. It is critical that the donors give up their voting rights, in order to avoid IRS rules and court holdings that may nullify or reduce valuation discounts.

In addition to providing a layer of asset protection, the FLP provides additional benefits including: 1) consolidating management responsibility over diverse family assets; 2) maintaining controls over the future disposition of gifted assets to children and grandchildren through restrictions in the company’s partnership agreement; 3) facilitating family investment planning and promoting the appreciation of the family’s assets to  children and grandchildren; and 4) reducing the administrative expenses appurtenant to the giving of gifts and assets.

In these days where the hard-earned assets of physicians are threatened on a nearly daily basis, careful assessment management and the creation of layers of asset protection is a prudent course.  A family limited partnership can form an integral part of such protection.  However, though a simple mechanism in principle, it is highly recommended that an experienced attorney specializing in asset protection be consulted to set up the FLP.

Mathew J. Levy, Esq. is a Principal of Weiss Zarett Brofman Sonnenklar & Levy, PC. Mr. Levy is nationally recognized as having extensive experience representing healthcare clients in transactional and regulatory matters. Mr. Levy has particular expertise in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, criminal law, healthcare fraud & billing fraud, insurance carrier audits, litigation & arbitration, and asset protection-estate planning.  You can reach Mathew Levy at 516-926-3320 or email: mlevy@weisszarett.com.

Understanding Physician Lease Agreements & The Anti- Kickback Statute

By: Mathew J. Levy, Esq.
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The rental of space in a physician’s office to a renter who, herself, provides health-related services creates a landlord-tenant arrangement between the physician and the renter.  The potential and actual abuses that have arisen from these arrangements have become so significant that the Office of the Inspector General (“the OIG”) of the Department of Health published a Special Fraud Alert in February 2000 regarding how numerous arrangements may be in violation of the Federal anti-kickback statute.

As noted in the Special Fraud Alert, “the OIG is concerned that in such [rental] arrangements [between physician-landlords and other health-related providers],” the rental payments may be disguised kickbacks to the physician-landlords to induce referrals.”  Rental arrangements are usually deemed suspicious based on 1) the appropriateness of the rental agreement (i.e. whether any rent should be charged at all for the space provided); 2) the rental amount; 3) time and space considerations (i.e. how much space is rented and how the rent is calculated based on how often the space is used by the renter); or a combination of all three.

Rental Amount:

The most prominent of these considerations is the rental amount.  The rent must be “at fair market value, be fixed in advance and not take into account, directly or indirectly, the volume or value of referrals or other business generated between the parties.” In the event that the tenant is paying above fair market value for the leased space then the OIG shall assume that the tenant is paying the landlord for the referral of patients. In the event that the tenant is paying below fair market value for the leased space then the OIG shall assume that the tenant is referring patients to the landlord for a reduced rental fee.

Rental Space:

Second in prominence is time and space consideration.  Renters should only rent space from the physician-landlord of a size and for a time that is reasonably necessary to carry out the renter’s business purpose for the rented space.  The OIG specifically warns that the “rental of space that is in excess of the [renter’s business needs] creates a presumption that the payments may be a pretext for giving money to [the physician-landlord] for their referrals.”  The rent must be prorated based on the amount of space and duration of time the space is used.  The prorated rent is based on three components: 1) space used exclusively by the renter; 2) common space within the physician-landlord’s office; 3) common space within the physician-landlord’s building.  As to exclusive space, the OIG has specified the formula for proration of the annual rate as follows:

Annual rent of primary lease x Sq. ft. exclusively occupied by supplier x Tenant hours x Tenant days per year = Supplier’s annual rent for exclusive space
No. of work days/year Total office sq. ft Landlord hours

As to so-called common space, the charge for common space must be apportioned among all physicians and subtenants that use the common space.

Safe harbor:

It must be emphasized that rental agreements are not, by themselves, in violation of the law.  However, for an arrangement to be immune from prosecution under the anti-kickback statue, the following criteria (known as “safe harbor criteria”) must be met:

  • the agreement is set out in writing and signed by the parties
  • the agreement covers all of the premises (i.e. the spaces or areas) rented by the parties for the term of the agreement and specifies the premises covered by the agreement
  • if the agreement is intended to provide the lessee (i.e. the renter) with access to the premises for periodic intervals of time (i.e. on a part time) rather than on a full-time basis for the term of the rental agreement, the rental agreement specifies exactly the schedule of intervals, their precise length, and the exact rent for such intervals
  • the term of the rental agreement is for not less than one year (i.e. the agreement must be for at least one year)
  • the aggregate (or total) rental charge is set in advance, is consistent with fair market value in arms-length transactions, and is not determined in such a way 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 or a state health care program
  • the total space rented does not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental

The Federal anti-kickback statue forbids the knowing and willful “soliciting, receiving, offering of paying anything of value to induce referrals or items or services payable by a Federal health care program.”  Such an arrangement constitutes a serious crime punishable by a fine of up to $25,000, imprisonment or both.  The participants of such an arrangement may also be excluded from Federal health care programs and be subject to civil money penalties.  Though beyond the scope of this brief discussion, the aftermath of prosecution under the anti-kickback statute, both criminal and civil, may include the commencement of an investigation by the Office of Professional Medical Conduct (whose powers include the revocation of a medical license), investigations by other insurance companies (who may exclude the physician from their panels) and referrals to other regulatory agencies and parties.

Even in this brief discussion, the complexity of compliance with the anti-kickback statute and the potential, far-reaching complications of being found in violation of the statute are significant issues.  Physicians, who are currently renting space from health-care related providers, or leasing space to other physicians, are strongly encouraged to review their arrangements for potential violations of the anti-kickback statues with their legal counsel.

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-926-3320 or email: mlevy@weisszarett.com.

Understanding Estate Planning and Wills

By: Mathew J. Levy, Esq. 
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了解遗产规划和遗嘱

It is not an understatement to suggest that every adult needs to have a will.  Without one, the law decides what happens to a person’s property on death and, often, the government may take a larger share for itself in the form of estate taxes.  Unless a person has no objection to his or her property potentially going to a “long lost relative” (whom he or she has probably never met) or going to the government, a will must be executed to pre-empt the laws of intestacy and is therefore greatly important.

Basic terms:  A “will,” in its most basic form, is a legal document that expresses a person’s desires as to how to distribute his or her assets upon death.  Parents of minor children execute a will in order to appoint a guardian for the children (complex domestic relations issues, such as the disinheritance of a spouse, and the requirements of a valid will are beyond the scope of this very basic primer).  “Beneficiaries” are the people receiving property.  The person who dies is the “decedent.”  A person who dies without a valid will is said to have died “intestate.”  A person who dies with a valid will is characterized as having died “testate.”  An “executor” is the person the decedent names to administer his or her estate and distribute the property of the estate.  An “administrator” is the person, whom the law decides, who administers the estate and distributes the property of a person who dies intestate.  “Probate” is a court proceeding in which the court decides if a will is valid and supervises the transfer of assets from the decedent to the beneficiaries.

The Better Business Bureau has a simple and straightforward definition on “an estate,” which is all a decedent’s property, such as real estate, personal property, any business, bank accounts, life insurance, pensions, investments and debts.  Thus, anyone who owns anything will have an estate.  In addition, there could be properties that are not assets of an estate, but are considered part of the estate, nonetheless, for estate tax purposes.

“Estate planning” is, again deferring to the Better Business Bureau for a simple but highly elegant definition, “the process of deciding what will happen to [a person’s] assets and belongings after [his or her] death.” However, a complete estate plan also addresses the administration and protection of assets during a person’s lifetime, reducing or eliminating estate and inheritance taxes, and decision-making in the event of a disability, including decision-making for health care.

What happens when a person dies without a will: In New York, the estate (i.e. property) of a person who dies intestate (without a will), will pass by operation of law to a set roster of people.  This is commonly referred to as “the law of intestacy.”  A surviving spouse receives the first $50,000 from the estate.  The surviving spouse gets the entire estate if there are no children or other descendants (referred to as “issue”).  If there are more than one children, the surviving spouse also receives one-half of the remaining estate (after the $50,000 has been removed) and the children share the remaining half equally.  Grandchildren inherit under the laws of intestacy if the decedent’s own child died before the decedent.  In that case, the grandchildren would share equally in the property that would have gone to the deceased parent.  For example, in the case of a $150,000 estate with a surviving spouse and two children, the surviving spouse receives $50,000 plus half of the remainder ($50,000) for a total distribution to the surviving spouse of $100,000.  Each child then gets $25,000.

If the decedent did not leave behind a spouse or any issue (children, grandchildren, etc), the next relatives in line would be parents of the decedent, then siblings, then nephews and nieces, then aunts and uncles, and lastly cousins.  The last “long-lost relatives” in line would be great-grandchildren of the decedent’s grandparents.  If none of these people exist at the time of the decedent’s death, the state gets it all (i.e., “the estate escheats to the state.”)

Before leaving the laws of intestacy, it should be pointed out that a surviving spouse will not inherit under several conditions: if 1) the marriage was validly terminated prior to the decedent’s death; 2) a final decree of separation was rendered against the surviving spouse; 3) the surviving spouse obtained a divorce in another jurisdiction; 4) the marriage was bigamous or incestuous; 5) the surviving spouse abandoned the decedent which abandonment continued until the decedent’s death; or 6) the surviving spouse failed or refused to support the deceased spouse.

A will is important because it can circumvent most of the rules of intestacy: As noted, a will is used to direct the distribution of an estate according to the desires of the decedent and to appoint a guardian for minor children.  In addition, a will 1) permits the decedent to choose who will administer the distribution of the estate; 2) allows for specific distributions to specific individuals (know as “bequests”); 3) allows for the sale of assets to cover death taxes and probate expenses; 4) allows for the continuation of the decedent’s business if the decedent so chooses; 5) can defer distribution to minors via trust provisions until they reach an age older than 18; 6) can have provisions allowing for tax savings opportunities.

Estate Taxes:  If “death and taxes” are the only certainties, then the existence of death taxes should come as no surprise.  These taxes, referred to as “estate taxes,” “inheritance taxes” or “death taxes” may be imposed by both the Federal and state governments upon an estate.  All assets owned by the decedent or in which he had an interest and/or certain retained rights or powers may be included in his or her “gross estate” for estate tax purposes, and can include assets that will pass to designated beneficiaries “by operation of law” (rather than pursuant to the will) such as certain joint accounts, interests in certain trusts, qualified retirement plan and IRA assets and life insurance policies.

The Federal estate tax can be as much as 40% of the “taxable estate” of a decedent.  A decedent’s taxable estate is the value of the gross estate – consisting of all assets that he or she owned at death or in which he or she had an interest – reduced by the marital deduction (for assets passing to of for the benefit of his or her surviving spouse) and the charitable deduction (for assets passing to qualified charities).

The Federal estate tax is calculated based on the value of the taxable estate.  Then, each estate is entitled to a credit against the tax calculated.  A credit is a dollar for dollar reduction of the tax so calculated.  The credit relates to the value of assets that pass at death to or for the benefit of beneficiaries other than the surviving spouse or charities. The credit is capped so that if the total value of assets passing to non-spouse/non-charitable beneficiaries is less than a designated threshold amount (called the “applicable exclusion amount” or “AEA”), the credit reduces the tax otherwise imposed to $0.

Although the Federal estate tax is also eliminated where all of the decedent’s assets pass to his or her spouse or charities, any assets passing to the surviving spouse may be included in the surviving spouse‘s estate, and subjected to Federal estate tax, at his or her death.  Instead, if assets valued at no more than the AEA are allowed to pass to other beneficiaries, then the value of these assets will not be subject to estate taxes at either spouse’s death.  However, most decedents wish to protect the decedent’s surviving spouse and might be reluctant to have assets pass to other beneficiaries, to the potential detriment of the surviving spouse.  In this case, an amount of the assets of the decedent’s estate can be paid to a certain type of trust, often referred to as the “by-pass trust”.  The surviving spouse will have access to the assets of the bypass trust, but any assets remaining in the bypass trust at the surviving spouse’s death will not be subject to Federal estate taxes.

For 2015, the AEA is $5.43 million and the maximum estate tax rate is 40%. For 2016, the AEA is $5.45 million and the maximum estate tax rate is 40%.

With some exceptions, the estate tax laws of the state of New York generally track the Federal estate tax structure.

Trusts

While this article is primarily a primer on intestacy and wills as an estate planning tool, trusts, when appropriate, are crucial in the estate planning process, and usually dovetail with a will.  For example, in New York, where probate is costly and time-consuming, a basic revocable trust or “living trust” can be used to avoid or reduce the complexities of probate.  A revocable trust is an instrument executed by a person (the “grantor”) and a trustee that creates a trust, a separate legal entity, that will own and control the management of assets transferred to the trust.  The grantor of a living trust usually names himself or herself as the trust’s “trustee”, thus retaining control over the property.  At his or her death, however, the assets of the trust will pass to the beneficiaries named in the trust, without the need for any probate proceedings.  Because the trust is revocable and can be terminated by the grantor at any time, the assets of the trust are treated as if owned by the grantor at his or her death, and thus no estate tax benefits may be derived from this technique.

Wills and trusts come in several varieties, each one designed to accommodate the financial situation of the estate and the ultimate goals of the decedent.  There are basic wills, wills with a contingent trust, pour-over wills, Testamentary Credit Shelter Trusts (“tax-saving wills”), living trusts without tax planning, Living Credit Shelter Trusts, Qualified Terminable Interest Property Trusts (“Q-tip trusts”) and Qualified Domestic Trusts.  Each has a specific role in an overall estate planning arrangement and is applied to specific and often unique situations.  In the end, however, each of these instruments must address the simple and important goal of the estate planning process to ensure that the property a person has earned over a lifetime of hard work, education, training and experience passes exactly to the beneficiaries that the decedent wants to enjoy his or her assets.

As wills and trusts are complex legal documents, it is important that an experienced professional is consulted for the drafting of such instruments, and that such instruments are reviewed frequently and amended as appropriate, including to address changes in the tax laws.

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-926-3320 or email: mlevy@weisszarett.com.

Understanding Chiropractor Lease Agreements & The Anti- Kickback Statute

By: Mathew J. Levy, Esq.

The rental of space in a physician’s office to a renter who, herself, provides health-related services creates a landlord-tenant arrangement between the physician and the renter.  The potential and actual abuses that have arisen from these arrangements have become so significant that the Office  of the  Inspector  General  (“the OIG”) of  the  Department  of

Health published a Special Fraud Alert in February 2000 regarding how  numerous arrangements may be in violation of the Federal anti-kickback statute.

As noted in the Special Fraud Alert, “the OIG is concerned that in such [rental] arrangements [between physician-landlords and other health-related providers],” the rental payments may be disguised kickbacks to the physician-landlords to induce referrals.”  Rental arrangements are usually deemed suspicious based on 1) the appropriateness of the rental agreement (i.e. whether any rent should be charged at all for the space provided); 2) the rental amount; 3) time and space considerations (i.e. how much space is rented and how the rent is calculated based on how often the space is used by the renter); or a combination of all three.

Rental Amount: The most prominent of these considerations is the rental amount.  The rent must be “at fair market value, be fixed in advance and not take into account, directly or indirectly, the volume or value of referrals or other business generated between the parties.” In the event that the tenant is paying above fair market value for the leased space then the OIG shall assume that the tenant is paying the landlord for the referral of patients. In the event that the tenant is paying below fair market value for the leased space then the OIG shall assume that the tenant is referring patients to the landlord for a reduced rental fee.

Rental Space: Second in prominence is time and space consideration.  Renters should only rent space from the physician-landlord of a size and for a time that is reasonably necessary to carry out the renter’s business purpose for the rented space.  The OIG specifically warns that the “rental of space that is in excess of the [renter’s business needs] creates a presumption that the payments may be a pretext for giving money to [the physician-landlord] for their referrals.”  The rent must be prorated based on the amount of space and duration of time the space is used.  The prorated rent is based on three components: 1) space used exclusively by the renter; 2) common space within the physician-landlord’s office; 3) common space within the physician-landlord’s building.  As to exclusive space, the OIG has specified the formula for proration of the annual rate as follows:

Annual rent of primary lease x Sq. ft. exclusively occupied by supplier x Tenant hours x Tenant days per year = Supplier’s annual rent for exclusive space
No. of work days/year Total office sq. ft Landlord hours

As to so-called common space, the charge for common space must be apportioned among all physicians and subtenants that use the common space.

Safe harbor: It must be emphasized that rental agreements are not, by themselves, in violation of the law.  However, for an arrangement to be immune from prosecution under the anti-kickback statue, the following criteria (known as “safe harbor criteria”) must be met:

  • the agreement is set out in writing and signed by the parties
  • the agreement covers all of the premises (i.e. the spaces or areas) rented by the parties for the term of the agreement and specifies the premises covered by the agreement
  • if the agreement is intended to provide the lessee (i.e. the renter) with access to the premises for periodic intervals of time (i.e. on a part time) rather than on a full-time basis for the term of the rental agreement, the rental agreement specifies exactly the schedule of intervals, their precise length, and the exact rent for such intervals
  • the term of the rental agreement is for not less than one year (i.e. the agreement must be for at least one year)
  • the aggregate (or total) rental charge is set in advance, is consistent with fair market value in arms-length transactions, and is not determined in such a way 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 or a state health care program
  • the total space rented does not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental

The Federal anti-kickback statue forbids the knowing and willful “soliciting, receiving, offering of paying anything of value to induce referrals or items or services payable by a Federal health care program.”  Such an arrangement constitutes a serious crime punishable by a fine of up to $25,000, imprisonment or both.  The participants of such an arrangement may also be excluded from Federal health care programs and be subject to civil money penalties.  Though beyond the scope of this brief discussion, the aftermath of prosecution under the anti-kickback statute, both criminal and civil, may include the commencement of an investigation by the Office of Professional Medical Conduct (whose powers include the revocation of a medical license), investigations by other insurance companies (who may exclude the physician from their panels) and referrals to other regulatory agencies and parties.

Even in this brief discussion, the complexity of compliance with the anti-kickback statute and the potential, far-reaching complications of being found in violation of the statute are significant issues.  Physicians, who are currently renting space from health-care related providers, or leasing space to other physicians, are strongly encouraged to review their arrangements for potential violations of the anti-kickback statues with their legal counsel.

Mathew J. Levy, Esq. is a Principal of Weiss Zarett Brofman Sonnenklar & Levy, PC. Mr. Levy is nationally recognized as having extensive experience representing healthcare clients in transactional and regulatory matters. Mr. Levy has particular expertise in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, criminal law, healthcare fraud & billing fraud, insurance carrier audits, litigation & arbitration, and asset protection-estate planning.  You can reach Mathew Levy at 516-627-7000 or email: mlevy@weisszarett.com.