What is Stark Law
To prevent healthcare abuse and fraud, Stark Law, also known as the “physician self-referral law,” was set in place. The law bans physicians from referring patients with Medicaid or Medicare to other medical entities from which the referring physician or their family could receive financial gain. Violation of Stark Law results in fines and exclusions from federal health programs. The Stark Law is a strict liability statute, meaning that proof of specific intent to break the law is not required.
History of Stark Law
Stark Law was enacted in 1989 and named after the bill sponsor, Congressman Pete Stark. The idea was to prevent physicians from personal financial gain by making more referrals than necessary. The law does include several exceptions, including some equipment or facility leases. But some have felt the law is too restrictive, and recently the Centers for Medicare and Medicaid Services (CMS) has spoken up.
Recently Proposed Changes
In October of 2019, CMS released a “Proposed Rule,” in an effort to alter Stark Law. The changes listed in the proposed rule include changes to definitions of “fair market value” and “commercial reasonableness.” Adjustments to these definitions are in-depth and help provide clarity for all parties affected by Stark Law. (Read about the suggested definition changes here.)
The Proposed Rule also makes suggested edits for rentals. This adjustment applies to spaces in which physicians rent their space to other physicians but also continue to use the space. According to research that CMS conducted, having multiple providers in the same office space actually improves convenience for the patient. It is not inherently a potential threat to abusing the system.
Finally, CMS’s Proposed Rule recommends changing certain exceptions to Stark Law. The exceptions with proposed edits include the Fair Market Value Exception, Certain Arrangements with Hospitals Exception, and Payments by Physicians Exception. (Visit this source for a more extensive review of the CMS Proposed Rule.) Additionally, the Health and Human Services (HHS) have recently announced proposed changes to Stark Law in addition to the Federal Anti-Kickback Statute.
Why The Law Matters in CRE
Stark Law and the Anti-Kickback Statute (AKS) are serious points of interest for medical professionals to be aware of, whether in a commercial real estate setting or not. Violation of Stark Law and the AKS could be damaging and expensive for the responsible health system or entity.
Physicians and other health professionals should be aware of the legality surrounding their lease terms, including physician-owned buildings, and even shared facilities and amenities. For example, when a physician owns a building or medical office condo, and is also a hospital employee whereby the hospital is paying rent to the physician for the use of the physician’s office space, is the rent rate being paid to the physician-landlord by the hospital-tenant within fair market value (FMV)? Does the practice use shared services, administrative staff, or maintenance staff that could inadvertently lead to an infraction of Stark Law? These are just a few of many factors to consider when evaluating compliance status for these statutes.
The health system and practice should maintain concise records of their agreements in order to show compliance with these statutes. Additional documentation should list as much detail as possible, including landlord agreements for the physical facility, property appraisal and fair market value reports, office staff agreements, non-referral source certifications to reflect landlords who are non-physicians that are signing leases with hospitals or health systems, etc. Lastly, if a medical practice meets the requirements of a Stark Law exception, it should be clearly documented.
Health systems and medical practices should not only be aware of Stark Law and the AKS, but they should occasionally review their leases to ensure they are still in compliance. With the potential of Stark Law changes on the horizon, medical professionals should revisit their arrangements and make adjustments if necessary. If there is any question about whether compliance with Stark Law or the AKS is in question, consultation with an attorney is strongly advised.
Healthcare professionals can learn more by visiting the HBRE w ebsite. HBRE partners have worked with many healthcare entities to guide them through the CRE process while maintaining compliance with Stark Law and AKS.
Legal disclaimer: The information in this document is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before making any real estate decision, you should consult an accounting, tax, legal or other competent professional. Real estate decisions, like most other business transactions, are fact dependent and could present advantages and disadvantages to the seller, buyer, lessor, lessee or other party in a real estate transaction depending on the specific situation.”
If you are interested in learning more about investing in commercial real estate, or if you have questions about buying, selling, or leasing a commercial property, please contact an HBRE advisor. Our team of experienced CRE professionals have the skills and insight to assist with all property transactions. To reach out to us directly, email [email protected] or call 615-564-4133.
