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OIG Special Fraud Alert: Guidelines for Rental Arrangements

March 2000
By Sonya A. Penley, Greenberg Traurig, Tallahassee Office

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It may be too good to be true. On February 23, 2000, the Office of the Inspector General ("OIG") issued a Special Fraud Alert which features a format to help physicians structure lease rental payments that will stand up to scrutiny. Physicians should carefully assess rental arrangements where unnecessary or excessive rent to doctor-landlords is paid by equipment suppliers, outpatient rehabilitation providers and others that provide health care items or services ("suppliers"). Such arrangements can serve as a disguised kickback for referrals. The recently announced Fraud Alert will allow physicians to better determine whether their particular arrangement may run afoul of federal laws.

Physicians who collect too much rent from suppliers or other providers who sub-let could be held liable under the Federal Anti-kickback statute. There are 3 areas that must be evaluated in determining if a rental arrangement is "suspect": the appropriateness of the rental agreement, the rental amount, and time and space considerations.

First, is the rental payment appropriate to begin with? Often, space leased to equipment suppliers has been provided free of charge to the landlord. Therefore, payment of rent by these equipment suppliers would be considered "suspect" under the Fraud Alert. This is particularly true for rent on consignment closets for durable medical equipment.

Second, fair market value should always be the standard in determining rental payment amounts. The Fraud Alert provides that the rate paid by the supplier should not exceed the rate paid by the physician under his lease agreement. To be safe, rent should be a fixed amount set forth for a term of no less than one year. The Fraud Alert lists several "suspect arrangements" which include: amounts in excess of fair market value, fixed amounts per hour without an advanced schedule of usage (i.e. "as needed" arrangements), and amounts that are contingent on a certain number of patients each month.

Finally, the rent paid should only cover the time and space actually necessary to operate the business of the provider/supplier. This amount should be pro-rated based on time and space utilized: "The supplier’s rent should be calculated based on the ratio of the time the space is in use by the supplier to the total amount of time the physician’s office is in use... The rent should be calculated based on the ratio of the amount of space that is used exclusively by the supplier to the total amount of space in the physician’s office," according to the Fraud Alert. Also, rent payments for the common space shared by all physicians and sub-tenants (building, lobbies, and waiting rooms) should be split among all physicians and sub-tenants based on the amount of non-common space they occupy and the time they spend there.

The Fraud Alert points out that physicians should ensure that their rental arrangements pass the Federal Anti-kickback statute’s space rental "safe harbor." By complying with this "safe harbor," physicians are assured of weathering the enforcement of Federal Anti-kickback laws. The space rental safe harbor requires that the agreement be written and signed by the parties; that it specify the premises rented; specify if the lessee has full-time or periodic access to the premises and the times allowed; that the term is for not less than one year; that the rental amount be set in advance to reflect fair market value and may not vary based on the volume or value of referrals; and that the amount of space rented is reasonably necessary for the business purpose. If your arrangement meets all of the space rental "safe harbor" elements, you are likely to be immune from prosecution under the Federal Anti-kickback statute.

The Special Fraud Alert is available on the OIG’s website at


© 2000 Greenberg Traurig

This GT ALERT is issued for informational purposes only and is not intended to be construed or used as general legal advice. Greenberg Traurig attorneys provide practical, result-oriented strategies and solutions tailored to meet our clients’ individual legal needs.