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Stark Law and Real Estate Transactions.

Posted by Doris Dike | Jan 21, 2022 | 0 Comments

Physicians who treat Medicare and Medicaid patients need to know about the Stark Law, especially as it relates to real estate transactions. The Stark Law is a set of laws that prevents physicians from referring Medicare or Medicaid patients to an organization that administers designated health services (DHS) if the physician (or an immediate family member) has a financial relationship with that organization. This prohibited referral is known as “self-referral.” 

Unlike the Anti-Kickback Statute, Stark laws are not criminal laws in nature, but they do impose strict liability fines. The rationale for these laws is to prevent physicians from allowing financial gain to color their professional judgment. 

The courts will not look to the intent of the physician when assessing fault or fines. It always has been unethical for physicians to pay for referrals. When a physician submits claims for Medicare and Medicaid patients by agreement between physicians that violates the Stark Law, the claims are deemed false and create a legal claim under the False Claims Act.

Financial Relationship Defined

Usually a financial relationship exists when there is an agreement between an organization that provides DHS and a referring physician. The relationship can be an ownership or investment interest, and it can be direct or indirect. The statute also defines a financial relationship as a compensation arrangement between providers.


Under Stark laws, referrals are considered to be any request for services or items payable under Medicare Part B; consultations and all services ordered from the consultations; and prescriptions for treatment under a DHS service provided. 

DHS Defined

The statue defines DHS as:

·        Clinical laboratory services

·        Physical therapy services

·        Occupational therapy services

·        Outpatient speech-language pathology services

·        Radiology and certain other imaging services

·        Radiation therapy services and supplies

·        Durable medical equipment and supplies

·        Parenteral and enteral nutrients, equipment, and supplies

·        Prosthetics, orthotics, and prosthetic devices and supplies

·        Home health services

·        Outpatient prescription drugs

·        Inpatient and outpatient hospital services

Real Estate Transactions

The Stark Law often applies to real estate transactions when the landlord and tenant may be referring patients to one another. Providers must look out for agreements where the land is below fair market value, landlords are providing free or discounted furniture, or providers receive any windfall with the lease. To avoid possible Stark violations, providers should look for these elements in a lease agreement: 

·        The agreement must be in writing, signed by the parties, and specify the premises covered.

·        The term must be a year or longer. Shorter leases will violate the provision.

·        The space the provider rented must not exceed that which is necessary for the legitimate business of the lease, and must be used exclusively by the lessee.

·        The rental charges must be set in advance and consistent with fair market value, not taking into account the volume or value of referrals or other business generated between the parties.

·        The agreement would be commercially reasonable even if no referrals were made between the lessee and lessor.

·        Although the lease may be terminated with or without cause during the lease's initial term, the parties may not enter into another agreement for the same space during the first year of the original lease term.

Fair Market Value (FMV)

To ensure FMV, parties should review the rental amount and determine that it is consistent with the space prior to executing the lease agreement. Common violations of the Stark Law occur when there is a lack of support of documentation to support FMV. In order for providers to protect themselves, an opinion from an independent and qualified appraiser will be adequate evidence to comply with the Stark Law.

Additional Considerations

Be sure to consider these other issues regarding lease agreements and the Stark Law:

·        Holdover tenants are okay provided the tenant does not hold over for longer than six months.

·        The holdover tenant terms must be consistent with the lease previously signed by both parties.

·        Rent should never be determined based on the value of referrals.

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