July 01, 2004
2 min read

Lease of space from optometrist

Does the agreement violate the Anti-Kickback statute?

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OSN Compliance Case Studies [logo]An ophthalmologist receives referrals from an optometrist in another part of the state. The patient flow becomes significant enough that the ophthalmologist decides that, for the convenience of these patients, he will open a satellite office that he will visit periodically, at least 1 day per month. The most logical location is the office of the optometrist, who has a suite of offices that are not always busy.

The parties sign a lease agreement with the following terms:

  1. The ophthalmologist will lease “a lane” from the optometry practice.
  2. The ophthalmologist will have use of the lane 1 day per month or as the parties may otherwise determine from time to time.
  3. The rental fee will be $X per each patient seen by the ophthalmologist in the rented space.

The parties did not engage a consultant or otherwise perform an analysis of the fair market value of the space.

Does the lease between ophthalmologist and optometrist present any problems?

Any lease between an ophthalmologist and an optometrist who refers patients to that ophthalmologist will raise questions concerning whether the terms of the lease violate the Anti-Kickback statute. In fact, in February 2000, the Office of Inspector General (OIG) published a special Fraud Alert on the rental of space in physician offices by persons or entities to which the physicians refer.

The Fraud Alert identified practices that the OIG believes are “questionable features” of space leases. Among the questionable features identified by the OIG are the rental fees that vary with the number of patients (or referrals). The lease in the described scenario includes such a provision. Because the rental fee varies based on the number of patients seen, the clear incentive for the landlord/optometrist is to refer patients to the ophthalmologist. The OIG would find this to be problematic.

Second, from the facts presented, there is no assurance that the parties established a rental fee that reflects fair market value. An ability to demonstrate the fair market value of the space is crucial to any defense against accusations of impropriety. Another concern relates to the potential variability of the terms of the agreement. Instead of establishing a fixed frequency for the use of the space by the ophthalmologist, use may vary, presumably depending on the volume of patients to be seen.

Fortunately, however, there is a safe harbor that protects lease arrangements meeting certain requirements. The space lease safe harbor requires, generally, that there be a written agreement for at least a 1-year term and that the agreement covers all of the premises leased between the parties. Further, the aggregate rental charge under the agreement must be set in advance, reflect fair market value for the space and may not vary with the volume or value of referrals between the parties. In addition, the aggregate space leased may not exceed a commercially reasonable amount given the business purpose of the agreement. Finally, if the lease is part time, the agreement must specify exactly the schedule or intervals and state the exact rent for such intervals.

At first glance, the safe harbor requirements may appear burdensome. However, the high-profile relationship between optometrists and ophthalmologists makes remunerative agreements between them likely targets for government enforcement action. Combined with the relative ease with which space leases can meet the safe harbor requirements, parties to such arrangements should make every effort to do so, as the benefit of fitting within a safe harbor is significant.