[Federal Register Volume 65, Number 37 (Thursday, February 24, 2000)]
[Notices]
[Pages 9274-9277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4212]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of Inspector General
Publication of OIG Special Fraud Alert on Rental of Space in
Physician Offices by Persons or Entities to Which Physicians Refer
AGENCY: Office of Inspector General (OIG), HHS.
ACTION: Notice.
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[[Page 9275]]
SUMMARY: This Federal Register notice sets forth a recently issued OIG
Special Fraud Alert concerning rental of space in physicians' offices
by persons or entities that provide health care items or services to
patients that are referred, either directly or indirectly, by the
physician-landlord. For the most part, OIG Special Fraud Alerts address
national trends in health care fraud, including potential violations of
the anti-kickback statute for Federal health care programs. This
Special Fraud Alert specifically highlights questionable or suspect
rental arrangements for space in physicians' and other practitioners'
offices, and how the space rental safe harbor can protect legitimate
arrangements.
FOR FURTHER INFORMATION CONTACT: Julie Kass, Office of Counsel to the
Inspector General, (202) 619-0335.
SUPPLEMENTARY INFORMATION:
I. Background
The Office of Inspector General (OIG) issues Special Fraud Alerts
based on information it obtains concerning particular fraudulent or
abusive practices within the health care industry. Special Fraud Alerts
are intended for widespread dissemination to the health care provider
community, as well as those charged with administering the Medicare and
Medicaid programs. To date, the OIG has published in the Federal
Register the texts of ten previously-issued Special Fraud Alerts. \1\
It is the OIG's intention to publish future Special Fraud Alerts in
this same manner as a regular part of our dissemination of such
information. \2\
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\1\ See December 19, 1994 (59 FR 65372); August 10, 1995 (60 FR
40847); June 17, 1996 (61 FR 30623); April 24, 1998 (63 FR 20415);
and January 12, 1999 (64 FR 1813).
\2\ All OIG Special Fraud Alerts are also available on the
internet at the OIG web site at http://www.dhhs.gov/progorg/oig/frdalrt/index.htm.
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In an effort to promote voluntary compliance in the health care
industry and assist providers in their compliance efforts, the OIG has
developed a Special Fraud Alert, set forth below, that addresses
potential problem areas with regard to the rental of space in
physicians' offices by persons or entities to which physicians refer
patients. Among other things, this Special Fraud Alert addresses
suspect rental arrangements for space in physicians' offices with
regard to: (1) the appropriateness of rental agreements; (2) the rental
amounts; and (3) time and space considerations. A reprint of this
Special Fraud Alert follows.
II. Special Fraud Alert: Rental of Space in Physician Offices by
Persons or Entities to Which Physicians Refer (February 2000)
The Office of Inspector General (OIG) was established at the
Department of Health and Human Services by Congress in 1976 to identify
and eliminate fraud, abuse and waste in the Department's programs and
to promote efficiency and economy in departmental operations. The OIG
carries out this mission through a nationwide program of audits,
investigations and inspections.
To reduce fraud and abuse in the Federal health care programs,
including Medicare and Medicaid, the OIG actively investigates
fraudulent schemes that are used to obtain money from these programs
and, when appropriate, issues Special Fraud Alerts that identify
practices in the health care industry that are particularly vulnerable
to abuse.
This Special Fraud Alert focuses on the rental of space in
physicians' offices by persons or entities that provide health care
items or services (suppliers) \3\ to patients that are referred either
directly or indirectly by their physician-landlords. In this Special
Fraud Alert, we describe some of the potentially illegal practices the
OIG has identified in such rental relationships.
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\3\ Persons or entities may be either suppliers or providers.
For purposes of this Special Fraud Alert, we will refer to such
persons as suppliers.
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Questionable Rental Arrangements for Space in Physician Offices
A number of suppliers that provide health care items or services
rent space in the offices of physicians or other practitioners.
Typically, most of the items or services provided in the rented space
are for patients, referred or sent, either directly or indirectly, to
the supplier by the physician-landlord. In particular, we are aware of
rental arrangements between physician-landlords and:
Comprehensive outpatient rehabilitation facilities (CORFs)
that provide physical and occupational therapy and speech-language
pathology services in physicians' and other practitioners' offices;
Mobile diagnostic equipment suppliers that perform
diagnostic related tests in physicians' offices; and
Suppliers of durable medical equipment, prosthetics,
orthotics and supplies (DMEPOS) that set up ``consignment closets'' for
their supplies in physicians' offices.
The OIG is concerned that in such arrangements, the rental payments
may be disguised kickbacks to the physician-landlords to induce
referrals. We have received numerous credible reports that in many
cases, suppliers, whose businesses depend on physicians' referrals,
offer and pay ``rents''--either voluntarily or in response to
physicians'' requests--that are either unnecessary or in excess of the
fair market value for the space to access the physicians' potential
referrals.
The Anti-Kickback Law Prohibits Any Payments To Induce Referrals
Kickbacks can distort medical decision-making, cause
overutilization, increase costs and result in unfair competition by
freezing out competitors who are unwilling to pay kickbacks. Kickbacks
can also adversely affect the quality of patient care by encouraging
physicians to order services or recommend supplies based on profit
rather than the patients' best medical interests.
Section 1128B(b) of the Social Security Act (the Act) prohibits
knowingly and willfully soliciting, receiving, offering or paying
anything of value to induce referrals of items or services payable by a
Federal health care program. Both parties to an impermissible kickback
transaction are liable. Violation of the statute constitutes a felony
punishable by a maximum fine of $25,000, imprisonment up to five years,
or both. The OIG may also initiate administrative proceedings to
exclude persons from Federal health care programs or to impose civil
money penalties for fraud, kickbacks and other prohibited activities
under sections 1128(b)(7) and 1128A(a)(7) of the Act.\4\
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\4\ Some of the arrangements identified as suspect in this
Special Fraud Alert may also implicate the Ethics in Patient
Referrals Act, also known as the Stark law (section 1877 of the
Act). The interpretation of the Stark law is under the jurisdiction
of the Health Care Financing Administration (HCFA).
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Suspect Rental Arrangements for Space in Physician Offices
The questionable features of suspect rental arrangements for space
in physicians' offices may be reflected in three areas:
The appropriateness of rental agreements;
The rental amounts; and
Time and space considerations.
Below, we examine these suspect areas, which separately or together
may result in an arrangement that violates the anti-kickback statute,
in order to help identify questionable rental arrangements between
physicians and the suppliers to which they refer patients. This list is
not exhaustive, but
[[Page 9276]]
rather gives examples of indicators of potentially unlawful activity.
Appropriateness of Rental Agreements
The threshold inquiry when examining rental payments is whether
payment for rent is appropriate at all. Payments of ``rent'' for space
that traditionally has been provided for free or for a nominal charge
as an accommodation between the parties for the benefit of the
physicians' patients, such as consignment closets for DMEPOS, may be
disguised kickbacks. In general, payments for rent of consignment
closets in physicians' offices are suspect.\5\
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\5\ This Special Fraud Alert does not address the
appropriateness of consignment closet arrangements under HCFA's
DMEPOS supplier standards. The interpretation of the DMEPOS supplier
standards is a matter under HCFA's jurisdiction.
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Rental Amounts
Rental amounts should 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. Fair
market value rental payments should not exceed the amount paid for
comparable property. Moreover, where a physician rents space, the rate
paid by the supplier should not exceed the rate paid by the physicians
in the primary lease for their office space, except in rare
circumstances. Examples of suspect arrangements include:
Rental amounts in excess of amounts paid for comparable
property rented in arms-length transactions between persons not in a
position to refer business;
Rental amounts for subleases that exceed the rental
amounts per square foot in the primary lease;
Rental amounts that are subject to modification more often
than annually;
Rental amounts that vary with the number of patients or
referrals;
Rental arrangements that set a fixed rental fee per hour,
but do not fix the number of hours or the schedule of usage in advance
(i.e., ``as needed'' arrangements);
Rental amounts that are only paid if there are a certain
number of Federal health care program beneficiaries referred each
month; and
Rental amounts that are conditioned upon the supplier's
receipt of payments from a Federal health care program.
Time and Space Considerations
Suppliers should only rent premises of a size and for a time that
is reasonable and necessary for a commercially reasonable business
purpose of the supplier. Rental of space that is in excess of
suppliers' needs creates a presumption that the payments may be a
pretext for giving money to physicians for their referrals. Examples of
suspect arrangements include:
Rental amounts for space that is unnecessary or not used.
For instance, a CORF requires one examination room and rents physician
office space one afternoon a week when the physician is not in the
office. The CORF calculates its rental payment on the square footage
for the entire office, since it is the only occupant during that time,
even though the CORF only needs one examination room;
Rental amounts for time when the rented space is not in
use by the supplier. For example, an ultrasound supplier has enough
business to support the use of one examination room for four hours each
week, but rents the space for an amount equivalent to eight hours per
week;
Non-exclusive occupancy of the rented portion of space.
For example, a physical therapist does not rent space in a physician's
office, but rather moves from examination room to examination room
treating patients after they have been seen by the physician. Since no
particular space is rented, we will closely scrutinize the proration of
time and space used to calculate the therapist's ``rent.''.
In addition, rental amount calculations should prorate rent based
on the amount of space and duration of time the premises are used. The
basis for any proration should be documented and updated as necessary.
Depending on the circumstances, the supplier's rent can consist of
three components: (1) Exclusive office space; (2) interior office
common space; and (3) building common space.
1. Apportionment of exclusive office space.--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. In addition, 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. For example, where a
supplier rents an examination room for four hours one afternoon per
week in a physician's office that has four examination rooms of equal
size and is open eight hours a day, five days per week, the supplier's
prorated annual rent would be calculated as follows:
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Percent of physician
Physician office rent per day office space rented by Percent of each day No. of days rented by
supplier rented by supplier supplier per year
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Annual rent of primary lease x Sq. ft. exclusively x 4 hours 8 x 52 days (i.e., = Supplier's annual rent
no. of work days per year. occupied by supplier hours. 1 day per for exclusive space
total office week).
sq. ft.
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2. Apportionment of interior office common space.--When permitted
by applicable regulations, rental payments may also cover the interior
office common space in physicians' offices that are shared by the
physicians and any subtenants, such as waiting rooms. If suppliers use
such common areas for their patients, it may be appropriate for the
suppliers to pay a prorated portion of the charge for such space. The
charge for the common space must be apportioned among all physicians
and subtenants that use the interior office common space based on the
amount of non-common space they occupy and the duration of such
occupation. Payment for the use of office common space should not
exceed the supplier's pro rata share of the charge for such space based
upon the ratio of the space used exclusively by the supplier to the
total amount of space (other than common space) occupied by all persons
using such common space.
3. Apportionment of building common space.--Where the physician
pays a separate charge for areas of a building that are shared by all
tenants, such as building lobbies, it may be appropriate for the
supplier to pay a prorated portion of such charge. As with interior
office common space, the cost of the building common space must be
apportioned among all physicians and subtenants based on the amount of
non-
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common space they occupy and the duration of such occupation. For
instance, in the example in number one above, the supplier's share of
the additional levy for building common space could not be split 50/50.
The Space Rental Safe Harbor Can Protect Legitimate Arrangements
We strongly recommend that parties to rental agreements between
physicians and suppliers to whom the physicians refer or for which
physicians otherwise generate business make every effort to comply with
the space rental safe harbor to the anti-kickback statute. (See 42 CFR
1001.952(b), as amended by 64 FR 63518 (November 19, 1999)). When an
arrangement meets all of the criteria of a safe harbor, the arrangement
is immune from prosecution under the anti-kickback statute. The
following are the safe harbor criteria, all of which must be met:
The agreement is set out in writing and signed by the
parties.
The agreement covers all of the premises 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 with
access to the premises for periodic intervals of time rather than on a
full-time basis for the term of the rental agreement, the rental
agreement specifies exactly the schedule of such intervals, their
precise length, and the exact rent for such intervals.
The term of the rental agreement is for not less than one
year.
The aggregate rental charge is set in advance, is
consistent with fair market value in arms-length transactions, and is
not determined in a manner 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 aggregate space rented does not exceed that which is
reasonably necessary to accomplish the commercially reasonable business
purpose of the rental.
Arrangements for office equipment or personal services of
physicians' office staff can also be structured to comply with the
equipment rental safe harbor and personal services and management
contracts safe harbor. (See 42 CFR 1001.952(c) and (d), as amended by
64 FR 63518 (November 19, 1999)). Specific equipment used should be
identified and documented and payment limited to the prorated portion
of its use. Similarly, any services provided should be documented and
payment should be limited to the time actually spent performing such
services.
What To Do If You Have Information About Fraud and Abuse Against
Medicare or Medicaid Programs
If you have information about physicians, DMEPOS suppliers, CORFs
or other suppliers engaging in any of the activities described above,
contact any of the regional offices of the Office of Investigations of
the Office of Inspector General, U.S. Department of Health and Human
Services, at the following locations:
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Field offices States served Telephone
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Boston........................ MA, VT, NH, ME, RI, 617-565-2664
CT.
New York...................... NY, NJ, PR, VI....... 212-264-1691
Philadelphia.................. PA, MD, DE, WV, VA, 215-861-4586
DC.
Atlanta....................... GA, KY, NC, SC, FL, 404-562-7603
TN, AL, MS.
Chicago....................... IL, MN, WI, MI, IN, 312-353-2740
OH, IA.
Dallas........................ TX, NM, OK, AR, LA, 214-767-8406
CO, UT, WY, MT, ND,
SD, NE, KS, MO.
Los Angeles................... AZ, NV, So. CA....... 714-246-8302
San Francisco................. No. CA, AK, HI, OR, 415-437-7961
ID, WA.
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Dated: February 16, 2000.
June Gibbs Brown,
Inspector General.
[FR Doc. 00-4212 Filed 2-22-00; 8:45 am]
BILLING CODE 4150-01-U