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Home Health & Hospice Week

Compliance:

Paying Too Much In Rent? The OIG Might Want To Know Why

Published on Thu Apr 15, 2004

Home care providers must exercise extreme caution when choosing their landlords and negotiating rental agreements.

If you think paying excessive rent is hard on your checkbook, imagine what an HHS Office of Inspector General investigation could cost you.
 
Home care providers often rent out space in buildings owned by other entities. If that entity happens to be a potential referral source, such as a physician practice or hospital, you must structure your arrangement very carefully to avoid raising red flags with the government, experts warn.
 
Specifically, the feds view these rental arrangements as fertile ground for kickback schemes, wherein the "tenant" pays inflated rent to the owner. "The OIG is concerned that in such arrangements, the rental payments may be disguised kickbacks to the physician-landlords to induce referrals," reads an OIG Special Fraud Alert on the matter.
 
Since there are no published guidelines outlining what is and is not appropriate, providers must use common sense when leasing space, says Garry Woessner of Woessner Healthcare Consulting Group in Edina, MN.
 
Just go by the old adage: "If it looks like a duck and walks like a duck, it's probably a duck," Woessner quips. If you're paying an exorbitant amount of money each month in rent and receiving more referrals than usual as a result, that has "kickback" written all over it.

Follow These Rules Of Thumb
 
While there are no hard-and-fast rules governing lease arrangements between providers, there are some general rules to keep in mind, says Tessa Chenaille with Chenaille Compliance Consulting in Medford, MA.

 1. The rental arrangement must be "appropriate." That is, your arrangement shouldn't differ from an arrangement the owner might have with another renter not in a position to give or receive referrals, Chenaille says.

 2. Rent must be based on "fair market value." The fair market value calculation will depend on variables like location, size, etc., and that analysis is often best left to a health care attorney, Chenaille notes. Also, stay far away from arrangements in which your rent amount fluctuates based on referrals or how much money you bring in, Chenaille emphasizes.
 
Examples of some of the many suspect arrangements include the following, according to the OIG:
 

  • 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 that are subject to modification more often than annually; and
     
  • rental amounts that vary with the number of patients or referrals.

     3. Rent only space you can use. If you're paying for double the space you need, the feds will take a second look. "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," the OIG notes.
     
    Your rent should be a flat rate based on the amount of space you're using compared to the time you're using it.

    Sail Into This Safe Harbor
     
    For suppliers, home health agencies and hospices looking to rent space on the up-and-up, the OIG has established a "safe harbor." To dock in these safe waters, you must meet all of the following criteria:
     

  • The agreement must be set out in writing and signed by the parties involved.
     
  • The agreement must cover all of the premises rented by the parties for the term of the agreement and must specify the premises covered by the agreement.
     
  • If the agreement is intended to furnish the provider 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 must specify exactly the schedule of such intervals, their precise length and the exact rent for such intervals.
     
  • The term of the rental agreement must not be less than one year.
     
  • The aggregate rental charge must be set in advance, consistent with fair market value in arms-length transactions, and must not be 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 must not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental.
     
    If you meet the safe harbor criteria, "you're in the best shape you can be in" when it comes to kickback concerns, says attorney Donna Thiel with Morgan Lewis & Bockius in Washington. But kickbacks aren't all you need to worry about.
     
    Hidden trap: Home care providers that rent out space must take extra care to protect patients' privacy, Thiel points out. For example, make sure you will control the privacy of your patients' medical records, she counsels.
     
    The bottom line: To ensure your rental arrangements won't land you in the hot seat, consult a health care attorney when structuring your lease, experts agree. 
     
    Editor's Note: The OIG Special Fraud Alert is at     http://oig.hhs.gov/fraud/docs/alertsandbulletins/office%20space.htm.

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