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Kesha Boykin-McLean

By: Kesha Boykin-McLean on November 21st, 2014

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Space Lease - the Stark Exception

Compliance | Stark Law

The other day, a new Compliance Officer asked the question, “How would you go about conducting a physician leasing audit, and if you realize there are issues, where should you start fixing them?” That was a huge question! How and where to begin are the questions every new hospital Compliance Officer faces.

How do you fix a compliance problem?

The answer is, “one bit at a time.”

First, we must review the hospital’s policy and procedure on Space Lease and also on Equipment Leases. This is typically in the legal department (ideally, all policies and procedures will be maintained in one accessible location). Make sure the policy and the procedures are written to comply with most recent Stark Law Space and Equipment lease exception:

Space Lease Requirements

(Note: if you are auditing your leases, this will make a handy checklist) 42 C.F.R §411.357(a)(5); Final rule, 73 FR 48434,48711, Aug. 19, 2008

  1. Must be in writing

  2. Signed by the parties (when auditing compare date of signatures with the check or payment log)

  3. Specifies the premises subject to the lease

  4. Term of at least one year

  5. Space does not exceed what is reasonable and necessary for the legitimate business purposes of the lease

  6. Space used exclusively by the lessee when being used by lessee, except the lessee may also share common areas if the lessee’s payments for the common areas do not exceed the pro rata share of the expenses for the space.

  7. The Space is not shared with or used by the lessor or any person or entity related to the lessor

  8. The rental charges over the term of the agreement are set in advance.

  9. The rental charges are consistent with fair market value.

  10. The rent does not take into account the value or volume of any referrals or other business generated by the parties.

  11. Rental charges are not determined using a formula based on a percentage of revenue raised, billed, collected, or otherwise related to the services provided in the office space. No per unit of service rental charges. (no per click arrangements)

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

  13. Holdover for up to six months is allowed as long as the terms and conditions do not change. After six month period expires. If a new lease is not executed before the 6 month holdover period expires, the repayments are calculated from the date the holdover period ends.

Common Stark issues found with lease agreements include:

  • Allowing tenants to occupy space which is not included in the lease.

  • Not enforcing billing or collection of lease payments

  • Provided services not specified in the lease (i.e. waste removal, utilities)

  • Failure to timely renew and expired lease

  • Failure to impose increases specified in the lease.

If you find any of these issues in among your leases, meet with legal to conduct a proper Stark analysis and determine whether any repayments and self-disclosure are required. Then conduct a root cause analysis, looking at your current processes for executing and managing leases. It is also vital that you work with key stakeholders to develop a corrective action solution that is suitable for your facility.


About Kesha Boykin-McLean

As Chief Compliance Officer, Kesha Boykin-Mclean brings over 20 years of experience in healthcare. Prior to joining VCS, Boykin-Mclean held a number of senior-level compliance roles, including managing and developing the compliance program for St. Francis Hospital in Connecticut. She was also the Division Ethics and Compliance Officer for the Hospital Corporation of America’s Gulf Coast Division where she was responsible for oversight of compliance programs for all hospitals within the division. Most recently, she served as an independent healthcare consultant, assisting hospitals with the planning and implementation of compliance programs.