OIG fraud alert targets space rental agreements
April 1, 2000 4 minutes read
OIG fraud alert targets space rental agreements
Agency says it will take a harder line
Suspicious that some physician office-space rental agreements may be shams designed to cover up kickbacks, the Office of the Inspector General (OIG) has issued a fraud alert warning physicians that any rental arrangements they have with health care suppliers and/or other providers must reflect fair market value.
The OIG’s alert was prompted by reports that some suppliers and providers are using overpriced office rental arrangements to disguise kickbacks to practitioners for sending them referrals. Specific situations that have aroused the OIG’s interest include rental arrangements between physician-landlords and:
• comprehensive outpatient rehabilitation facilities that provide physical and occupational therapy and speech-language pathology services in physicians’ and other practitioners’ offices;
• mobile diagnostic equipment suppliers that perform diagnostic tests in physicians’ offices;
• suppliers of durable medical equipment, prosthetics, orthotics, and supplies that set up "consignment closets" for their supplies in physicians’ offices.
Here are some of the specific situations the OIG says are questionable:
• Appropriateness. The OIG is concerned that payment of "rent" for space traditionally provided for free or for a nominal charge as an accommodation between parties for the benefit of the physicians’ patients — such as consignment closets for medical equipment — may be a disguised kickback.
Be aware, for instance, that the new federal policy is to automatically suspect any payments for rent of consignment closets in physicians’ offices.
• Rental amounts. Rents that do not reflect fair market value, are not fixed in advance, or are based directly or indirectly on the volume or value of referrals or other business generated between the parties will prompt an audit, says the OIG. Some examples of suspect arrangements include:
— rent payments that are higher than those someone not in a position to refer business would receive;
— rent amounts for subleases that exceed the rental amounts per square foot in the primary lease;
— rents subject to modification more often than once a year;
— rents that vary with the number of patients or referrals;
— rental contracts 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);
— rents paid only if there is a certain number of federal health care program beneficiaries referred each month;
— rental amounts 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 period that is reasonable and necessary for their business purposes, says the OIG. Renting more space than needed "creates a presumption that the payments may be a pretext for giving money to physicians for their referrals," notes the alert.
Examples of suspect arrangements include:
— paying rent for space that is unnecessary or not used by the provider/supplier. For instance, a comprehensive outpatient rehabilitation facility only requires one examination room and rents physician office space one afternoon a week when the physician is not in the office. However, it pays rent based on the square footage for the entire office even though it only uses one examination room;
— paying rent for the time the space is used by the supplier/provider. An example could be an ultrasound supplier that only has enough business to justify using one examination room four hours each week but rents the space for eight hours per week;
— nonexclusive occupancy. For example, rather than renting space in a physician’s office, a physical therapist moves from examination room to examination room, treating patients after they have been seen by the doctor. Because no particular space is rented, the OIG says it would "closely scrutinize any proration of time and space used to calculate" rent paid by the therapist.
• Rent calculations. To avoid investigation, rent should be 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. Apportionment of exclusive office space. The suppliers’/providers’ rent needs to be calculated based on the ratio of the time they use the space 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 used exclusively by the suppliers/providers to the total amount of space in the physician’s office.
2. Apportionment of interior office common space. Where permitted by regulations, rental payments also may cover the interior office common space in physicians’ offices shared by the physicians and any subtenants, such as waiting rooms. If other suppliers/providers use that common area for their patients, "it may be appropriate for the suppliers to pay a prorated portion of the charge for such space," says the OIG.
However, any "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 suppliers’/pro viders’ use of office common space should be based on the ratio of the exclusive space they use compared to total amount of available space (minus common areas).
3. Apportionment of building common space. If a 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/provider to pay a prorated portion of such charge, the OIG notes. But the cost of the common space must be apportioned among all physicians and subtenants based on the amount of noncommon space they occupy and the duration of the occupation.
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