Does your healthcare
real estate portfolio violate STARK law?

From its original purpose of preventing physician self-referrals within federal healthcare programs, regulatory compliance statutes have evolved into a complex set of regulations. Healthcare real estate portfolios have become more complex, too, and compliance risks have grown accordingly. In fact, healthcare systems have been fined tens of millions of dollars for real estate-related compliance issues in recent years—yet very few healthcare organizations have created real estate compliance programs.

STARK Law is not the only source of compliance risk—organizations also must address the federal Anti-Kickback Statute and the False Claims Act. As pandemic-related financial pressures bear down on the healthcare industry, avoiding regulatory fines is a critical way to conserve resources. Compliance also helps protect relationships with physician practice tenants, who may also incur fines depending on the type of infraction.

On a broader level, regulatory fines generate news headlines and undermine patient trust in the healthcare organization. Employee morale is also undermined when it is clear that an organization is ignoring regulatory risks. What can often compound the risk for healthcare organizations are whistleblowers who report violations and potential violations to the government – in fact, they are incentivized to do so. Fining healthcare organizations is clearly a revenue generator for the government, and if past violations indicate the future, whistleblowers will receive 30% of the collection.

With such significant consequences, it’s important that healthcare executives understand the key compliance issues related to their real estate and facilities. Following are key signs that you may be on the path to STARK or other regulatory violations.

Do you have timeshare arrangements with physician practices?

Healthcare leaders aren’t always aware of the risks associated with their real estate portfolio, yet the day-to-day operations of healthcare facilities are subject to numerous aspects of regulatory compliance. Office timeshare arrangements, for instance, have become increasingly common as hospitals and physicians looked for ways to enter new markets and provide convenient patient access without property lease or ownership commitments. However, these arrangements create a compliance challenge if they are not navigated properly.

First of all, determining fair market value for the timeshare rate and actually monitoring usage can be challenging and complex—which is one reason regulators are scrutinizing timeshares more closely now than in the past. Another common issue is that healthcare systems and physician practices are often completely unaware that their office arrangement constitutes a timeshare subject to regulatory oversight.

Are you keeping leases up to date and enforcing terms with tenants?

Many provisions of the Stark Law and anti-kickback statutes apply to owner/tenant leasing relationships, which vary widely across the industry. A simple lack of standard processes and documentation can create a major compliance risk.

For example, St. James Healthcare of Montana was fined $275,000 for not having a written lease with a physician practice tenant. Similarly, a healthcare provider could incur a fine for expanding a tenant’s leased square footage without generating a new lease until many months later. What may have seemed like a good-faith agreement between a landlord and tenant could reasonably constitute a regulatory violation.

Even something as simple as providing free parking or storage space can become a regulatory infraction, if a healthcare organization provides it to a physician practice tenant that is a source of referrals. Providing storage space at no cost gives the tenant a financial advantage—which could translate into a significant fine for the healthcare system.

Other leasing missteps include allowing a tenant to remain in a space after the lease expires; failure to enforce lease terms such as expense pass-throughs or annual increases; unsigned leases; or providing services not specified in the lease. These infractions can result from deliberate intent or from personnel being unfamiliar with the lease terms and the law—but either can result in a regulatory fine.

Are you calculating fair market values for owned assets each year?

One of the most common lease risks is going above or below-market rental rate. Detroit Medical Center, Condell Medical Center, Christian Spohn Hospital and Ivinson Hospital-Wyoming are among the institutions that have paid significant fines for leasing space to physician practices at less than fair-market rates.

It’s important to note that fines don’t necessarily mean that the healthcare systems deliberately charged above or below-market rents or intended to thwart the law. Often, the reality is that an institution simply hasn’t enforced the finer details of its real estate agreements or validated and documented what each owned asset’s fair-market value should be.

Reduce your risk: Seven elements of a healthcare facilities compliance program

A high-level audit of your real estate operations can uncover whether your organization may be overlooking hidden risks. Toward this goal, you’ll need to create a database that details the properties you own or lease, including lease abstracts, number of leases, square footage of your facilities and more, to ensure that you’re not overlooking any tenants or properties. 

With a better sense of where the risks may lie, you’ll be positioned to create a real estate compliance program. A program based on industry best practices will include the following seven elements:

1. High-level oversight. According to the Centers for Medicare & Medicaid Services (CMS) Office of the Inspector General (OIG), a healthcare organization should appoint a high-level executive to be accountable for regulatory compliance—including real estate compliance—in cooperation with senior management and legal counsel. Also, real estate compliance should be incorporated into your overall compliance training programs.
2. Policies and procedures/playbooks. Policies and playbooks should specify the types of agreements, real estate processes and regulatory topics that are applicable. Standard processes should include, for instance, auditing lease agreements annually and retaining an objective professional to assess fair market values for your owned assets.
3. Risk assessment. Risk assessment is the basis for the other elements of the compliance program, such as auditing, monitoring and education plans. First, identify your compliance risks, then establish measures to ensure compliance and develop corrective actions as needed.
4. Education and training. Institute mandatory, annual, real estate-specific compliance training that includes the key elements of Stark Law and the Anti-Kickback Statute. Update training as regulations and internal processes evolve.
5. Lines of communication. Your compliance program should include a clear chain of command and leaders aligned around real estate regulatory compliance. In addition to the facilities teams, personnel may include a lawyer, HR, corporate compliance officer and a high-level manager(s).
6. Monitoring and auditing. You can monitor your program informally, following up to ensure that new rules, processes and corrective action plans are taking root. Your compliance program should be formally audited each year by an independent, objective party.
7. Respond to deficiencies. Compliance programs always have room for improvement and, often, the root cause is a lack of training or unclear policies. Be sure to document your findings and observations and share appropriately, along with creating a corrective action plan.

Ultimately, real estate regulatory compliance is going to be an ongoing challenge, especially since many healthcare facilities executives need to focus on the core mission of healthcare and advancing patient outcomes. For that reason, partnering with a third-party healthcare real estate facilities provider can be the simplest approach to avoiding costly regulatory fines. A healthcare real estate compliance expert can help train your staff and establish leading practices—based on the seven elements above—to help your teams stay mission-focused.

Start your journey to mitigating risk by speaking with a compliance and quality assurance expert. Click here to contact us or call +1 872 201 1305.