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Q: (1) Is the landlord or lessor a physician owned entity or, alternatively, owned by a third party that does not include anyone that makes referrals to the center?

Q: (2) Will the lease be a fixed fee annual lease or a per click or per use type of lease?

Q: (3) If the lease is a per click lease, what would be the aggregate cost to acquire the equipment? For example, is the lease for a large ticket capital expenditure, in which case it may make sense to rent on a per click basis and avoid the risk of owning the equipment?

Q: (4) Is the intent of the lease to reduce capital expenditures and reduce risk or, alternatively, is it to induce the referral of business from physicians who can utilize the center?

Q: (5) Can the payments under the lease be readily defended as fair market value?

General Case Concerns.
These are several of the questions that need to be addressed in developing leases with physician owned landlords. Leases that are entered into with referring physicians are particularly subject to scrutiny in that the Office of Inspector General and several regulatory authorities have regularly articulated concerns with situations where centers buy or lease equipment from physicians. Typically, the concern is that the intent of the lease is to provide the physicians with an inducement to bring or refer cases to the center. Thus, leases where payment is made on a per click basis are particularly subject to concern. Further, leases that are on a fixed annual fee basis, can also create substantial concern if (1) the annual payment is more than fair market value, (2) the equipment can be obtained at a lower cost from another party, and/or (3) the lease payment, while fixed on an annual basis, is recalculated each year or periodically explicitly or implicitly related to increases or decreases based on some measure of activity at the center.

Per Click Leases.
Leases which are set on a per click basis cannot meet a safe harbor under the Anti- Kickback Statute. 42 U.S.C. § 1320a-7b(b). This does not necessarily mean that they are illegal. Specifically, a lease may still be legal if a party can clearly demonstrate that the lease makes sense from a financial perspective, regardless of the amount of volume or value generated by the physicians’ referrals. Further, they tend to be easier to defend if the lease is related to a large piece of equipment. Where the capital cost to the center might be a $1,000,000 or more, it may very well make sense to rent the equipment on a per click basis. In essence, it helps the center avoid a very large financial expenditure and obligation. In contrast, where someone is renting on a per click basis, and it is a piece of equipment that can readily be purchased by the center, for example, at $30,000 to $40,000, it raises much greater concern that the real purpose of the lease may be to drive referrals to the center than to actually avoid an expenditure.

One of the reasons per click leases cannot meet the equipment lease safe harbor is because the equipment lease safe harbor regulations require among other requirements that the aggregate rental amount be set in advance each year. In 1991, the Office of Inspector General responded to comments requesting clarification as to whether percentage or per use arrangements are protected under the equipment lease safe harbor, stating:

These sorts of arrangements need to be examined on a case-by-case basis. For example, a lease to a hospital of major medical equipment, such as a magnetic resonance imaging scanner, may specify that higher rent is to be paid when more than a predetermined number of procedures is performed. Such an arrangement can be troublesome if the lessor is a partnership of radiologists on the hospital’s medical staff, because the incentive for overutilization is clear. It is the nature of the relationship, if any, between overall volume of use and referrals, that triggers the statute.

 

For these reasons, we specifically decline to protect rental charges ... where the aggregate amounts of payments are not set out in advance. This does not mean, however, that percentage or per use leases and contracts that are based on overall volume (including business from referral sources with no financial interest to motivate them) are per se violations of the state. We recognize that legitimate considerations, such as the depreciation of equipment, could result in some part of the payment to be based on a percentage or "per use" payment arrangement without these payments influencing or being influenced by Medicare or Medicaid referrals. However, the more the payments appear to reflect the volume of referrals from the financially interested party, the more suspect the arrangement becomes and the more likely we will need to examine it carefully. 56 F.R. 35952 (July 29, 1991).

Accordingly, per click leases, can be structured to reduce the risk by (1) setting an annual cap on the amount of payments from the center to the physician landlord, (2) assuring that the per click payment is supported and documented as fair market value for the equipment rented, and (3) having a record and reality that demonstrate that the per click method is not intended to drive or induce referrals.

The Anti-Kickback Statute vs. the Stark Act.
As noted above, the Anti-Kickback Statute equipment lease safe harbor requires that the annual aggregate amount of lease payment be set in advance for each year. Thus, a per click lease would not meet a safe harbor under the Anti-Kickback Statute. In contrast, under the Stark Act, which is generally not directly applicable to surgical centers, the Department of Health and Human Services has indicated that a per click lease can meet the equipment lease exception to the Stark Act. 42 C.F.R. 411.357(b). The equipment lease exception provides, among other requirements, that the rental charges over the term of the agreement are set in advance, consistent with fair market value, and are not determined in a manner that takes into account the volume or value of referrals generated between the parties. In essence, under the Stark Act, as opposed to the Anti-Kickback Statute, it is not a requirement that the aggregate annual fee be set in advance.

In addition, the Centers for Medicare and Medicaid Services has responded to comments requesting clarification of per-use based payment methodologies that do not vary with the volume or value standards:

[T]ime-based and unit-of-serve based compensation will be deemed not to take into account the volume or value of referrals or other business generated between the parties as long as the timebased or unit-of-service based compensation is fair market value for services or items actually provided and the compensation does not vary during the course of the compensation agreement in any manner that takes into account referrals of DHS… We consider per use payments (also known as "per click") payments to be unit of unit-of-service based on compensation. 69 FR 16069 (March 26, 2004).