Do I need a contract to rent space to a tenant in my office?
Q. Do I need a contract to rent space to a tenant in my office?
A. ABSOLUTELY.
Because physicians are a part of the most widely regulated profession, certain arrangements are prohibited. One such arrangement is a tenant renting space without a written agreement. To explain simply why this is the case, physicians are subject to the federal anti-kickback rule, stark and, for our purposes, New York State laws that also prohibit compensation for referrals. When a business or another medical practice is renting space in your medical practice you should document this relationship and indicate that the terms of such a relationship have been reviewed by a healthcare professional to determine whether any remuneration is being paid by the tenant to you to compensate you for referring patients, or vice versa.
For instance, if you are a gastroenterologist and have an anesthesiologist working in your practice, the anesthesiologist may pay your practice for the use of your personnel, equipment and space, BUT the fee must be determined at FAIR MARKET VALUE so that it is clear the anesthesiologist is not paying
you a fee for you providing the anesthesiologist patients. A fair market value determination (best if done by an accountant) should be a clear documentation of what fee is being paid to the space owner and what the fee consists of.
An additional reason why an agreement should be in place is that if you operate a medical practice and you are leasing space to another practice, or licensing use of equipment and personnel, at all times you should have a document in place that reinforces that you (and your partners, if applicable) are the only ones utilizing their independent medical judgment to treat the practice's patients.
Ramifications of not having an agreement in place: Receiving remuneration for referrals or the concept of "commingling" practices/business may potentially lead to civil, criminal or licensure proceeding ramifications. Most likely if you are renting space in your office and you are identified as having an improper arrangement; same would be discovered most likely through an audit. Payors currently conducting audits: ALL. Some payors, such as Medicaid, have the authority to investigate the contractual relationships of a practice and make recommendations to the Department of Justice. All payors have the ability to refer a practice suspected of misconduct to the New York State Department of Health's Office of Professional Misconduct (OPMC). So, ramifications: civil, criminal and potentially licensure.
Note: This is an abridged answer and there are other important provisions that must be memorialized in a Lease or License Agreement, which I will be happy to expand upon if there are any additional questions.
From the legal perspective, a Lease or License Agreement is a simple document that lays forth the terms of the rent arrangement between Leasor and Leasee, most of which are only several pages long and not costly to hire an attorney to draft. I highly recommend that if you are in such a relationship to consider obtaining (through legal counsel so that results of any valuation are confidential) a fair market value valuation by an independent accountant for such an arrangement to document that any fee
being paid is, in fact, fair market value. This same concept applies to a Management Agreement.
Should you have any questions or wish for me to expand on any of the above, please do not hesitate to contact me.
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