Example 1: Space Lease Agreement

Leases 1000 sq ft @ $15/sf to Group Practice
Hospital ===================================== Group Practice
Pays $15,000/yr in rent

  •   Term = 5 years
  •   FMV - $20/sf (assume FMV remains constant during 5-year term) or $20,000/yr.
  •   Group Practice pays $15,000/yr. to Hospital
  •   Group Practice refers $150,000/yr of Medicare radiology and lab work (DHS) to Hospital each year
  •   At end of Year 3, the FMV error is discovered
  •   Period of Disallowance: 3 years
  •   Parties immediately reform agreement to reflect FMV.
  •   Group Practice pays to Hospital: $15,000 ($5000 x 3 years) (Payment should be made immediately to avoid further underpayments)
  •   Hospital repays to Medicare: $450,000 ($150,000 x 3 years). (Payment should be made immediately.)
  •   Period of Disallowance extends until agreement meets all elements of a Stark exception; AND all compensation owing between the parties is paid; AND all Medicare billings received during   Period of Disallowance related to referrals between the parties are refunded to Medicare.



Example 2: Space Lease Agreement

Leases 2500 sf @ $20/sf in MOB to Group Practice
Hospital ===================================== Group Practice
Pays $50,000/yr in lease payments

  • Term: 5 years
  • Assume a clerical error: Written agreement states Group Practice leased 2000 sf rather than the accurate square footage of 2500 sf
  • Thus, instead of paying $50,000/yr, Group Practice pays only $40,000/yr to Hospital
  • Group Practice also refers $1,000,000 of Stark-defined designated health services to Hospital each year
  • At end of Year 4, the clerical error is discovered
  • Period of Disallowance: 4 years
  • Parties immediately reform Lease Agreement to reflect accurate square footage
  • Group Practice pays to Hospital: $40,000 ($10,000/yr x 4 years)
  • Hospital repays to Medicare: $4,000,000 ($1,000,000/yr x 4 years)



Example 3: Personal Services Agreement for MRI Interpretations

$750/read
Hospital ===================================== Group Practice
MRI reads

  • Term = 5 years
  • FMV = $500/read (Medicare rate)
  • Medicare referrals
    Y1 - 500
    Y2 - 450
    Y3 - 550
    Y4 - 600
    Y5 - 400
    2500 reads
  • Hospital pays $1,875,000 to Group Practice for MRI reads (DHS) during term of Agreement (2500 x $750)
  • Medicare pays $1,250,000 to Hospital for supplying the reads (2500 x $500)
  • One year after term ends, Hospital discovers the FMV discrepancy
  • Period of Disallowance: 5 years
  • Hospital now must seek $625,000 repayment ($1,875,000 - $1,250,000) from Group Practice
  • Hospital must repay to Medicare: $1,250,000

Publication Date: Friday, March 13, 2009