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