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Fair Market Value and Anti-Kickback Statute considerations for Physician Lease Arrangements

In a recent ruling from the U.S. Court of Appeals Eleventh Circuit, a whistleblower suit was decided in favor of the defendant because the relator failed to prove a lack of fair market value consistent with Federal Civil Rule 9(b) particularity requirements.

Bingham v. HCA, Inc. Case No. 1:13-cv-23671 (11th Cir.2019) was initially filed in 2014. The Relator, Thomas Bingham, alleged that at two hospital locations of HCA, physicians were offered "sweetheart deals" to lease office space in new medical office buildings developed by HCA in exchange for patient referrals from those physicians.One office building was in Independence. Missouri (Centerpoint Medical Center) and the second office building was in Aventura, Florida. As part of its defense in the Centerpoint action, HCA provided evidence that it had engaged an independent appraiser to confirm fair market value. In dismissing the Centerpoint portion of the complaint., the Court stated:

"Relator also argues that HCA made free improvements to the offices of certain physician tenants and gave certain physician tenants restricted use waivers. But neither of these allegations is supported by sufficient facts. Relator does not tie the improvements to specific physician tenants who were or could be referral sources, nor does he present evidence that the use waivers were anything other a standard exercise of discretion under the relevant leases or that HCA was required to ask for something in exchange for the use waivers. "Mere conclusions and unsupported factual allegations are legally insufficient to defeat a summary judgment motion." Ellis, 432 F. 3d at 1326."

The Court also dismissed Stark allegations that an indirect compensation arrangement existed concluding that "there is no real basis in the record from which to conclude that compensation paid by HCA to physician tenants varies with or takes into account the volume or value of referrals."

Finally, the Court concluded that there is an obligation on the part of relators (and the government in intervening) to not only allege with particularity that payments in an AKS claim were not consistent with fair market value, but be able to prove that such payments were not fair market value.

What does this mean for hospitals and hospital systems who are landlords or may develop medical office buildings with third parties? Perform due diligence in any of these arrangements and use an independent appraiser to evaluate the effectiveness of these arrangements.Scrutinize lease improvements to ensure the absence of a nexus to referral relationships.Do not hesitate to consult health care outside counsel with any questions or concerns.
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