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The Minefield Surrounding Medical Office Leases

June 9, 2014

According to a recent ULI Report*, health care services will be a rapidly growing  business in the United States for decades to come. This is driven by an ever increasing demand for medical services due to several factors including: a) an aging population lead by the "baby boomers," b) the Affordable Health Care Act, c) advances in technology within the medical profession, and d) the increase in new hospitals and health care facilities. Economists are projecting health care to be a major economic force in the economy over the next 20 years. There has also been a recent trend in the health care industry away from owning real estate and toward leasing real estate. As a byproduct of this growth, medical office leasing will be expanding in all regions of the country, and landlords and tenants will be subject to a wide variety of governmental health care regulations. The parties to these leases will not be only hospitals and doctors. All health care providers are subject to these laws, including behavioral health professionals, pharmaceutical providers, substance abuse facilities, assisted living facilities, and hospice care providers.

Anyone entering into such leases should be aware of the following issues: a) Anti-Kickback Laws, intended to prevent health care fraud, b) the Stark Law, similar to the Anti-Kickback Laws, but focused on financial relationships with physicians, c) HIPAA regulations, governing protected health information of patients, d) environmental regulations dealing with the disposal of hazardous waste, waste water discharge, air emissions, and storage tanks, e) "Fair Market Value" analysis required under Stark and AKS, f) tax issues that arise from leasing arrangements that could impact the non-profit status of an entity, and g) construction requirements for licensing of medical facilities. The Americans with Disabilities Act is also relevant to these leases, and should be considered when drafting tenant improvement provisions that relate to certain accommodations.

Violations of these laws and regulations cannot be taken lightly. For instance, non-compliance with the Anti-Kickback Laws can result in fines between $5,500 and $11,000 for every claim submitted that arises out of a transaction which fails to meet Stark as well as triple the amount of the claim itself, imprisonment, and possible exclusion from participation in government health care programs.

The real estate lawyers at Clark Hill, working in conjunction with our health care group, have the depth of knowledge and experience to assist our health care clients navigate through the tricky minefield of regulations that surround these leases. If you have any questions about this topic, please contact Robert Anderson at 480.684.1154 or


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