Tread carefully when setting fair market value: Stark law must be considered.(Practice Trends)

WASHINGTON -- Physicians should tread carefully when trying to arrive at a fair market value for office space they're renting, Beth Schermer said at a forum sponsored by the American Health Lawyers Association.

That's because fair market value can become an issue under the Stark antikickback regulations, which say: "Unless an exception applies, a physician may not refer a Medicare patient for certain designated health services to an entity with which the physician (or a member of the physician's immediate family) has a financial relationship." Leasing space in a building--such as a facility owned by a hospital--is one way that a doctor could have a financial relationship with another entity.

But the regulations do include an exception for leasing property--that the property be leased at fair market value. Fair market value is defined as a number that is "intended to reflect the value in an arm's-length transaction, consistent with the general value in the market," said Ms. Schermer, a health care lawyer in Phoenix," Ariz. "For rentals and leases, that means the value of rental for general commercial purposes."

Proximity must be addressed when determining fair market value, said Julie Kass, a Baltimore health care attorney. Under Stark, a lease agreement can't take into account if the entity who owns the space is the one making the referrals--for instance, when an orthopedist's office leases space to a physical therapist. But the reverse situation is a different story, she said. "If the hospital has a medical office building for its physicians, where the doctors are a source of referrals to the hospital, you can take proximity into account when determining the fair market value of that space."

Physicians should keep in mind that fair market value is a range, not a specific number, Ms. Schermer said. For instance, suppose a physician enters into a 10-year lease. ...