Can Lab Lease Space for COVID-19 Testing to Referring Physician at Below-Market Rent?

SITUATION

ABC Laboratories wants to help a local physician establish a desperately needed COVID-19 testing lab in the community. ABC is willing to lease her the necessary space and testing equipment; it will also let her perform other kinds of testing using the space and equipment. But the physician is strapped for capital and can’t afford to pay fair market value rent. ABC understands her predicament and would like to cut her a break on the rent. The problem is that she’s a major source of Medicare referrals. and ABC doesn’t want to get into trouble under the Stark Law and Anti-Kickback Statute (which we’ll refer to collectively as the “kickback” laws).

QUESTION

Can ABC lease the space and equipment to the physician at below market rent?

1. No, because charging below market rent is remuneration banned by the kickback laws
2. No, because the space and equipment will not be used solely for COVID-19 testing
3. Yes, as long as the arrangement is for the purpose of COVID-19 testing
4. Yes, because the normal kickback limitations don’t apply during the pandemic

 ANSWER

ABC can lease the space and equipment at below market rent because it will be used for COVID-19 testing

EXPLANATION

In response to the Public Health Emergency (PHE), CMS has issued and the OIG has recognized what are called Blanket Waivers permitting labs and referring physicians to enter into business deals that would normally raise red flags under the kickback laws to the extent the purpose of the arrangement is to provide for COVID-19 testing and treatment. In other words, COVID-19 testing rather than strict compliance is the top priority at the moment.

Among other things, the Blanket Waivers allow labs and other entities to lease space and equipment to referring physicians (or members of their immediate family) at below fair market value rents. As long as the parties act in good faith and with the purpose of providing COVID-19 testing, the arrangement is okay. And that’s the case with this scenario. So, C is the right answer.

WHY WRONG ANSWERS ARE WRONG

A is wrong because while leasing to referral sources is a major no-no during times of normalcy, the normal rules can be set aside during a PHE. And that’s exactly what happened when CMS issued the Blanket Waivers.

B is wrong because the Blanket Waiver applies as long as providing COVID-19 testing is one of the purposes of the arrangement; it doesn’t have to be the sole purpose.

D is wrong because it’s an overly broad statement. The Blanket Waivers apply only to COVID-19 testing, subject to the conditions described in the Waiver and CMS guidance. Meanwhile, the normal kickback rules continue to apply for all other kinds of testing during the PHE.