Stark Law’s Rules on Per-Use or Per-Click Rental Equipment Leases

Many of our healthcare and business law firm’s clients are in the business of renting expensive medical equipment for use by medical practices.  Generally, these arrangements raise compliance questions under the Physician Self-Referral Act, referred to as Stark Law, and the Anti-Kickback Statute (“AKS”).  Should a regulator find an arrangement violates either law, the consequences are severe.  The perhaps unfortunate truth is that rarely can a sincere and analytical attorney tell you with confidence that an arrangement does or does not violate either law.  The analysis usually places an arrangement on a scale of low to high risk of noncompliance.  To assist in understanding whether an arrangement complies with Stark Law and AKS, the rules provide specific exceptions and safe harbors, respectively.  Both Stark Law’s exceptions AKS’s safe harbors outline ways in which an equipment rental agreement may satisfy the protections.  One question that frequently arises with our clients is whether they can structure an equipment rental agreement to have a per-use (often called a “per-click”) payment term, wherein there is no set monthly amount but, rather, the lessee pays the lessor a predetermined amount for each time the equipment is used.

In this blog post, we outline the basis rules for equipment rental agreements under Stark Law and whether per-click payment terms may satisfy Stark Law’s Rental of Equipment exception.  Our next post will analyze the same question under AKS.  If you have questions regarding this blog post or wish to evaluate the risks in your equipment lease arrangement, you may contact us at (404) 685-1662 (Atlanta) or (706) 722-7886 (Augusta), or by email, info@littlehealthlaw.com. You may also learn more about our law firm by visiting www.littlehealthlaw.com.

A. Stark Law’s Rental of Equipment Exception

Stark prohibits physicians from referring patients to receive “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies.  42 U.S.C. § 1395nn.  The Rental of Equipment Stark exception requires that the arrangement meet the following six conditions:

(1) The lease arrangement is set out in writing, is signed by the parties, and specifies the equipment it covers.

(2) The equipment leased does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease arrangement and is used exclusively by the lessee when being used by the lessee (and is not shared with or used by the lessor or any person or entity related to the lessor).

(3) The duration of the lease arrangement is at least 1 year. . . .

(4) The rental charges over the term of the lease arrangement are set in advance, are consistent with fair market value, and are not determined—

(i) In a manner that takes into account the volume or value of any   referrals or other business generated between the parties; or

(ii) Using a formula based on:

(A) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed on or business generated through the use of the equipment; or

(B) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.

(5) The lease arrangement would be commercially reasonably even if no referrals were made between the parties.

(6) If the lease arrangement expires after a term or at least 1 year, a hold-over lease arrangement immediately following the expiration of the lease arrangement satisfies the requirements of paragraph (b) of this section if the following conditions are met:  . . . .

42 C.F.R. § 411.357(b).

B. The Rental of Equipment Exceptions’ Per-Click Prohibition

As you can see, subsection 4(ii)(B) presents CMS’s current stance on per-unit payment terms, specifying that they are prohibited “to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.”  Prior to 2008, the rules allowed per-use payments for rental equipment so long as the per-use amount did not vary during the term of the arrangement.  66 Fed. Reg. 856, 959 (Jan. 4, 2001).  In 2008, the Centers for Medicare and Medicaid (“CMS”) modified the rules around “per service” payments.  73 Fed. Reg. 48434, 48752 (Aug. 19, 2008).  CMS then backtracked, however, to the current recitation of the rules which prohibits “per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.”  42 C.F.R. § 411.357(b)(4)(ii)(B).

Whether an arrangement satisfies the Rental of Equipment exception when per-click payment terms are present is a fact intensive matter. If you have questions regarding this blog post or wish to evaluate the risks in your equipment lease arrangement, you may contact us at (404) 685-1662 (Atlanta) or (706) 722-7886 (Augusta), or by email, info@littlehealthlaw.com. You may also learn more about our law firm by visiting www.littlehealthlaw.com.

*Disclaimer: Thoughts shared here do not constitute legal advice.