Why Medical Leases Are Different From Typical Commercial Leases

Medical space leasing requires more consideration and deeper analysis than typical commercial leases. Various federal and state laws regulate financial relationships of medical providers which in turn dictate the terms of a lease.

Particular attention must be paid to leasing arrangements between medical providers who are in a position to refer patients to each other as these arrangements implicate the Stark Law and the Antikickback Statute.

Stark Law

The Stark Law prohibits a physician from referring patients to receive “designated health services” (DHS) payable by Medicare or Medicaid to an entity with which the physician or an immediate family member has a financial relationship.  DHS include: 1) clinical laboratory services; 2) physical therapy, occupational therapy, and outpatient speech-language pathology services; 3) radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; 4) radiation therapy services and supplies; 5) durable medical equipment (DME) and supplies; 6) parenteral and enteral nutrients, equipment and supplies; 7) prosthetics, orthotics, and prosthetic devices and supplies; 8) home health services; 9) outpatient prescription drugs; and 10) inpatient and outpatient hospital services.

The Stark Law imposes civil monetary penalties of up to $15,000 for each violation of the statute. The government may also seek recoupment of improperly billed amounts and exclusion of a person or an entity from participation in Medicare and Medicaid programs.

Stark is a strict liability statute. As a result, relationships must qualify for an exception to the Stark Law or, otherwise, be deemed per se illegal, irrespective of the parties’ intent.

Antikickback Statute

The Antikickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal healthcare program, including Medicare and Medicaid. Remuneration includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.

Violation of the statute is punishable by fines of up to $25,000 and imprisonment for up to 5 years, and may also result in the imposition of a civil money penalty and/or exclusion from participation in the Medicare and Medicaid programs.

The Antikickback statute is an intent based statute which means that a party has to “knowingly and willfully” engage in a prohibited conduct. It should be noted, however, that the Patient Protection and Affordable Care Act of 2010 eliminated the requirement for the government to demonstrate a defendant’s specific intent to violate the Antikickback Statue, although a requirement showing an intent to violate a law still exists.


Both laws contain exceptions and safe harbors and the parties’ contemplating a leasing arrangement must test their proposed arrangement against these requirements to ensure compliance with the laws. These laws apply to landlord-tenant arrangements as well as those arrangements between sublessor-sublessee.


Even if medical providers are leasing office space from a commercial landlord who is a not medical provider there are still important and unique factors to consider in the medical office leasing arrangement. Providers’ office lease, for example, should be reviewed for purposes of determining whether the arrangement puts them at risk for a violation under the Health Insurance Portability and Accountability Act (HIPAA). The law requires that covered entities implement appropriate administrative, technical and physical safeguards to protect the privacy and security of protected health information.

One major HIPAA compliance concern for a physician or a physician group is whether the leased premises are secure. A general commercial lease typically permits the landlord to enter leased premises for inspection purposes or other reasons. Such a broadly worded clause would present problems for a medical provider tenant and care should be taken to draft clauses to, for example, prohibit the entry of a landlord or her representatives into an examination room while patients are present.

Other Issues

Medical offices often generate medical waste. As a result, the lease should clearly allocate the parties’ responsibilities for the removal of such waste.

Utilities may also present unique issues for medical office arrangements as some providers have special needs, like when vaccines need constant refrigeration, or the use of medical equipment that requires a significantly higher energy consumption. In such instances, the parties should consider the tenant having a separate back-up generator.

These and other issues should be carefully considered by medical providers tenants and landlords before signing on the dotted line.

If you have questions regarding a proposed leasing arrangement or need legal assistance on other matters, please contact us.