By: Christopher Parrella, Esq., CPC, CHC, CPCO
Parrella Health Law, Boston, MA
A Health Care Provider Defense and Compliance Firm

If you think space-sharing or facility expense arrangements are “low risk,” think again.

Norton Clark Hospital in Indiana just paid $768,258 to resolve allegations that it improperly covered facility expenses for physician-owners in a jointly held medical office building. The Department of Health and Human Services Office of Inspector General (OIG) concluded the arrangement created remuneration to referral sources—physicians who referred designated health services to the hospital—and therefore potentially violated both the Stark Law and the Anti-Kickback Statute (AKS).

And all of this stemmed from HVAC, insurance, maintenance, and capital project costs the hospital paid on behalf of physician co-owners.

Let that sink in.

The Stark and AKS Risk Lurking in Your Real Estate Deals

Here’s what happened: The hospital was co-owner of the Norton Clark Medical Plaza with 16 physician groups. But instead of allocating costs equitably, the hospital picked up the physicians’ share of facility expenses. That discrepancy effectively gave those physicians below-market use of the space, while they continued referring patients to the hospital—a recipe for liability under Stark and AKS.

These financial relationships don’t need to involve large sums to trigger scrutiny. All that’s required is that a physician refer to an entity with which they have a financial relationship that doesn’t meet an exception—and below-market rent qualifies.

That’s why fair market value (FMV) matters. Paying or receiving anything outside of FMV—whether it’s free HVAC, underpriced rent, or ignored janitorial fees—may implicate fraud and abuse laws if referrals are in play.

The “Free” Services You May Not Know You’re Giving Away

This case spotlights a broader risk across the industry: real estate arrangements between hospitals and physicians are often poorly monitored and documented. Consider these red flags:

• Janitorial services or building maintenance being performed by hospital staff for physicians in time-share spaces.
• Modified gross leases that morph into full-service arrangements without adjusting rent.
• Old market rental rates being used to set lease terms, which are now way below actual market value.
• Failure to charge for common areas, utilities, waste disposal, or shared supplies in part-time space leases.
• Rent not escalating with the market, especially in high-growth regions.

Any of these can turn into inadvertent remuneration and if the recipient refers designated health services to the entity, you’re likely in Stark and AKS territory.

Lessons for Compliance: FMV Is the Floor, Not the Ceiling

Fair market value should be the foundation of any lease or space-sharing agreement with physicians—especially those who refer to your facility.

You must document:

• Current market appraisal or valuation studies to support rental rates.
• Written lease terms with clear allocation of responsibilities for all services and amenities.
• Time-based calculations for part-time arrangements, including access to staff, common areas, IT infrastructure, and biohazard disposal.
• Escalators for long-term leases to keep up with market inflation.
• Routine monitoring to confirm that actual usage matches lease terms.

This isn’t just best practice it’s legally essential. Failing to meet these standards may result in overpayment exposure, repayment obligations, or, worse, civil monetary penalties and False Claims Act liability.

Don’t Wait for a Whistleblower or Acquisition to Expose the Problem

The Norton Clark matter came to light during a hospital acquisition. Don’t let your facility’s next ownership change trigger an OIG self-disclosure. If you’re operating a medical office building, managing space leases, or permitting part-time use of facilities by referring physicians, even once a week, now is the time to audit those arrangements.

At Parrella Health Law, we help clients across the care continuum ensure their space, service, and financial arrangements comply with FMV standards and fraud and abuse laws. Whether you’re a behavioral health group leasing to physicians, a diagnostic imaging center subletting space, or a hospital managing a medical condo building we’ve got you covered.