Even during economic downturns, the healthcare industry has remained a strong force in the commercial leasing market. This is largely due to the continued growth of outpatient care and the expansion of services beyond traditional hospital campuses. As a result, negotiating a medical office lease requires a detailed understanding of the legal and operational challenges specific to healthcare tenants.
Legal counsel for healthcare providers must address a range of unique concerns—from Stark Law and Anti-Kickback compliance to zoning, ADA accessibility, and patient data security. This article highlights key legal risks and best practices for healthcare lease negotiation.
I. Fraud and Abuse Laws: Stark Law and Anti-Kickback Statute
Leasing medical space often implicates federal fraud and abuse laws, even if the landlord is not directly tied to referrals. Physicians and healthcare tenants must protect themselves in case the leased property is sold or transferred to an entity that does have referral influence.
Two critical laws apply:
Stark Law (42 U.S.C. § 1395nn)
Known formally as Section 1877 of the Social Security Act, the Stark Law prohibits physicians from referring Medicare or Medicaid patients for certain “designated health services” (DHS) to entities with which they or their immediate family members have a financial relationship—including physician office leases.
DHS includes:
-
Clinical lab services
-
Physical and occupational therapy
-
Radiology and imaging
-
Durable medical equipment and supplies
For example, subleasing space to a vendor selling durable medical equipment—even for patient convenience—can trigger Stark Law violations.
Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b))
The Anti-Kickback Statute makes it illegal to offer or receive any form of payment to induce referrals for services reimbursed by a federal healthcare program. Its scope is broader than Stark and applies to any services billed to these programs.
To stay compliant, leasing arrangements must meet strict safe harbor requirements, including:
-
A written lease signed by both parties for a term of at least one year
-
A clear, itemized schedule of use (particularly for part-time or shared-use “block leases”)
-
Rent set in advance at fair market value, with no link to patient volume or referrals
Violations can lead to civil fines, exclusion from federal programs, or even criminal penalties. This makes medical lease compliance critical for healthcare tenants and landlords alike.
II. Unique Permits and Approvals
The modern healthcare landscape now includes outpatient facilities like ambulatory surgical centers, urgent care clinics, and diagnostic imaging centers—many of which resemble traditional offices but carry different regulatory requirements.
These healthcare facilities must meet licensing and accreditation standards set by state departments (such as the Pennsylvania Department of Health) and professional bodies. Facility design often affects licensure, which is why experienced healthcare architects and engineers should be involved early.
Zoning Considerations for Healthcare Facilities
Local zoning codes may not account for newer facility types. They typically distinguish only between “hospitals” and “professional offices.” As such, leasing medical space may require zoning variances or text amendments.
A properly structured medical office lease should include contingencies for obtaining necessary zoning approvals, permits, and certificates of occupancy.
III. Unique Operational Needs of Medical Leases
Healthcare tenants often face distinct operational issues that general office leases fail to address. For example:
-
Medical waste: Many standard commercial leases prohibit hazardous materials. Without modification, this could prevent a healthcare practice from operating legally.
-
ADA Compliance: Medical facilities often need more accessible parking, wider entrances, and other ADA accommodations beyond local building code minimums.
-
Security and storage: Terms must account for medication storage, locked file rooms, and secure delivery zones.
-
Ambulance access: Emergency vehicle accommodation should be addressed upfront.
Additionally, exclusivity clauses in medical leases are common, protecting tenants from direct competition within the same complex. These must be carefully negotiated to balance tenant protection with landlord flexibility.
IV. HIPAA Compliance and Medical Record Protection
Healthcare providers are subject to HIPAA and HITECH Act regulations concerning the protection of Protected Health Information (PHI). While landlords generally aren’t “Covered Entities” or “Business Associates,” tenants should still include lease language that protects sensitive information.
Important considerations for healthcare tenants:
-
Require landlord access only during “off” hours or when accompanied by a tenant representative
-
Prohibit landlord contractors from viewing or accessing patient records
-
Include indemnity clauses if PHI is mishandled
-
Exclude medical records from any landlord lien rights to avoid HIPAA violations during eviction or foreclosure
V. CHANGES OF LAW
The legal and regulatory climate in the healthcare industry is continuously changing. Accordingly, a lease negotiated in good faith between parties which is consistent with the law on the effective date may later be rendered illegal via an unpredictable change in the laws or regulations. Often, these laws do not include grandfathering provisions for leases or may do so only for a short period of time (i.e. one year). Accordingly, healthcare tenants should insist on a lease provision to trigger a re-negotiation of the lease if it is rendered illegal and provide for termination if it cannot be made consistent with all then-current legal requirements.
While the continued growth in healthcare continues, consultation with counsel familiar with the unique aspects of the industry and consideration of the above issues is crucial.
Reprinted with permission from the “2/17/15 edition of the “The Legal Intelligencer”© 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 – reprints@alm.com or visit www.almreprints.com.
This blog post has been prepared and published for informational purposes only. None of its content should be construed as or relied upon as legal advice. Therefore, no one should act or refrain from acting based on its content. The content is not a substitute for competent legal advice. For legal advice or answers to specific questions, please contact one of our attorneys. Information provided by our attorneys should only be considered legal advice after a formal attorney-client relationship has been established with our law firm and you and confirmed in writing by one of our attorneys.
