## Facts

- Relators filed a sealed qui tam action under the False Claims Act alleging improper payments connected to physician referrals of Medicare patients.
- A hospital leased clinical space in a medical office building owned by a realty entity partially owned by orthopedic physicians who also practiced in that building.
- The government alleged the lease was a disguised mechanism to pay the physician-owners for referrals, rendering resulting Medicare claims tainted.
- The lease was structured as a gross lease with fixed rent while the landlord covered items such as taxes, insurance, and utilities.
- Lease terms were negotiated over months and included disputes over rent per square foot, lease duration, measurement of space, renovation/build-out terms, and parking requirements.
- The court bifurcated and held a bench trial focused on whether the lease and related payments reflected fair market value and were negotiated at arm’s length under the relevant federal healthcare statutes.
- The parties presented competing valuation evidence:
  - The government’s analysis relied largely on gross-lease comparables and concluded the hospital overpaid.
  - Defense experts (licensed real-estate brokers) emphasized that triple-net leases predominated locally and testified that converting triple-net comparables to gross-equivalent figures placed the rent within market range.
- The court also evaluated a one-year medical-director fee paid by the hospital to a physician and whether that compensation exceeded fair market value.

## Issues

1. Whether the hospital–landlord lease reflected fair market value and resulted from arm’s-length negotiation for purposes of the Anti-Kickback Statute lease safe harbor and the Stark II rental exception.
2. Whether defendants’ real-estate experts were admissible and credible on market rent, given disclosure and repetition objections.
3. Whether, if the lease and related payments were fair market value and arm’s length, the arrangement nonetheless violated the Anti-Kickback Statute or Stark II.

## Decision

- The court found the lease was negotiated at arm’s length and the rent was within fair market value.
- The court admitted and credited defendants’ expert testimony, rejecting Rule 26 disclosure and undue-repetition objections and finding licensed brokers qualified to opine on local commercial rents.
- The court determined the government’s valuation approach did not reliably reflect local market practice because it did not adequately account for the prevalence of triple-net leases and the need to convert them to gross-equivalent rents.
- The court found the evidence did not show the medical-director fee exceeded fair market value.
- Based on the fair-market-value and arm’s-length findings, the court concluded the arrangement did not violate the Anti-Kickback Statute or Stark II on the tried issues, and entered judgment consistent with those findings.

## Legal Principles

- A healthcare real-estate lease alleged to function as referral remuneration turns largely on whether the financial terms are consistent with fair market value and were set through arm’s-length bargaining rather than referral expectations.
- For the Anti-Kickback Statute, a lease arrangement consistent with the regulatory lease safe harbor is not treated as prohibited remuneration for referrals.
- For Stark II, a written office-space lease may fall within the rental exception when it is commercially reasonable, reflects fair market value, and is not set in a manner that takes into account the volume or value of referrals.
- Valuation proof must reflect the relevant market; where triple-net leases are standard, gross-lease comparisons may be misleading unless adjusted to gross-equivalent amounts.
- Courts may accept experienced licensed real-estate brokers as experts on commercial lease rates and market practice when their methods fit the local leasing market.

## Conclusion

Following a bench trial on valuation and negotiation facts, the court concluded that the challenged lease and related compensation were fair market value and the product of arm’s-length bargaining, defeating the asserted Anti-Kickback Statute and Stark II theories that the arrangements were disguised payments for referrals.


United States ex rel. Goodstein v. McLaren Reg'l Med. Ctr., 202 F. Supp. 2d 671 (E.D. Mich. 2002)