When Leases Become Liabilities: The Compliance Risk Many Health Systems Overlook
Healthcare real estate lease arrangements are often treated as routine operational matters, yet they can represent one of the most significant and underexamined sources of regulatory and financial exposure within a health system.
Lease arrangements between health systems and referring physicians have led to multimillion-dollar federal settlements.
These outcomes often stem not from intentional misconduct, but from gaps in structure, documentation, and ongoing administration. For many organizations, this risk exists today without full visibility at the leadership level.
Why Real Estate Compliance Risk Is Different
Most health systems maintain strong compliance programs. However, real estate transactions are often not evaluated with the same level of scrutiny as other physician financial relationships.
Because these arrangements must meet strict regulatory standards, including fair market value, commercial reasonableness, and specific lease requirements, even small gaps can create exposure.
Under the Stark Law, intent is not required for liability.
Where Risk Typically Emerges
Healthcare real estate compliance risk generally falls into two categories.
01 / STRUCTURE
Transactional Risk
Issues tied to how the lease is structured:
- Rent above or below fair market value
- Inaccurate square footage calculations
- Misclassified expenses
- Improper valuation assumptions
02 / ADMINISTRATION
Operational Risk
Issues tied to how the lease is managed over time:
- Failure to collect rent consistently
- Missed escalations
- Inadequate expense reconciliation
- Expansion beyond leased space (“space creep”)
In many cases, operational gaps, not the original transaction, create the greatest exposure.
The Governance Gap
In large health systems, lease oversight is often fragmented across multiple departments.
LEASE OVERSIGHT SPANS
Unclear accountability. Inconsistent processes. Incomplete documentation.
As a result, even well-structured agreements can drift out of compliance over time.
What a Defensible Compliance Framework Requires
Leading organizations treat real estate compliance as a governance issue, not just an operational task. A defensible approach includes:
1
Leasing Policies
Clear leasing policies and approval processes
2
Fair Market Value Standards
Defined fair market value standards
3
Centralized Tracking
Centralized lease tracking and reporting
4
Ongoing Monitoring
Ongoing monitoring and compliance reviews
5
Accountability
Accountability across departments
This structure allows organizations to identify risks early and reduce exposure to costly enforcement actions.
Why This Matters for Leadership
For CFOs, Vice Presidents, Directors, and General Counsel, healthcare real estate compliance is not a back-office function.
It is a critical component of enterprise risk management.
Without proper oversight, compliance gaps can:
Regulatory Scrutiny
Trigger regulatory scrutiny
Financial Penalties
Result in significant financial penalties
Physician Relationships
Disrupt physician relationships
Organizational Reputation
Affect organizational reputation
THE BOTTOM LINE
Healthcare real estate compliance risk is not theoretical. It is active, measurable, and often hidden within day-to-day operations.
Organizations that proactively address governance, oversight, and lease administration are better positioned to reduce risk and maintain compliance.
FEATURED WHITE PAPER
When Leases Become Liabilities: Managing Compliance Risk in Healthcare Real Estate
Understand where risk exists and how to build a defensible framework.
Common Questions About Healthcare Real Estate Compliance Risk
What creates compliance risk in healthcare real estate?
Compliance risk typically arises when lease arrangements with referring physicians are not properly structured or administered. This includes issues related to fair market value, documentation, rent collection, and ongoing oversight. Even small operational gaps can create exposure under federal regulations.
Why are lease arrangements a focus for regulators?
Lease arrangements are considered financial relationships between health systems and referring physicians. Under regulations such as the Stark Law and False Claims Act, these relationships must meet strict requirements. If they do not, organizations may face regulatory scrutiny and financial penalties—even without intent under the Stark Law.
What is the difference between transactional and operational risk?
Transactional risk originates from how a lease is structured, such as incorrect rent levels or incomplete documentation. Operational risk develops over time through how the lease is managed, including missed escalations, inconsistent rent collection, or changes in space usage.
Why do compliance issues often go unnoticed?
In many health systems, responsibility for lease management is distributed across multiple departments. Without centralized oversight, standardized processes, and clear accountability, issues can develop gradually and remain undetected until they become larger problems.
What are the most common lease compliance pitfalls?
Common issues include:
- Rent that is not aligned with fair market value
- Incomplete or missing lease documentation
- Failure to consistently collect rent
- Incorrect expense reconciliations
- Expansion of space beyond lease terms
How can health systems reduce compliance risk?
Organizations can reduce risk by implementing a structured compliance framework that includes clear leasing policies, centralized tracking, ongoing monitoring, and defined accountability across departments.
Why is this a leadership issue, not just an operational one?
Healthcare real estate compliance affects regulatory exposure, financial performance, and organizational reputation. Leadership teams play a critical role in ensuring proper governance, oversight, and alignment with enterprise risk management strategies.
CONTINUE THE CONVERSATION
Build a More Defensible Real Estate Compliance Framework
Explore RTG’s insights, read the white paper, or connect with our team.