A health system owns the building next to the hospital and leases 6,000 square feet on the third floor to the cardiology group that admits there. The lease expires on a Tuesday. Nobody signs the renewal, the group keeps seeing patients, rent keeps arriving, and the lease says a tenant who holds over pays 150 percent of the last month’s base rent. In most buildings that is the end of it and the asset manager moves on to the next expiry.
In this building it stops being a real estate question. The only thing keeping that lease from being a prohibited financial relationship between a physician and an entity they refer to is the rental of office space exception at 42 CFR 411.357(a), and one of its seven conditions is that the rental charges over the term “are set in advance and are consistent with fair market value.” Not at signing. For as long as the arrangement is alive.[1]
Put numbers in it. The national average asking rent for medical outpatient space is $25.40 per square foot triple net, a record, against 9.8 percent vacancy and a construction pipeline of roughly 2 percent of stock.[2] Six thousand feet at that rent is $152,400 a year. The 150 percent holdover rate is $38.10 a foot, or $228,600 a year, which is $6,350 a month more than the tenant paid in August. Hold over for eight months while the renewal gets negotiated and the landlord has collected an extra $50,800.
That $50,800 is the whole prize, and it is being played against the hospital’s ability to bill Medicare for the designated health services that group refers. If 150 percent of a market rent is not itself a market rent, the exception fails for as long as the premium is charged. If the landlord waives the premium instead, CMS has said that failing to apply a premium the lease legally requires may be a change in the terms and conditions of the arrangement, which fails a different condition of the same exception, and may be forgiveness of a debt, which is a second financial relationship needing an exception of its own.[3]
Scope first, because this does not reach every medical office lease. Stark bites where one side of the lease is a physician (or an immediate family member) and the other is an entity furnishing designated health services to which that physician refers. A pension fund landlord with no referral relationship to its physician tenants is outside it. A health system that owns the building, a hospital joint venture, a hospital that master-leases a floor and subleases suites, and a physician-owned building leasing to the hospital are all inside it. The Anti-Kickback Statute reaches further, because it covers remuneration between anyone to induce federal health care program referrals, but it requires intent, and Stark does not.
The holdover used to expire, and since 2016 it does not. Until the CY 2016 physician fee schedule final rule, paragraph (a)(7) covered a holdover of up to six months and then ran out. CMS made it indefinite, and said why: through the self-referral disclosure protocol it had reviewed “numerous rental and personal service arrangements that failed to satisfy the requirements of an applicable exception solely because the arrangement expired by its terms and the parties continued” performing.[3] The indefinite holdover carries three conditions. The lease met paragraphs (a)(1) through (6) when it expired, the holdover is “on the same terms and conditions as the immediately preceding arrangement,” and the holdover continues to satisfy (a)(1) through (6).[1] So the fix removed a deadline and kept a standard. A lease sitting in holdover is not protected by the passage of time; it is protected for exactly as long as it keeps meeting every element.
A holdover premium is allowed. The question is whether 150 percent of a market rent is a market rent. A commenter asked CMS this directly in 2015: many leases raise the rent if the tenant holds over, so how does fair market value apply? CMS pointed back to Phase III, where it said lessors can charge a holdover premium “provided that the amount of the premium was set in advance in the lease agreement (or in any subsequent renewal) at the time of its execution and the rental rate (including the premium) remains consistent with fair market value and does not take into account the volume or value of referrals,” then added that “the rental amount with the holdover premium must satisfy the fair market value requirement when the original agreement expires and throughout the holdover."[3] Fair market value for office space is defined at 42 CFR 411.351 as the value of rental property for general commercial purposes, without adjustment for the proximity or convenience of a referral source, consistent with general market value, which for a lease is “the price that rental property would bring at the time the parties enter into the rental arrangement as the result of bona fide bargaining between a well-informed lessor and lessee that are not otherwise in a position to generate business for each other."[4] You can argue that a tenancy terminable on thirty days’ notice is worth more per month than a ten-year term, and that the premium is market practice rather than a penalty. Appraisers do make that argument. I have not found an agency statement or an appraisal standard that blesses any particular multiple, and the regulation tests the rate including the premium, so the argument has to be made and documented before the premium starts running, not after a subpoena.
Waiving the premium fails a different condition of the same paragraph. CMS was asked to allow changes to a holdover’s terms so long as the changes did not affect compliance. It refused, because allowing amendments would let parties “frequently renegotiate the terms of the arrangement during the holdover in a manner that could take into account the volume or value of referrals.” Then it went further than the question: “We caution that, depending on the facts and circumstances, the failure to apply a holdover premium that is legally required by the original arrangement may constitute a change in the terms and conditions of the original arrangement,” and the holdover then fails (a)(7)(ii). CMS added that not charging it “may constitute the forgiveness of a debt, thus creating a secondary financial relationship between the parties that must satisfy the requirement of an applicable exception."[3] So the landlord who quietly keeps billing the old rate through a friendly holdover has created two problems instead of avoiding one. The way out is not to be in a holdover: sign the renewal before the expiry date, or write a holdover rate you are prepared to defend as market.
It does not matter which direction the money is moving. A compensation arrangement under 42 CFR 411.354(c) is any arrangement involving remuneration between a physician and an entity, and the regulation does not ask who came out ahead. Paragraph (a)(4) requires the rent to be consistent with fair market value, which is a corridor and not a floor. Rent above market paid by the physician to the hospital sits outside that corridor the same way rent below market does. The intuition that the government cannot be harmed when the doctor overpays is an Anti-Kickback intuition, where intent matters. Stark is strict liability: either every element of an exception is met or the referral is prohibited and the claim is not payable.[5]
Two cases about space nobody papered. In United States ex rel. Kosenske v. Carlisle HMA, a 1992 exclusive services agreement gave an anesthesiology group the right to work at a Pennsylvania hospital. In 1998 the hospital opened a pain clinic three miles away and gave the group space, equipment and staff there at no charge. Nobody amended the 1992 agreement. The Third Circuit held the free space and personnel were a compensation arrangement, that the old agreement said nothing about the new premises and so could not specify the compensation, and that the value of the referrals could not be what made the deal fair market value.[6] In United States ex rel. Emanuele v. Medicor Associates, medical director agreements between a cardiology practice and a Hamot hospital expired on 31 December 2006 and were not re-papered until 29 November 2007, by addenda backdated to January. The court let some of them through on a collection of documents and sent two to a jury, and on the question of whether a missing signature is too small a thing to matter under the False Claims Act it held the writing requirement is not minor or insubstantial, quoting Kosenske for the point that the statute “insist[s] on the transparency and verifiability that comes from an express agreement reduced to writing and signed by the parties."[7] Both disputes are about a document that ran out while the arrangement kept going. That is the same fact pattern as a holdover.
Exclusive use means the landlord cannot use the room. Paragraph (a)(3) says the space must be “used exclusively by the lessee when being used by the lessee (and is not shared with or used by the lessor or any person or entity related to the lessor),” and then defines the term so there is no wiggle in it: “The lessor (or any person or entity related to the lessor) may not be an invitee of the lessee to use the office space."[1] Multiple tenants may share the same space; the landlord may not be one of them. This is the condition that ordinary building management breaks without noticing. The health system’s care navigator who keeps a desk in the suite two days a week, the phlebotomy draw station the hospital runs inside the tenant’s footprint, the conference room on the tenant’s floor that facilities books for system meetings, the reserved right of entry drafted so broadly that it reads as a right to use. None of those are large sums. All of them are elements of an exception.
The common area charge has a ceiling written into the regulation, and a gross-up pushes toward it. The same paragraph permits payments for common areas only “if the payments do not exceed the lessee’s pro rata share of expenses for the space based upon the ratio of the space used exclusively by the lessee to the total amount of space (other than common areas) occupied by all persons using the common areas."[1] That is a formula with a real denominator: space actually occupied. A conventional operating expense clause does something different. It grosses variable expenses up to a hypothetical 95 or 100 percent occupancy and then applies each tenant’s share, which in a building running at 80 percent charges the tenant more than its share of what was actually spent. Medical outpatient vacancy is low, so the gap is usually small, and I have found no decision or advisory opinion applying (a)(3) to a gross-up. Treat it as a drafting risk rather than a settled rule: if the lease is with a referral source, the CAM clause is one more thing the exception has an opinion about, and the pool that never shrinks is already the operating expense ratchet in an ordinary building.
Percentage rent is prohibited outright, and so is a rent you finish negotiating after the term starts. Paragraph (a)(5) bars rental charges determined in any manner that takes into account the volume or value of referrals, and separately bars any formula based on “a percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space,” or per-unit-of-service charges to the extent they reflect referred patients.[1] Retail-style turnover rent has no home in a lease with a referral source. Paragraph (a)(2) has a quieter trap: the term must be at least a year, and if the lease is terminated with or without cause the parties “may not enter into a new lease arrangement for the same space during the first year of the original lease arrangement.” Terminate three months in and re-paper the same suite with the same tenant and you have entered a new lease arrangement inside the prohibited window, which is a live risk in any restructuring that is documented as a termination and replacement rather than an amendment. And “set in advance” in (a)(4) means a renewal whose rent is left to a later market determination is not set until it is set, which is a problem if the tenant is already occupying under it.
Timeshare suites satisfy one statute and miss the safe harbor of the other. Stark has a separate exception at 411.357(y) for arrangements where a physician uses premises, equipment and staff on a schedule. It has its own conditions: predominantly evaluation and management services, the same schedule for everything covered, no advanced imaging or radiation therapy or clinical laboratory equipment beyond CLIA-waived tests, and, in paragraph (y)(9), the arrangement “does not convey a possessory leasehold interest in the office space."[8] So the drafting has to be a license and not a lease. The Anti-Kickback Statute has no timeshare safe harbor at all. Its space rental safe harbor at 42 CFR 1001.952(b) requires a term of at least one year and, where access is for periodic intervals, that the agreement “specifies exactly the schedule of such intervals, their precise length, and the exact rent for such intervals."[9] A half-day-a-week arrangement papered to fit 411.357(y) can still sit outside 1001.952(b). Falling outside a safe harbor is not itself unlawful, because the Anti-Kickback Statute turns on purpose, but it removes the protection and leaves the arrangement to be judged on its facts.
What it costs when an element is missed. The physician may not refer, the entity may not bill, no Medicare payment may be made, and if payment was collected the entity “must refund all collected amounts on a timely basis.” On appeal the burden of persuasion sits on the entity that submitted the claim.[5] There are two narrow reliefs and neither one covers this. Section 411.353(f) forgives up to 90 days of noncompliance if the relationship complied for 180 consecutive days first and fell out of compliance “for reasons beyond the control of the entity,” usable once every three years per physician, and a holdover premium your own lease requires is not beyond your control. Section 411.354(e)(4) gives 90 days to obtain a missing writing or signature, and nothing else.[10] Past that, the Stark civil money penalties at 42 CFR 1003.310 run to $31,670 for each claim and $211,146 for each circumvention scheme, as last adjusted on 28 January 2026.[11] False Claims Act penalties are $14,308 to $28,619 per claim plus treble damages, and they did not move this year: the annual inflation adjustment for 2026 was cancelled outright because the October 2025 CPI-U was never produced, the same missing index that broke CPI rent escalations in commercial leases.[12] Against that, the self-disclosure numbers are almost quaint. CMS has settled 1,234 disclosures under the self-referral disclosure protocol since 2011 for $105,090,031 in total, and the 2025 cohort was 244 settlements ranging from $2 to $2,683,066.[13] The average disclosed lease problem costs about as much as a tenant improvement allowance. The average litigated one does not.
The structural point is not about medicine. It is that a clause which is boilerplate in every other building is load-bearing in this one, and the people who negotiate it are usually not the people who know that. A holdover premium exists to make holding over unattractive, and it works, and here the mechanism it triggers is a payment rule at the Centers for Medicare and Medicaid Services rather than a rent bump. The same thing happens at the other end of the term, where an option to renew dies on a notice date that nobody diaried and the tenant ends up in the holdover that starts all of this, and it happens again when a landlord accepts holdover rent and argues later about what the acceptance created. Medical outpatient space is the tightest corner of the office market right now, which means renewals are slow, tenants have nowhere to go while they negotiate, and more leases are sitting past their expiry than usual. That part is my read of the market rather than a number anyone publishes.
Which leases in the portfolio are in holdover right now#
Acrebase reads expiry dates, holdover clauses, renewal notice windows and rent escalation language out of every lease in a portfolio and lines them up, so the question of which arrangements are past term today has an answer that does not depend on somebody’s spreadsheet being current. For a health system landlord it flags the four things that decide paragraph (a): whether the holdover rate is a fixed multiple and what that multiple produces against current rent, whether the lease reserves landlord use or access rights that cut against exclusive use, whether the operating expense clause charges more than a pro rata share of actual expense, and whether any part of the rent is tied to revenue or to units of service. The clause library holds the language counsel has already approved for referral-source leases, including the fallback the team takes when a tenant will not accept a flat holdover rate, so the same position goes into every deal rather than being reinvented by whoever is drafting that week. Old leases and new drafts are read the same way, which matters here, because the exposure is nearly always in a lease signed years ago by somebody who has left.
If you are a landlord in this position, the useful move is upstream of the clause. Diary every expiry twelve months out and treat the renewal as due ninety days before term end, because the exception rewards a signed document and forgives nothing else. Decide now what your holdover rate is going to be and get it supported: either set it at 100 percent of the then-current rent, which is boring and defensible, or keep a premium and hold an appraisal that addresses the premium itself rather than the base rent. Do not let anyone waive a premium the lease requires as a courtesy, because CMS has said in terms that the waiver is its own problem. Walk the suites once a year and look for your own staff and your own equipment inside space you have leased away. If something has already lapsed, the disclosure protocol exists and the settled amounts are small. If you are a tenant, the holdover clause in a lease with your hospital does more than set a rent. While you are in holdover, the statute that restricts who you may refer to is running against an arrangement whose compliance nobody has checked, and that is your exposure as well as the landlord’s. Ask for a holdover rate at 100 percent with a fixed notice mechanic rather than a multiple. Ask for a renewal option with rent set by a stated formula rather than by later negotiation, because a rent still being discussed is not set in advance. Get the amendment signed before the old term ends even if the commercial terms are unchanged, and keep the countersigned copy somewhere other than the broker’s inbox.
Footnotes
[1] 42 CFR 411.357(a), “Rental of office space,” current text. The seven conditions are: (1) the lease “is set out in writing, is signed by the parties, and specifies the premises it covers”; (2) the duration “is at least 1 year,” and if the lease is terminated with or without cause “the parties may not enter into a new lease arrangement for the same space during the first year of the original lease arrangement”; (3) the space does not exceed what is reasonable and necessary and “is used exclusively by the lessee when being used by the lessee (and is not shared with or used by the lessor or any person or entity related to the lessor),” with the common area proration formula and the invitee sentence quoted in the text; (4) rental charges over the term “are set in advance and are consistent with fair market value”; (5) charges are not determined in any manner taking into account the volume or value of referrals, nor using a percentage-of-revenue or per-unit-of-service formula; (6) the arrangement “would be commercially reasonable even if no referrals were made between the lessee and the lessor”; (7) the indefinite holdover conditions. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-411/subpart-J/section-411.357
[2] MMCG Invest, “US Medical Office Market Outlook 2026: Full Waiting Rooms, Empty Pipelines,” reporting a record national average medical outpatient building asking rent of $25.40 per square foot triple net, up 1.6 percent year over year, national vacancy of 9.8 percent as of Q4 2025, and roughly 33.5 million square feet under construction, “barely 2 percent of stock,” attributing the figures to CBRE Research and Revista. This is a trade summary of third-party data rather than the underlying reports. https://www.mmcginvest.com/post/us-medical-office-market-outlook-2026-full-waiting-rooms-empty-pipelines
[3] Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2016, 80 FR 70886 (16 November 2015), holdover discussion at 80 FR 71318-71321. CMS finalized the indefinite holdover provisions at 411.357(a)(7), (b)(6) and (d)(1)(vii), stating that “parties are not permitted to amend the terms and conditions of an arrangement during a holdover, because such changes pose a risk of program or patient abuse,” and responding to the holdover premium comment as quoted in the text, citing Phase III at 72 FR 51045. The earlier quotation about arrangements that failed “solely because the arrangement expired by its terms” is from the same discussion. https://www.federalregister.gov/documents/2015/11/16/2015-28005/medicare-program-revisions-to-payment-policies-under-the-physician-fee-schedule-and-other-revisions
[4] 42 CFR 411.351, definitions of “fair market value” (paragraph (3), rental of office space), “general market value” (paragraph (3), rental of equipment or office space) and “commercially reasonable,” which “means that the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties,” and “may be commercially reasonable even if it does not result in profit for one or more of the parties.” https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-411/subpart-J/section-411.351
[5] 42 CFR 411.353. Paragraph (a) prohibits the referral, (b) prohibits presenting a claim, (c) denies payment and places the ultimate burden of persuasion at each level of appeal on the entity submitting the claim, and (d) requires the entity to “refund all collected amounts on a timely basis.” The underlying statute is 42 U.S.C. 1395nn(a)(1) and (g)(1). https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-411/subpart-J/section-411.353
[6] United States ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88 (3d Cir. 2009). Blue Mountain Anesthesia Associates held a 1992 exclusive services agreement with Carlisle Hospital; in 1998 the hospital opened a pain clinic about three miles away and provided the group rent-free space, equipment and support staff there, and the 1992 agreement was never amended to cover it. The Third Circuit held the free space, equipment and personnel were a compensation arrangement, that the 1992 agreement could not satisfy the writing requirement for premises it did not address, and that a negotiated agreement between parties in a position to generate business for each other does not itself establish fair market value. Summary: Duane Morris LLP, “Third Circuit Overturns Dismissal of Whistleblower Action: Ensure That Physician-Hospital Written Agreements Are In Effect.” https://www.duanemorris.com/alerts/alert3122.html
[7] U.S. ex rel. Emanuele v. Medicor Associates, No. 1:10-cv-00245-JFC (W.D. Pa.), memorandum opinion of 15 March 2017 (ECF No. 345) and memorandum opinion on reconsideration of 25 August 2017 (ECF No. 379), Conti, C.J. Eight arrangements between Medicor Associates, a cardiology practice, and The Hamot Medical Center of the City of Erie; the medical director agreements expired 31 December 2006 and were re-executed by addenda on 29 November 2007 with a retroactive effective date. On materiality under Universal Health Services v. Escobar, 136 S. Ct. 1989 (2016), the court held the writing requirement is not “minor or insubstantial” and goes to the essence of the bargain, quoting Kosenske, 554 F.3d at 96, that the statute “insist[s] on the transparency and verifiability that comes from an express agreement reduced to writing and signed by the parties which specifies all of the services to be provided by the physician and all of the remuneration to be received for those services.” The reconsideration opinion is at https://www.govinfo.gov/content/pkg/USCOURTS-pawd-1_10-cv-00245/pdf/USCOURTS-pawd-1_10-cv-00245-4.pdf
[8] 42 CFR 411.357(y), “Timeshare arrangements,” conditions (1) through (10), including (y)(3) (predominantly evaluation and management services, on the same schedule), (y)(4) (equipment located in the same building, not advanced imaging, radiation therapy or clinical or pathology laboratory equipment other than CLIA-waived), (y)(6) (set in advance, fair market value, no percentage or non-time-based per-unit formulas) and (y)(9) (the arrangement “does not convey a possessory leasehold interest in the office space that is the subject of the arrangement”). Same source as note 1.
[9] 42 CFR 1001.952(b), the Anti-Kickback Statute safe harbor for space rental, six standards, including (b)(3) on periodic intervals and (b)(4) requiring a term “not less than one year.” The safe harbor’s own fair market value note excludes “the additional value that one party … would attribute to the property as a result of its proximity or convenience to sources of referrals.” The statute is 42 U.S.C. 1320a-7b(b). https://www.ecfr.gov/current/title-42/chapter-V/subchapter-B/part-1001/subpart-C/section-1001.952
[10] 42 CFR 411.353(f) and (h), and 42 CFR 411.354(e)(4). Paragraph (f) requires 180 consecutive days of full compliance immediately preceding the lapse, noncompliance “for reasons beyond the control of the entity,” rectification within 90 consecutive days, and is available only once every three years with respect to the same referring physician. Paragraph 411.354(e)(4) satisfies a writing or signature requirement if the parties obtain it “within 90 consecutive calendar days immediately following the date on which the compensation arrangement became noncompliant.” https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-411/subpart-J/section-411.354
[11] 45 CFR 102.3, penalty adjustment table, rows for 42 U.S.C. 1395nn(g)(3) (submitting or causing to be submitted claims in violation of the physician self-referral restrictions, $31,670) and 1395nn(g)(4) (circumvention schemes, $211,146), both implemented at 42 CFR 1003.310. The table was last amended at 91 FR 3666, 28 January 2026, and its own note records that the adjustment used the October 2024 over October 2023 CPI-U ratio of 1.02598. https://www.law.cornell.edu/cfr/text/45/102.3
[12] 28 CFR 85.5, table 1, row for 31 U.S.C. 3729(a): for civil penalties assessed after 3 July 2025, minimum $14,308 and maximum $28,619 per claim, alongside treble damages under the False Claims Act. No 2026 adjustment was made. OMB Memorandum M-26-11, “Cancellation of Penalty Inflation Adjustments for 2026,” 17 April 2026, states that “[d]ue to the government shutdown, BLS was unable to produce the October 2025 data,” that there will therefore be “no updated cost-of-living adjustment multiplier for 2026,” and notes that “2026 is the first-year adjustments are not required.” https://www.ecfr.gov/current/title-28/chapter-I/part-85/section-85.5 and https://www.whitehouse.gov/wp-content/uploads/2026/04/M-26-11-Cancellation-of-Penalty-Inflation-Adjustments-for-2026-Regarding-the-Federal-Civil-Penalties-Inflation-Adjustment-Act-Improvements-Act-of-2015.pdf
[13] CMS, “Self-Referral Disclosure Protocol Settlements,” page last modified 16 March 2026. Totals from 2011 through 2025: 1,234 disclosures settled, aggregate $105,090,031, individual settlements ranging from $2 to $2,683,066. Calendar year 2024 was 314 settlements for $24,737,356; calendar year 2025 was 244 settlements for $20,396,958. A further 373 disclosures were withdrawn, closed without settlement, or settled by CMS’s law enforcement partners as of 31 December 2025. CMS publishes the figures only in aggregate, so the table does not say how many of the disclosures were lease arrangements. https://www.cms.gov/medicare/regulations-guidance/physician-self-referral/self-referral-disclosure-protocol-settlements
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