Published July 28, 2020

Not All Valuation Reports Are Created Equal: A Practical Guide to Reviewing and Applying Real Estate Valuation Reports

To avoid liability under the Stark Law, health systems’ real estate arrangements with physicians and other referral sources must, among other requirements, be predicated on terms that are consistent with fair market value. Health systems often rely on internal real estate departments, internal legal teams, or external counsel to ensure these standards. In most instances, these individuals rely heavily on external valuation professionals as the experts to establish fair market value and provide the supporting valuation reports. But obtaining a report is only half the battle. Simply having a third-party valuation report “in the file” does not guarantee compliance. The ultimate responsibility rests on the health system to ensure that the valuation report establishes a sound fair market value opinion and is applied appropriately to the lease in question. Due to the Stark Law’s strict liability standard, it is critical for health systems to be diligent in their evaluation and application of real estate valuation reports. This article addresses some of the fundamental elements that should be closely reviewed and highlights common misconceptions about real estate valuation reports.

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