Part 1: As Medical Office Timeshares Grow in Popularity, Misunderstandings Remain
Medical office timeshare arrangements have existed for decades, but recently experienced a spike in popularity. The reason is simple: they provide a cost-effective way to expand into surrounding geographic markets or provide added convenience and improved access to care to an existing patient base.
The Centers for Medicare and Medicaid Services (CMS), Stark Law, and the Anti-Kickback Statute (AKS) intersect to provide regulatory guidance to these arrangements making it critical that these medical office timeshares be structured with lease payments that are within Fair Market Value (FMV). However, there’s still a lack of understanding in the market when it comes to how these arrangements are structured. This misunderstanding creates a compliance risk given the fact that the CMS has become increasingly skeptical of timeshares and has implemented stringent regulations, making it crucial for hospitals and physicians to understand how these timeshares should be designed.
To get started, let’s consider the two forms these arrangements generally take:
- Traditional Medical Office Timeshares
This timeshare arrangement is commonly set up by a hospital system utilizing a small medical suite (usually < 1,800 square feet) located within the adjacent medical office building. The medical timeshare suite will typically consist of three exam rooms, a waiting room, check-in desk, physician office, nurse station, etc.
The hospital will purchase the furniture and equipment for each room and provide certain services, such as telephone service, internet service, basic exam room supplies, basic office supplies, biohazard waste removal service, paper shred bin removal service, cable television in the waiting room, magazine subscriptions, water dispenser service and coffee supplies. Some timeshare suites will include a front desk receptionist or clinical nurse, but this is not common.
The facility will make the medical timeshare suite available to physicians in four-hour time slots and the agreements are generally for a one-year term. In fact, Stark regulations require that the term be a minimum of one year.
- Existing Physician Office Space Distribution
Many physician practices have underutilized time and space that can be offered to other physicians on a time-slot basis. The landlord/tenant relationship can be an independent physician providing space and services to a hospital-employed physician, or vice-versa. This arrangement typically consists of an outside physician tenant being given exclusive access to certain identified rooms (exam rooms, physician office, etc.) during a time slot, while sharing certain common areas with the other providers also utilizing the space.
The medical practice will provide all the furniture and equipment for each room, and typically make available many of the resources that already exist in the medical practice, including telephone service, internet service, basic exam room supplies, basic office supplies, biohazard waste removal service, paper shred bin removal service, cable television in the waiting room, magazine subscriptions, break room/waiting room coffee supplies, water dispenser and so on. It is also common for the physician tenant to share the medical practice’s front desk receptionist on a limited-use basis.
The medical practice will make the medical timeshare suite available in four-hour time slots and most agreements range from a term of one to three years.
Differences and Similarities
- Under a traditional timeshare, the physician typically leases the entire space, whereas under an existing physician office space, the physician leasing the space shares a portion of the space with the existing physician practice.
- Understanding the services being provided under each timeshare arrangement is critical to determining the value of the arrangement.
- Determining the appropriate short-term use premium is material under both scenarios to the resultant FMV range of value, and can vary widely depending on the facts and circumstances surrounding each arrangement.
The nuances in each arrangement is what creates the risk for health systems and practices entering into timeshare agreements. It is important to understand the type of arrangement and the services being provided, before you can determine if the lease payment is within FMV.
Now that we recognize the fact that medical office timeshares are not a “one size fits all” arrangement, next steps are to explore deeper the inputs and drivers the yield the value in the lease payment. The agreement must be at FMV to ensure there is no undue benefit provided to a healthcare provider in a position to refer patients to the Medical facility.
In our next part in the series, we will outline the many areas to consider when structuring a Stark-compliant timeshare agreement at FMV. It’s not as simple as it seems, and some of this may surprise you!