“Timeshare” carries some notoriety in the vacation property space, but when it comes to the healthcare sector, the timeshare practice might be a smart operating decision. Medical office timeshares where providers enter into a part-time lease arrangement have become increasingly common between hospital systems and physician practices. They offer a cost-effective approach for medical providers to service several geographic markets, or work from several different locations in a large geographic market.
The medical office timeshare model best suits specialists who split their time between working in a hospital and providing patients with pre- and post-operative check-ups. However, hospital systems and physician practice groups need to learn how these timeshares work before committing to and signing a contract. Key financial reporting considerations must be followed to maintain compliance with the Stark Law and Anti-Kickback Statute.
How Medical Office Timeshares are Structured
Medical office timeshare arrangements follow a certain structure. They are considered a combined lease between the hospital system and practice group, with some or all of the following components and considerations:
- Facility space – Physician practices will need to be clearly defined and report both common and exclusive space square footage.
- Equipment – The medical and office equipment in both common and exclusive areas will need to be reported, including the standard equipment in a typical exam room such as furniture, computers and other office equipment.
- Staff and supplies – Staffing arrangements, which might include administration (receptionists, medical records clerks, etc.), clinical staff (medical assistants, registered nurses, etc.), and certain office and medical supplies (telephones, cable television, internet, beverage services, etc.) need to be tracked. It’s important to consider all costs in the eventual fair market value analysis of the office.
- Amount of time leased – The amount of time the tenant utilizes the medical office timeshare directly impacts the amount of the payment. Time utilization needs to be clearly defined in the arrangement and tied directly to the fair market value payment.
- Timeshare premium – The marketplace premium should account for various risk factors like utilization, vacancy and the additional burden of marketing and legal costs when developing numerous partial lease arrangements. For example, an arrangement whereby the space is used three days per week versus an arrangement with an eight-hour block of time once per month. All of these factors, including the part-time nature of the arrangement, should be carefully considered in the fair market value analysis.
The Stark Law and Anti-Kickback Statute require all components of medical office timeshare arrangements to be documented at fair market value. Below are some of the many legal requirements for a timeshare to be considered compliant with both the Stark Law and Anti-Kickback Statute:
- Written lease agreement that specifies premises and equipment covered
- Lease terms of at least one year
- Space and equipment in the lease do not exceed that which is reasonable and necessary for legitimate business purposes
- Space and equipment is used exclusively by lessee and is not shared with anyone related to lessor, with the exception of the designated common areas
- If the lease provides use for periodic intervals, the agreement specifies the exact schedule of such intervals, including a precise length and exact rent
- Aggregate rent is set in advance, consistent with fair market value and not determined by volume, value of referrals or other business generated between parties
The Importance of Rental Agreement Compliance
Failing to comply with the fair market value provision of the Stark Law and the Anti-Kickback Statute comes with steep penalties. Stark Law noncompliance can include repayment of the rent and monetary penalties of up to $24,254 per improper claim. A violation of the Anti-Kickback Statute may be subject to a $25,000 criminal fine, a possible five-year prison sentence, $50,000 penalty, fines in excess of three times the damages incurred and the health care system’s exclusion from Medicare and Medicaid.
Healthcare systems and physician practice groups can ensure their medical timeshare arrangement meets the Stark Law and Anti-Kickback Statute fair market value criteria by enlisting the help of valuation professionals. Financial professionals who are experienced with the valuation analysis involved will consider all of the services provided by the hospital system (lessor) to the physician practice group (lessee). Generally, the fair market analysis will use cost-based analysis. It may also compare the timeshare arrangement to other similar arrangements within that market or to arrangements in comparable conditions to reach their fair market value conclusion.
A comprehensive approach to implementing a medical office timeshare can help hospital systems and physician practice groups optimize their business opportunity while safely operating within regulatory parameters. For more information, please contact John Rimar or David Werch of CBIZ Valuation Group.