The new exception, 42 C.F.R. § 411.257(y), is titled “Timeshare arrangements.” It was enacted by CMS to resolve the difficulty that hospitals, particularly those hospitals located in rural and underserved communities, encounter when attempting to satisfy the “rental of office space” exception to the Stark Law. See 42 U.S.C. § 1395nn(e)(1)(A), (B); 42 C.F.R. § 411.357(a), (b).
By virtue of disclosures made to CMS pursuant to the CMS Self-Referral Disclosure Protocol (SRDP), CMS discovered that there were numerous instances where, for legitimate reasons, physicians did not require and were not interested in traditional office space lease arrangements:
For example, in a rural or underserved area, there may be a need in the community for certain specialty services but that need is not great enough to support the full-time services of a physician specialist. Under “timeshare” arrangements, a hospital . . . may ask a specialist from a neighboring community to provide services in space owned by the hospital or practice on a limited or as-needed basis. Most often, under such an arrangement, the specialist does not establish an additional medical practice office by renting office space and equipment, hiring personnel, and purchasing services and supplies necessary for the operation of a medical practice. Rather, it is common for a hospital or local physician practice to make available to the visiting independent physician on a “timeshare” basis, the space, equipment, and services necessary to treat patients. Under the “timeshare” arrangement, the hospital or physician practice may provide the physician with a medical office suite that is fully furnished and operational. The physician does not need to make any improvements to the space or to bring any medical or office supplies to begin seeing patients.
80 Fed. Reg. 220, 71,325.
CMS believes that timeshare arrangements will improve access to much-needed care in rural and underserved communities by facilitating part-time or periodic access to physicians who otherwise could not maintain a full-time practice in the community. The exception is designed to promote access to needed services and provide hospitals and physicians with flexibility to structure arrangements in such a way that fits the needs of both the parties as well as the community. Id. at 71,326–27.
There are a number of differences between the timeshare arrangements exception and the rental of office space exception. Principally, the timeshare arrangements exception is akin to a license or permission to use a health-care entity’s property. The rental of office space exception transfers exclusive dominion and control of the health-care entity’s property from the lessor to the lessee, whereas the timeshare arrangements exception merely grants a privilege to act on another’s property and does not confer any possessory rights to the licensee of the property. Id. at 71,325–26.
In addition, timeshare arrangements must be set up predominantly for the provision of evaluation and management (E/M) services. Further, while the rental of office space exception requires a lease of a minimum of one year for the space, the timeshare arrangements exception has no similar requirement. Finally, unlike the rental of office space exception, the timeshare arrangements exception does not require a specific occupancy schedule, a description of the precise length of each occupancy period, or the exact rent for such intervals. In fact, under the timeshare arrangements exception, CMS allows predetermined fair market value compensation based on time-based formulas by hour, half-day clinic, or full-day clinic. Id. at 71,326, 71,332.
There also are a number of similarities between the timeshare arrangements exception and the rental of office space exception. For instance, both exceptions require that the arrangement be reduced to writing and contain the signature of the parties. Further, the arrangement must specify the premises, equipment, personnel, items, supplies, and services covered by the arrangement; and the arrangement must be commercially reasonable. Finally, both exceptions require predetermined compensation between the parties that reflects fair market value and does not take into account, directly or indirectly, the volume or value of referrals or business between the parties.
The timeshare arrangements exception permits an arrangement for the use of premises, equipment, personnel, items, supplies, or services if the following conditions are met:
(1) The arrangement is set out in writing, signed by the parties, and specifies the premises, equipment, personnel, items, supplies and services covered by the arrangement.
(2) The arrangement is between a physician (or the physician organization in whose shoes the physician stands under [42 C.F.R.] § 411.354(c)) and—
(i) A hospital; or
(ii) Physician organization of which the physician is not an owner, employee, or contractor.
(3) The premises, equipment, personnel, items, supplies, and services covered by the arrangement are used—
(i) Predominantly for the provision of [E/M] services to patients; and
(ii) On the same schedule. [Authors’ Note: Because the objective of the new exception is to increase patient access to care, not to facilitate the physician’s ability to bill for DHS in additional practice locations, the use of office space by the physician predominantly to furnish DHS, as opposed to E/M services, to patients would not fall under the new exception.]
(4) The equipment covered by the arrangement is—
(i) located in the same building where the [E/M] services are furnished;
(ii) Not used to furnish [DHS] other than those incidental to the [E/M] services furnished at the time of the patient’s [E/M] visit; and
(iii) Not advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests).
(5) The arrangement is not conditioned on the referral of patients by the physician who is a party to the arrangement to the hospital or physician organization of which the physician is not an owner, employee, or contractor.
(6) The compensation over the term of the arrangement is set in advance, consistent with fair market value, and not determined—
(i) In a manner that takes into account (directly or indirectly) the volume or value of referrals or other business generated between the parties; or
(ii) Using a formula based on
(A) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services provided while using the premises, equipment, personnel, items, supplies, or services covered by the arrangement; or
(B) Per-unit of service fees that are not time-based, to the extent that such fees reflect services provided to patients referred by the party granting permission to use the premises, equipment, personnel, items, supplies, or services covered by the arrangement to the party to which the permission is granted.
(7) The arrangement would be commercially reasonable even if no referrals were made between the parties. [Authors’ Note: Arrangements that are above or below fair market value or that do not make business sense except for inducing referrals would be suspect.]
(8) The arrangement does not violate the anti-kickback statute . . . or any Federal or State law or regulation governing billing or claims submission.
(9) The arrangement does not convey a possessory leasehold interest in the office space [or equipment] that is the subject of the arrangement. [Authors’ Note: In contrast to the possessory leasehold interest created under the rental of office space exception, the timeshare arrangements exception confers a privilege to use the space on a limited basis.]
42 C.F.R. § 411.257(y)(1)–(9).
The timeshare arrangements exception does not replace or modify the existing rental of office space exception. Rather, it offers new opportunities for health-care entities located in rural and underserved communities to enlist part-time, independent physicianson an “as-needed” basis to provide much-needed specialty-care services.
In examining existing physician arrangements and developing new physician arrangements, health-care entities should consider whether their agreements are for traditional leasehold arrangements or timeshare arrangements in order to ensure compliance with the Stark Law.
Keywords: litigation, health law, Stark Law, CMS, timeshare arrangements, healthcare, rural and underserved communities
Roger R. Clayton and Greg Rastatter are shareholders in the Peoria, Illinois, office of Heyl, Royster, Voelker & Allen, P.C. J. Tyler Robinson is an associate in the firm's Springfield, Illinois, office. Amee Lakhani is of counsel to the firm in its Chicago, Illinois, office.