Insights
Physicians Have a Second Option for Space Sharing
By Laura F. Fryan on May 17, 2016
You may already be familiar with the rental of office space exception to the Stark Law. While this exception is widely relied on for timeshare arrangements that function as full-time leases, it is not always practical for a physician to enter into a full-time, exclusive arrangement for at least a year. Fortunately, the Centers for Medicare and Medicaid Services finalized a new Stark Law exception effective January 1, 2016, that allows physicians, hospitals, and physician groups to share space, equipment, personnel, items, supplies or services in a non-exclusive timeshare arrangement, usually referred to as a license. This new exception is codified at 42 CFR 411.357(y) and must meet the following requirements:
- 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.
- The arrangement is between a physician (or the physician's group) and (i) a hospital; or (ii) a physician organization of which the visiting physician is not an owner, employee, or contractor. The new exception only applies to physicians, physician organizations, and hospitals.
- The premises, equipment, personnel, items, supplies, and services covered by the arrangement are used (i) predominantly for the provision of evaluation and management ("E/M") services to patients; and (ii) on the same schedule.
- The equipment covered by the arrangement is (i) located in the same building where the E/M services are furnished (i.e., the same U.S. Postal Service address); (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.
- 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.
- 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.
- The arrangement would be commercially reasonable even if no referrals were made between the parties. Arrangements that are above or below fair market value, or that do not make business sense except for inducing referrals, would be suspect.
- The arrangement does not violate the Federal Anti-Kickback Statute "AKS" or any federal or state law or regulation governing billing or claims submission. The arrangement should also meet an AKS safe harbor and should not be entered into solely to generate referrals payable by federal programs.
- The arrangement does not convey a possessory leasehold interest in the space or equipment that is the subject of the arrangement. This is what distinguishes the license concept in this Stark Law exception from the exception for rental of office space. The arrangement grants a license, or permission, to a physician to use space or equipment instead of a possessory interest, and the licensor remains in control of the space or equipment.
This new exception gives physicians more flexibility in timeshare arrangements. The license arrangement does not have to meet certain requirements of the rental of office space exception like the term and exclusivity requirements. However, CMS is particularly concerned that these types of arrangements may be used to give preference to parties that generate referrals or may be modified frequently to take referrals into account. With a carefully structured arrangement that meets the above criteria, though, physicians have much more flexibility when contemplating a timeshare.
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