Proposed Stark exception could impact hospital and physicians timeshare/ part-time agreement arrangements

In July 2015, the Centers for Medicare & Medicaid Services (“CMS”) published a proposed rule pertaining to payment policies under the 2016 Medicare Physician Fee Schedule (“Proposed Rule”) (80 Fed. Reg. 41,685). In addition to changes to the Medicare Physician Fee Schedule and other Medicare Part B payment policies, the Proposed Rule addresses modifications to the Stark Law and provides guidance on CMS’s interpretation of existing Stark Law exceptions.

A timeshare or part-time arrangement typically provides a physician with the exclusive use of office space during scheduled time periods. The space usually includes furnishings with basic medical office equipment, supplies and support personnel so that the physician is able to use the space, on a turn-key basis, to see patients during scheduled times.

In the comments of the Proposed Rule, CMS describes some of the challenges providers have articulated regarding timeshare or part-time leasing arrangements and some of the complications of managing these arrangements. During the administration of the Stark Physician Self-Referral Disclosure Protocol (“SRDP”)[2], CMS became aware of the challenges and began to recognize the difficulties associated with structuring Stark-compliant timeshare arrangements, especially with the “exclusivity” requirement (the voluntary Self-Referral Disclosure Protocol was developed and released by CMS in 2010 per the Patient Protection and Affordable Care Act to provide a mechanism for providers to self-disclose actual or potential violations of the Stark law). In the Proposed Rule, CMS acknowledged the importance of timeshare arrangements in situations where a full-time arrangement is not necessary or practical, for example, in rural or underserved areas.

What is a timeshare arrangement?

CMS notes that a timeshare arrangement more closely resembles a license arrangement than a leasing arrangement since a license confers upon the licensee a privilege to use space and equipment on a temporary or limited basis. On the other hand, a lease confers a possessory interest in the space and equipment that is more substantial. This distinction could create a scenario where a timeshare arrangement, structured as a license, does not provide or permit the exclusive use of space, which is a requirement under the current Rental of Office Space exception (42 C.F.R. § 411.357(a)). Further, timeshare arrangements structured as licenses typically have terms less than one year, which the Rental of Office Space exception requires.

The proposed exception

As a result of these findings, CMS is proposing a new Stark Law exception at 42 C.F.R. § 411.357(y) that would protect timeshare license arrangements that satisfy certain requirements. The requirements for the proposed exception are as follows:

  1. The arrangement is set out in writing and signed by the parties;
  2. The arrangement specifies the premises, equipment, personnel, items, supplies and services covered by the arrangement;
  3. The arrangement is between a hospital or physician organization (the licensors) and a physician (the licensee) for use of the hospital/physician organization’s premises and other equipment and personnel;
  4. The licensed premises are used predominantly for the evaluation and management of the licensee’s patients;
  5. Any licensed equipment is located in the space and must meet certain criteria (e.g., does not apply to advanced imaging, radiation therapy or clinical/pathology laboratory equipment);
  6. The arrangement is not conditioned on referrals;
  7. The compensation is set in advance, is consistent with fair market value and does not take into account the volume or value of referrals or other business generated between the parties;
  8. The arrangement is commercially reasonable; and
  9. The arrangement does not violate the Anti-Kickback Statute or other state or federal laws or regulations governing billing or claims submission.

What this means to you

Under a Stark-compliant timeshare arrangement, a hospital or local physician practice may ask a specialist from a neighboring community to provide the services in space owned by the hospital or practice on a limited or as-needed basis. Hospital can also use this exception for physicians relocating to the area or a new physician establishing a new medical practice.

Note, the proposed exception would apply only to timeshare arrangements where the licensor is a hospital or physician organization. The proposed exception would not protect arrangements where the licensor is another type of DHS entity, i.e., a laboratory or independent diagnostic testing facility. CMS notes that the Rental of Office Space exception would continue to be the only exception that would apply to office leasing arrangements (full-time and timeshare arrangements) where the occupant is given exclusive use of the premises.

Further, hospitals should note that the exception as written would not protect an arrangement where the landlord is a physician or physician practice in a rural area and the lessee is a hospital. While many children’s hospitals operate part-time specialty clinics through physician offices in rural or underserved areas, this new exception would not protect those arrangements. Although such an arrangement would help improve patient access to care and facilitate treatment for patients in these rural areas, CMS states it does not see a compelling reason protect such an arrangement.

CMS is soliciting comments on this proposed exception including whether the exception should be broadened or limited to rural or underserved areas. Comments on the Proposed Rule must be received by CMS no later than 5 p.m. on Sept. 8, 2015. Comments may be submitted electronically, via mail or by hand delivery. Hopefully comments received will help CMS better understand the benefits of this exception being broadened to not only cover a wider geographic area, but also to cover those arrangements pursuant to which a hospital is a licensee.