On July 15, 2015, the Centers for Medicare & Medicaid Services (CMS) proposed a series of rules that would create new exceptions to the Stark law, in addition to clarifying other provisions of the Stark law. One of the newly created exceptions is for “Timeshare Arrangements.” (effective January 1, 2016). This exception was created to address arrangements “for the use of another person or entity’s premises, equipment, personnel, items, supplies, or services by physicians who, for various legitimate reasons, do not require or are not interested in a traditional office space lease arrangement.” CMS-1631-FC at 1145.

The Timeshare Arrangement exception to the Stark law applies when 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 §411.354(c) and –
    1. A hospital; or
    2. 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 –
    1. Predominantly for the provision of evaluation and management services to patients;
    2. On the same schedule.
  4. The equipment covered by the arrangement is –
    1. Located in the same building where the evaluation and management services are furnished;
    2. Not used to furnish designated health services other than those incidental to the evaluation and management services furnished at the time of the patient’s evaluation and management visit; and
    3. 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 conditional 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 –
    1. In a manner that takes into account (directly or indirectly) the volume or value of referrals or other business generated between the parties; or
    2. Using a formula based on –
      1. 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
      2. 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.
  8. The arrangement does not violate the anti-kickback statutes (section 1128B(b) of the Act) 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.

The key points of the Timeshare Arrangement exception are that: 1) the arrangement must be between a physician (or a physician organization for which the physician works as an employee or contractor) and either a hospital or a physician organization; 2) the arrangement is primarily for patient evaluation and management purposes, rather than for the provision of Designated Health Services (DHS); and 3) any equipment covered by the arrangement is not used to provide DHS unless it is incidental to the evaluation and management services.

CMS has attempted to explain the applicability of the Timeshare Arrangement exception versus the exception for rental of office space, as follows:

The exception for timeshare arrangements finalized at §411.357(y) establishes another – not a replacement – exception for parties to a timeshare arrangement. If a timeshare arrangement includes the exclusive use of office space but does not convey a possessory leasehold interest in the office space that is the subject of the arrangement, the new exception at §411.357(y) is available to protect the arrangement (provided that all other requirements of the exception are satisfied). Depending on the facts and circumstances of the arrangement, it may also qualify for the exception at §411.357(a) [rental of office space]. In short, the parties to a timeshare arrangement may elect to use any available exception(s) to protect the arrangement. However, where control over office space is conferred on a party such as to give that party a “right against the world” (including a right against the owner or sub-lessor of the office space), the arrangement must qualify for the exception for the rental of office space at §411.357(a) in order not to run afoul of the physician self-referral law.

From these comments, it appears that a Timeshare Arrangement may also qualify for the rental of office space exception, but that a true lease that gives the physician a “right against the world” to possess the space cannot qualify for the Timeshare Arrangement exception, and must qualify for the rental of office space exception.

Further clarification of the Timeshare Arrangement exception can be found in “Final CY 2016 Stark Law Changes – Welcomed Revisions to Stark,” published in the December 2015 issue of The Health Lawyer. The article clarifies that the Timeshare Arrangement exception was designed to address arrangements that would not otherwise qualify for the rental of office space exception. “Up until now, many timeshare arrangements have been unable to find protection under the current Stark exceptions…[A]lthough these arrangements sometimes did not meet the requirements of the ‘rental of office space’ exception, the arrangements served a legitimate purpose nonetheless and could be ‘structured in a way that does not pose a risk of program or patient abuse.” It is therefore clear that the Timeshare Arrangement exception is an added exception; it does not replace or modify the original exception for leases.