In the 2016 Physician Fee Schedule Final Rule published on Nov. 16, 2014, the Centers for Medicare & Medicaid Services (CMS) finalized the proposed exception for timeshare arrangements that we discussed in our earlier blog post [80 Fed. Reg. 70,886, 71,300 (Nov. 16, 2015)]. As we stated in our earlier post, a timeshare or part-time “space use” arrangement typically provides a physician with the 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. Prior to the implementation of the new timeshare exception, these types of arrangements needed to be structured to comply with the Rental of Office Space Exception, which includes “exclusive use” requirements that many hospitals and physicians found burdensome [42 C.F.R. § 411.357(a)].

The Final Exception

Based on comments received by CMS after the initial publication of the proposed exception [80 Fed. Reg. 41,685 (July 15, 2015)] in July 2015, CMS finalized the exception (now available at 42 C.F.R. § 411.357(y)) with certain modifications. These modifications include:

  • Removing the terms “License,” “Licensor” and “Licensee” to emphasize that the application of the exception is not dependent on the use of specific terminology
  • Expanding the exception to apply to timeshare arrangements where a hospital is using space owned by a physician or physician organization
  • Requiring that the premises, equipment, personnel, items, supplies and services covered by the arrangement are used on the same schedule as the E/M services being furnished
  • Requiring that any equipment covered by the arrangement be located in the same building (rather than the office suite) where the E/M services are furnished
  • Specifically stating that the arrangement may not convey a possessory leasehold interest in the office space being used

In addition, CMS did not finalize some of the more restrictive limitations to the exception for which it requested comments. Most notably, CMS did not restrict use of the exception to rural areas.

CMS maintained the requirements of the exception pertaining to (i) the need for a signed writing, (ii) the need to provide E/M services on a “predominant” basis, (iii) limitations on the type of equipment that may be used (i.e., the equipment may only be used to furnish designated health services that are incidental to the E/M services and cannot be advanced imaging equipment, radiation therapy equipment, or clinical or pathology lab equipment (other than equipment used to perform CLIA-waived lab tests)), (iv) compensation that is set in advance, fair market value and not based on referrals or other business generated between the parties, (v) restrictions on per-click and percentage-based fees, (vi) commercial reasonableness, and (vii) compliance with the Anti-Kickback Statute.

In addition, the exception still does not protect timeshare arrangements between physicians and DHS entities other than hospitals or physician organizations (e.g., a laboratory or independent diagnostic testing facility). The Rental of Office Space exception, which includes exclusive use requirements, would continue to be the only exception that would apply to these types of arrangements.

What This Means to You

The new exception permits timeshare arrangements between a physician and a hospital, or a physician and another physician organization (of which the physician is not an employee, contractor, or owner), regardless of which party is providing or using the space. Further, the new exception does not include any requirements that the timeshare arrangement be located a rural area. Since many children’s hospitals operate part-time specialty clinics through physician offices in rural or underserved areas, this new exception would now be available to protect those arrangements.