Important Considerations in Understanding Fair Market Value Opinions for Timeshare Arrangements

timeshare arrangements

Published by ABA Health eSource

Medical office timeshares (MOTs) refer to part-time medical office space lease arrangements between a licensor/landlord and a licensee/tenant (“Licensor” and “Licensee”). MOTs have become more prevalent as this type of arrangement between hospitals and physicians provides a cost-effective way for medical providers to serve surrounding markets and improve staff productivity. In the Proposed Policy, Payment, and Quality Provisions Changes to the Medicare Physician Fee Schedule for Calendar Year 2016, the Centers for Medicare & Medicaid Services (CMS) established a new exception under the Stark Law (411.357(y)) to permit timeshare arrangements for the use of office space, equipment, personnel items, supplies, and other services.1

In its most basic form, a MOT is generally structured as a combined lease of some or all of the following:

  • Medical office space
  • Medical and office equipment
  • Clinical and non-clinical staff
  • Medical and office supplies
  • Other items and services

MOTs typically utilize partial space, are part-time in nature and are frequently structured as leases of specified blocks of time.

In general, the Stark Law prohibits a physician who has a financial relationship with an entity (i.e. ownership or investment interest or a compensation arrangement) from making a referral for any of 11 designated health services (DHS) unless one or more exceptions apply. The Stark law is a strict liability civil statute. Fortunately, it includes many available exceptions that can be used to protect a business arrangement between a physician and an entity that provides a DHS from violating its prohibitions. Yet the Stark law’s exceptions are quite exacting and not always easy to fully meet. Moreover, because the Stark law is a strict liability regime, the effect of not being able to fully meet an exception is critical, because, for liability purposes, a near miss is a complete miss. It is important therefore to be familiar with the Stark law’s many exceptions and their common features, such as the requirement of Fair Market Value (FMV). This article highlights important tips for determining and understanding FMV for MOT arrangements.

The following describes the general structures of MOTs, important value drivers, and the key considerations that healthcare attorneys and executives who are tasked with reviewing a MOT FMV should consider. A comprehensive FMV opinion that properly considers all of the costs and terms of the arrangement is crucial in providing the necessary documentation to be compliant with the Stark law’s FMV requirement.

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