New Stark Law Exception for Sharing Space and Equipment

Written By Nate Trexler 

Physicians often ask about sharing space or equipment with colleagues.  For a number of reasons, regulatory compliance often makes the proposed arrangement impractical, if not impossible.   However, a new Stark exception will, for the first time, permit space and equipment sharing without having to satisfy the sometimes onerous and impractical lease requirements.

The federal Ethics in Patient Referrals Act, more commonly known as “Stark,” prohibits physicians from referring patients for designated health services payable by Medicare to entities with which the physician has a financial relationship, unless the arrangement satisfies an exception.  As a general matter, if an entity (which includes a physician or group practice) provides space or equipment to a referring physician, Stark is triggered and the physician is prohibited from referring patients for DHS to the entity.  To avoid application of Stark, you need to structure the relationship between the parties to comply with an exception.  When it comes to providing space or equipment, one historically looked to comply with the exceptions for leases of space or equipment.  The problem with those exceptions is that they require the written lease agreement to provide for the exclusive use of the space or equipment during the lease term, and leases could not be on an “as needed” basis.  Generally, the leasing entity and the physician could not “share” the same space or equipment during the lease term.

However, effective January 1, 2016, a new Stark exception permits physicians and hospitals or other physician groups to share “space, equipment, personnel, items, supplies or services” in non-exclusive “timeshare” arrangements.  To satisfy the exception, the arrangement must satisfy nine specific conditions.

The arrangement must be in writing and signed by the parties, specifying the premises, equipment, personnel, items, supplies, and/or services covered by the arrangement.  Importantly, the exception will only cover arrangements between a physician (or the physician’s group) and either a hospital or a different physician group.  The premises, equipment, etc. covered by the arrangement must be used “predominantly” for the provision of evaluation and management services to patients, as CMS wished to avoid scenarios where arrangements were set up so the physician only used the premises, equipment, etc. for the purpose of delivering designated health services.  If equipment is involved, it must be located in the same building where the evaluation and management services are furnished and may not be used to furnish DHS that is not incidental to those services.  Advanced imaging equipment, radiation therapy equipment, and clinical or pathology laboratory equipment is generally excluded from the exception.

Furthermore, as is the hallmark of many Stark exceptions, the arrangement may not be conditioned on the referral of patients by the physician to the hospital or physician organization and the arrangement must be commercially reasonable in the absence of referrals between the parties.  Compensation must be set in advance and at fair market value.  Compensation may not be on a “per click” or other similar basis and cannot be based on a percentage of revenue raised, earned, billed or collected.  Essentially, the exception only permits compensation based on a flat fee or based on time, such as per hour or per day.  The arrangement must not violate the federal anti-kickback statute or any federal or state law or regulation governing billing or claims submission.

Finally, the arrangement cannot convey a possessory leasehold interest in the space or equipment that is the subject of the arrangement.  In other words, if it is a true lease, as opposed to a timeshare, licensing-type arrangement, the parties must comply with the original Stark space or equipment lease exceptions.

The new exception gives physicians and hospitals options outside of the traditional lease exceptions, and those interested in timeshare arrangements should discuss compliance with counsel.  In addition, those providers with arrangements currently structured under the space or equipment lease exceptions should review the arrangements with counsel and consider whether they may be restructured under the new timeshare exception to better suit the purpose of the relationship.

The new exception may be found at 42 CFR § 411.357(y).