With the implementation of the Affordable Care Act (ACA) imminent, the rising cost of healthcare remains top of mind. And while the true impact of the ACA remains a topic of debate, medical practitioners are proactively taking steps to reduce their costs. As reimbursements continue to wane and operation costs swell, doctors are forced to develop creative solutions to minimize overhead. One solution is medical office timeshares.
What are medical office timeshares?
More and more, medical practitioners are favoring medical office leases that, similar to typical condo timeshares, allow them to rent medical office space on a part-time basis, divided hourly, half-day, full day, or monthly, sharing the space with other physicians. The work spaces are either family practice or hospital-owned and can be tailored to specialists or generalists.
Part-time leasing works best for doctors who only need work space a few times a week or month. By leasing work space based on total time used, practitioners save on total rent costs. The office space typically comes with medical equipment and sometimes nurses, receptionists, and office personnel — an additional benefit. These amenities make time-share leases a compelling alternative for many medical professionals.
Medical timeshares and HIPAA
If entering into a medical time-share lease, practitioners must be aware of potential Health Insurance Portability and Accountability Act (HIPAA) violations to patient security and privacy. Since multiple medical professionals share a single space, practitioners must take extra precautions when securing patient records. This means doctors must secure digital medical records housed on communal computers and lock up paper records in secure cabinets. HIPAA penalties and violations are staggering, ranging from $100 penalties to $50,000 fines, so before entering into a medical lease, practitioners must ensure that the terms comply with legal standards.
Medical timeshares and Stark Law
When entering into a medical timeshare lease, it’s important to keep Stark Law in mind. Stark Law limits physician referrals to prevent kickbacks. It states that property leases between healthcare providers and referring offices must include a term of at least one year, “reasonable and necessary” space for legitimate business, and rent consistent with fair market value, among other requirements. To avoid steep penalties and fines, owners must lease time-shared medical space at fair market value.
Estimating medical timeshare fair market value
In the past, many of these part-time leases have favored the practitioners, but it’s necessary to ensure that both the hospital group leasing the space receives and the tenants pay fair market value. Hospital systems utilize different methodologies for determining fair market value of timeshares. The timeshare suite typically includes office and medical supplies, furniture and some medical equipment. The timeshare suite could also include office and medical personnel. The fair market value must include these amenities as well. It’s even necessary to calculate the fair market value of any storage space that a physician uses on a consistent basis.
As it stands, there’s not one particular methodology used to calculate the fair market value of time-shared medical spaces. One way is to analyze comparable timeshare leases for half-days or full days in different markets and then apply that rate to the subject lease. It would not be uncommon to see half-day suites renting for $50 to $175 and full day suites renting from $175 to $300. The addition of office and medical personnel could double the rate. Another method is to calculate the fair market rent for the space, the annual furniture, fixtures, equipment (FF&E) and staff expenses. The annual FF&E and staff expense is divided by 52 weeks and then further divided by the number of half day or full day timeshares licensed per week. The last notable method is to calculate the fair market value of a space per square foot. Then, a premium of 20% to 30% is added to cover the extra items included in the space. All of these methods are economically and commercially reasonable, making them a viable method for determining fair market rent of timeshare space.
As practitioners find their expenses increasing, many will turn to medical timeshares to cut overhead. Although there are a few drawbacks in medical part-time leases and they’re not ideal for every practitioner, the overall benefit might outweigh the cost for many physicians — as long as medical time-share leases are based on fair market rents.