Earlier this year, the Centers for Medicare and Medicaid Services (“CMS”) finalized a change to the exclusive use requirement of the Stark Law that affects space and equipment leases. The rental of office space exception and the rental of equipment exception now allow a lessee—and any other lessees operating in the same office space or using the same equipment—to use the office space or equipment simultaneously or during the same rental period, so long as the lessor (or any person or entity related to the lessor) is excluded from such use, including as an invitee of the lessee.
This change provides greater flexibility to lessees who may now utilize space together at the same time with other entities, provided that the arrangement satisfies the other requirements of the applicable exception. Previously, lessees sharing space either had to do so through a timeshare lease (which required exclusive use during designated time blocks) or they had to meet a relatively narrow set of facts to qualify for the timeshare license exception.
CMS became aware of arrangements through its self-referral disclosure protocol, where multiple lessees used the same rented office space or equipment either contemporaneously or in close succession to one another. For example, a physician lessee may invite a guest physician into the premises in order to coordinate and jointly treat a mutual patient for the patient’s convenience. CMS became comfortable that such arrangements did not pose a significant risk of program or patient abuse, so long as the lessor was excluded. CMS remains concerned about arrangements where the lessor continues using the space while a lessee is making payments.
Practical Takeaways
- In light of CMS’s relaxation of the exclusive use requirement for leasing arrangements, providers should consider revising their template full-time space leases, timeshare leases and timeshare license agreements in order to better reflect these recent regulatory changes.
- Providers also should consider auditing full-time space leases where multiple lessees use the applicable space or equipment, to confirm usage is to the exclusion of the lessor or persons/entities related to the lessor.
- While lessees may now take advantage of the opportunity to share space and equipment without the need to alter existing lease agreements from a regulatory perspective, providers should consider whether to formalize shared space or equipment arrangements in writing in order to more closely reflect actual use of space and equipment. Depending upon the frequency of such shared uses, there may be changes in the fair market valuation or the commercial reasonableness of the arrangement, or sharing may even be deemed an assignment in violation of the lease terms. Providers should also be mindful to meet the other requirements of an applicable exception.
If you have additional questions or would like to discuss what the change in stark law means for your organization, please contact:
- Joe Wolfe at 414.721.0482 or jwolfe@wp.hallrender.com;
- Alyssa James at 317.429.3640 or ajames@wp.hallrender.com;
- Joel Swider at (317) 429-3638 or jswider@wp.hallrender.com; or
- Your regular Hall Render attorney.
Special thanks to Ben Jamison for his assistance in preparing this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
