Changes to the Stark Law: Part II

Health Care Law Update

Date: February 18, 2016

Key Notes:

  • CMS recently finalized a new compensation exception under the Stark Law.
  • Permits hospitals to provide physicians with use of timeshare medical office suites on a limited or as-needed basis.

The Centers for Medicare and Medicaid Services (CMS) recently finalized several changes to the Stark Law to accommodate delivery and payment system reform, reduce the burden on health care providers and facilitate compliance with regulations. The changes include the addition of new exceptions to compensation arrangements, and clarification and modification of existing exceptions. This Health Care Law Update is the second in a series describing the recent changes to the Stark Law.

Timeshare Exception

CMS added a new compensation exception in 42 C.F.R. 411.357(y) that permits hospitals and physician organizations to provide a physician with use of a timeshare medical office suite that is fully furnished (including office space, equipment, personnel, items, supplies and other services) on a limited or as-needed basis.

CMS recognized that timeshare arrangements are necessary to ensure adequate access to needed health care services, especially in rural and underserved areas, by facilitating part-time or periodic access to physicians in communities where the need is not great enough to support a full-time physician or where physicians do not require or are not interested in a traditional office space lease arrangement. The timeshare arrangement is merely a right of use, however, and may not transfer control over the premises, equipment, personnel, items, supplies and services to the physician.

Before the timeshare exception became available, such an arrangement would have been analyzed under the exceptions for the rental of office space and rental of equipment. This new exception does not change the availability of existing exceptions.


The timeshare exception requires that:

  • The arrangement is in writing, signed by the parties and specifies the premises, equipment, personnel, items, supplies and services covered by the arrangement.
  • The arrangement is between a physician and a hospital or physician organization of which the physician is not an owner, employee or contractor.
  • All of the premises, equipment, personnel, items, supplies and services covered by the arrangement are used:
    • Predominantly to provide evaluation and management services to patients (E/M Services), and not to furnish designated health services (DHS) to patients.
    • On the same schedule.
  • The equipment covered by the arrangement is:
    • Located in the same building where the E/M Services are provided.
    • Not used to furnish DHS other than those incidental to the E/M Services furnished at the time of the patient’s E/M Services.
    • Not advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests).
  • The arrangement is not conditioned on the referral of patients by the physician to the hospital or physician organization granting permission to use the timeshare.
  • The compensation over the term of the arrangement is set in advance, consistent with fair market value and not determined:
    • In a manner that takes into account (directly or indirectly) the volume or value of referrals or other business generated between the parties.
    • Using a formula based on:
      • A percentage of the revenue raised, earned, billed, collected or otherwise attributable to the services provided while using the timeshare.
      • Per-unit of service fees that are not time-based, to the extent that such fees reflect services provided to patients referred by the party granting permission to use the timeshare to the physician using the timeshare.

Note: Compensation may be based on fixed hourly, daily or block rates.

  • The arrangement would be commercially reasonable even if no referrals were made between the parties.
  • The arrangement does not violate the anti-kickback statute or any federal or state law or regulation governing billing or claims submission.
  • The arrangement does not convey a possessory leasehold interest in the office space that is the subject of the timeshare.
Possessory Leasehold Interest Prohibition

The timeshare arrangement may not convey a possessory leasehold interest in the timeshare. If control over office space is granted to a party in a way that gives the party a “right against the world” (including a right against the owner or sub-lessor of the office space), the arrangement must qualify for the exception for the rental of office space. CMS did not intend to protect potentially abusive arrangements such as exclusive-use timeshare arrangements that essentially function as full-time leases for medical practice sites, arrangements in which physicians are selected or given preferred time slots based on their referrals to the party granting permission to use the timeshare, or consecutive short-term arrangements that are modified frequently in ways that take into account a physician’s referrals.

Indirect Compensation Arrangements

Timeshare arrangements between physicians and organizations such as real estate subsidiaries and management service organizations that are not themselves DHS entities should be analyzed under the rules regarding indirect compensation arrangements.

Our Services

We advise hospitals and physicians on the applicability of the Stark Law and develop agreements to utilize its exceptions, including agreements between hospitals and physicians under this new timeshare exception.


For more information, please contact:

Cori R. Haper

John L. Green

or any member of our Health Care group.

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