AHLA's Speaking of Health Law
AHLA's Speaking of Health Law
Health Care Real Estate Leasing and Space Sharing Arrangements
Health care real estate leasing and space sharing arrangements present thorny legal and valuation issues that must be dealt with carefully to maintain compliant arrangements. Mike Vetter, Partner, HMS Valuation Partners, speaks with Joel Swider, Attorney, Hall Render Killian Heath & Lyman PC, about some of the legal and valuation issues surrounding these arrangements. They discuss the different types of space sharing arrangements, past and recent regulatory guidance, recent cases, and best practices for implementing a compliant arrangement. Sponsored by HMS Valuation Partners.
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Support for A H L A comes from h m S Valuation Partners, which is one of the largest and most experienced healthcare valuation firms nationally founded in 1996. They have been providing consistent valuation and compensation consulting services exclusively to the healthcare industry. Their clients include healthcare leaders at multinational hospital systems, large and small physician groups, law firms, and healthcare service entities across 47 different states. For more information, visit hms value.com .
Speaker 2:Well, thanks for joining everybody. Um , my name is Mike Beter with uh , hm SS Valuation Partners. Uh , I have a guest with us today , uh, Joel , wider with all render . Uh , so thanks for joining , uh, with us today, Joel.
Speaker 3:Yeah, thanks, Mike.
Speaker 2:And we're gonna be , uh, covering a topic today before we introduce ourselves , uh, talking about , uh, healthcare, real estate, leasing space, sharing arrangements , uh, some of the legal and valuation issues that can surround that. Uh, but before we get started , uh, Joel, if you could , um, maybe introduce yourself to the audience and , uh, and I'll do the same.
Speaker 3:Sure . Well, thanks Mike for having me. I'm excited to be here. Um , I'm a healthcare real estate attorney in the Indianapolis Office of Hall Render , and we're actually the largest healthcare focused law firm in the country. I've been with the firm for 11 years and represent health providers in a variety of real estate transactions, new construction development, hospital physician leasing, which we're talking about today, and a lot of , uh, property tax exemption matters as well. So, thanks for having me.
Speaker 2:Fantastic. And, and to introduce myself , uh, Mike Vetter . I'm a partner with , uh, H m S valuation partners, and I've been with the firm for 20 years , uh, now, and really specialized in , uh, several areas of medical office timeshares , uh, with space distribution arrangements , uh, for attorney equipment valuations, oversee the fixed asset team for acquisitions and divestitures. Uh, also receive financial statement, productivity analysis of practices. But in regards to date , today's , uh, topic , uh, medical office, timeshares , space distribution, healthcare, real estate related transactions. I've had the opportunity to , um, at this point over the 20 years , uh, complete a little over 2,500 , uh, valuations , working with , uh, outside counsel , like, like all render , hospital systems, physician practices, et cetera. So I thought this was a good topic to kind of refresh , uh, with our listeners to , uh, just understand some of the complexities that can surround a space distribution arrangement , uh, a timeshare, anything that's , uh, in regards to any healthcare system , uh, doing a , a , a deal with a third party <inaudible> . As far as , uh, an overview of , of some of the topics we'll do today. One, we just want to get into just a brief discussion of what are the type of space arrangements , uh, that you could have and , and something that I've seen. And then you'll welcome to chime in at any time . You know , you have your full-time leases where hospital system leasing space to , uh, third party on an exclusive use basis. And that could be as simple as it's just a , a , a raw shell space , uh, or it could come with services , uh, it could be outfitted with furniture and equipment. Uh , you could have full-time , uh, leases where , uh, a hospital system maybe has an employed position , uh, in a space and there's , uh, remaining , uh, space available. And another third party independent position could join in on a full-time basis. Uh, you could have traditional timeshares. A lot of hospitals have an , an adjacent M O B A suite that's set up , uh, to attract on four hour time blocks , um, physicians coming from different , uh, areas of the community. You could have , uh, what we call space distribution, space sharing . There's a lot of different terms , uh, timeshares where you have physician to physician, hospital physician type arrangement, where a physician practice may have two or three leftover exam rooms. Maybe there are certain days of the week they're not using the space, and they partner with , uh, an independent physician that wants to come in. And it could be one day a week. The , the frequency could vary. And so those are kind of just an overview of, of just a different types of arrangements you could have out there. Uh, Joel , maybe if you could just kind of also inform just our audience on some of the past and recent regulatory guidance , uh, on this particular topic that, you know.
Speaker 3:Sure , Mike. So, the rental of office space exception to the Stark Law actually appeared as a statutory exception going back to the original Stark statute , uh, the ethics and patient referrals law back in the late eighties, early nineties. And the requirements have stayed largely the same over the years, although some of the more recent nuances, I think will be interesting to talk about. But in general , uh, the arrangement has to be in writing signed by the parties, has to have a term of at least a year, has to be exclusive. We'll get into that in a minute. Um, the rent has to be set in advance and fair market value. And I know we're gonna talk more about fair market value. Um, the rental charges, of course, can't take into account volume or value referrals, and the arrangement also has to be commercially reasonable. So those, those, those elements really haven't changed much over the years. But one thing that, that did change in 2016 was, and you spoke a minute ago about some of these space distribution arrangements , um, C M S introduced in 2016, the timeshare exception to Stark . And they distinguished that from the traditional rental of office space exception, because it allows for a term of any length. It doesn't have to have a one year minimum. It also allows for non-exclusive use, which previously wasn't allowed. Um, and it allows for more flexible scheduling for providers who are using that space, mostly because of this non-exclusive use. Um, but , uh, in order to sort of offset the loosening of the standard, C M SS required the arrangement to be used predominantly for evaluation and management services, E N M. So there's no , uh, advanced imaging or things like that that can be performed under one of these arrangements. More recently, in 2021, January of 21, c m s further relaxed some of these requirements, including , uh, they changed the exclusive use requirement in not just the timeshare exception, but also in the, the original rental of office space exception. Um, to say that now as of 21, a lessee may actually share that space with other lessees operating in the same office space. It also applies to equipment leases using the same equipment , um, simultaneously during that same rental period. However, C M Ss did say you've still gotta exclude the lessor and it , it's affiliates and essentially saying, you know, you , if you're paying rent, if a tenant is paying rent during that time, or a licensee is paying a license fee, then having that landlord or Licenseor use it during that period , um, could, could easily be disguised as a sham arrangement. And so, so c m s was sensitive to that, but it, but it allowed for a lot more non-exclusive use. Um, and I think as part of that, I mean, one of the things I wanted to touch on before we get into, you know, some of the fair market value and the, the real compliance traps that we're gonna get into , um, a couple of cases recently kind of demonstrate the pitfalls of these stark exceptions. By the way, the , uh, safe harbor for , uh, the office space , uh, excuse me, the space rental safe harbor under the anti-kickback statute is almost identical to, and, and mostly less restrictive than the Stark law rental of office space exception. So I'm not really gonna touch on the anti-kickback statute here, but suffice it to say, if you're meeting the timeshare exception or the rental of office space exception under Stark, you're, you're likely to meet or almost guaranteed to meet the space rental safe harbor under Anti-Kickback. Um, there was a case just earlier in 2023, actually, the Covenant Healthcare case out of Michigan, which involved allegations that certain physicians had bought large medical equipment and leased it to the hospital in a, what , what the, the government termed a non-ms length arrangement. Basically, the allegation was that the hospital was paying excess compensation or rental for the equipment in order to induce referrals from the physicians who owned it. And , um, that case was settled for $69 million. A couple others that just show kind of the scope of these , um, of these issues. There's a 2010 case out of Ohio that involved a , an acute care hospital there where , um, the allegation was that certain cardiologists were being granted the use of a lucrative heart station out outpatient cardiology testing station. And it was, the use was in, in proportion to the volume or value of referrals. And again, I mean, these are, these are allegations, they were proven. And ultimately the hospital settled for 108 million. In that case, the whistleblower who brought the case got 23 million of that settlement. Um, one other one that I think is interesting is there's a, a case in 2013 out of Florida, and this, I think Mike, you'll, you may appreciate, because it really gets into the differences between rentable and usable square footage. There was a developer, and by the way, there was sort of a companion case to this that was actually brought by an appraiser. So <laugh> , uh, that that probably, you know , it , um, hits close to home. But the , uh, in this case, the developer owned an M O B on a hospital campus where the hospital also owned an M O b, and they had similar fit out , obviously similar location, and the developer's, m o b, had a much higher , uh, vacancy rate than the hospital's m o b. And, and the developer was poking around trying to figure out why that would be ultimately alleged. Again, never proven, but the allegation was that the hospital was not measuring its space properly. Essentially it was charging rent on a usable square foot basis rather than a rentable basis. And therefore, you know, the , the overall aggregate rents that were being charged to the tenants there was much lower. And so it was, it was giving it a competitive advantage. And so this was, you know, another key tam later developer brought, and ultimately , uh, the hospital settled in order to avoid litigation in that case. So I think , um, there are others that we can talk about as we go forward. But , um, the, the , the one, I guess the one other thing that I would, I would note is c m s ever since probably 20 15, 20 16, and the D O J have also been focused on individual liability. And in some of these cases, actually the physicians who were alleged to have benefited from the , uh, from the, from the arrangements actually personally, were liable for payments in the hundreds of thousands of dollars range and up , um, and potential criminal liability, not just, not just the hospital. So , um, so Mike, I guess at that, at this point , um, maybe you could give us a little bit of an idea on the valuation perspective here, how you set these arrangements in place in a compliant manner, and how you get to, to the fair market value.
Speaker 2:Yeah, thanks, Joel. I think, you know, the importance of when a health system or any , any, any type of provider is looking to go into a arrangement with an independent physician. One , I think this communication is important. It's important to , uh, start off and really lay out , uh, the groundworks of both parties. Understand, you know, what are the provisions , uh, what is the space that's gonna be utilized? Are there furnishings , uh, is there staff services, supplies? What's the use period? I think first is just get a grasp of this is what we have to offer. And then second is to make sure that to monitor, you know, what , what those provisions are from a valuation perspective and, and providing fair market value , uh, in these type of arrangements that we've been part of. You know, we'll go through , um, some of the details behind what can help make a compliant arrangement. And one of the, one of the first areas you want to go through is your space. So if you have another position or, or likewise , uh, you're the health system, sending a one of your employed physicians to another , uh, physician space, you wanna look at the floor plan and have a conversation around what, what exclusive areas are we gonna have or, or , or the other provider, what are the common areas? And to understand that, okay, when certain exam rooms are exclusive or a physician office, that during that, if it's a timeshare during that time slot, it's important that that provider gets exclusive use of those few exam rooms. And so identify the areas that are common when it comes to space, it's important and to try to figure out a calculation of how much square footage is being utilized. And that can be done through, whether it be an architect drawing some other type of measurement, but it needs to be quantified in , in some manner. The other part about the space is , uh, once you have the square footage, is to apply a appropriate rental rate , uh, to that square footage. Um , one of the most compliant ways to do that is obviously to have a real estate , uh, appraisal on a subject property to have a , a rental rate. Uh, we have seen , um, you know, broker rate opinions or , or what they call market market rent analysis type opinions , uh, have been used before. But our recommendation, obviously is a, a fair market rental rate opinion from an appraiser , uh, on that subject property to apply to the square footage . Other areas about space that are important to consider is if the providers , uh, have any interest in ancillaries. So, for instance, if you have an orthopedic coming into a space , uh, and they have interest in utilizing the x-ray machine, it's important that both parties discuss ahead of time, Hey, during that slot , there's, there's only a few options. One could be, you know, the third party orthopedic comes in and just refers that patient then to the landlord. And the landlord does the scan with their staff bills , the technical component, and that , that arrangement is, is set ahead of time one , so you don't have a double billing type issue. Um, and I know, so you had kind of mentioned a little while ago, some of the recent star changes or whatever , when it surrounds ancillary equipment. And do you have anything a little further that would go into, you know, whether a third party could use an x-ray system or an ultrasound as long as it's exclusive use to that party and , and I guess discuss who would be doing the billing then ?
Speaker 3:Yeah, Mike, that's a, that's a great point. Um, I, I think there's a couple things to think about. And you raised the , the question of, you know, who is doing the billing? I think, I think that's important because it gets to as well the , the type of arrangement that is being , um, recorded. And we've had some questions arise in the recent past where , um, you know, it , it , it largely turns on which party is the impetus for the arrangement. So in other words, is this primarily we'll use the hospital as, as a landlord, just as an example. I know there's a times where you've got physician owned buildings where a hospital leasing space as well. But let's say that, that the, you know , the hospital is, is primarily , uh, you know, is going to be billing and collecting for certain services and really just wants to provide physicians to staff a department or to provide a certain type of , uh, diagnostic , uh, you know, test or, or other component of a service. Um, those arrangements may not be the best candidates for a leasing arrangement. Um, you might have a p s a professional services arrangement that could be easier to , uh, to document in a compliant manner than using a lease. And , um, and on the flip side, you know, if your tenant is coming in and saying, Hey, I'm, this is, this is about me. I'm, I'm gonna pay you a rent, and then I want you landlord to kind of stay out of our business. Um, we're going to be bringing patients in, we're gonna be billing and collecting. Um, and, you know, it's, it's primarily tenant driven , then that is, is more of a traditional lease arrangement and something that is a lot easier to fit into one of the stark exceptions. So I think those, of course, are kind of polar opposites. And there , there can be gray area depending on the facts, but that's kind of how I think about it, is who's, who is the one driving the deal. One other thing, Mike, I'll mention when you're talking about identification of the space, and I, I agree with you completely about, you know, it is so important to identify what space is actually being used because, you know, and, and, and I'll, I guess as a, as a courtesy to other lawyers, <laugh>, we probably face the same issue, which is, you know, a lot of times a client will say, Hey, please review this lease. Um, and it's got three or four blank, you know, pages at the end for exhibits, one of which is the actual floor plan showing, you know, what's the square footage, what's common area, what is gonna be exclusive. Um, and sometimes at the outset of the arrangement, you just don't know yet, which, you know, which rooms, which exam rooms are gonna be used, which procedure rooms. Um, but it is really important, I think for both, you know, valuation professionals as well as attorneys to be asking those questions from the front end is, look, it would be, it, it, it can make the difference between a compliant arrangement, a non-compliant arrangement if this is not documented properly. And so asking those questions, I think is, is really important. Mike,
Speaker 2:That's good. And I , let's go a little bit further into some other, I guess, services or whatever that could be provided in these arrangements. So we talked about the space , uh, we talked about furniture and equipment. Uh, it's, it's good to go through a full interview and expectations of even , uh, staffing, services, supplies, et cetera , uh, from a staffing standpoint. And we've seen many cases where in a space distribution type setting or space sharing arrangement, a position , let's take for instance, an outside physician coming into , um, a hospital space of employed physicians. They may have , uh, at the front desk, a receptionist already checkout. They have , uh, certain nursing , uh, medical assistants, LPNs, RNs already staffed in the clinic. And there's times that a third party physician may have interest in utilizing some of those services , uh, without bringing their own staff, which can be done as long as it's accounted for. So when we're talking about front desk staff, which we see, you know, quite often, it's important then to understand, well, what are some of the duties , uh, that are be provided to this third party position? As many know, a receptionist , uh, working on behalf of their employer could have a full , the whole suit of duties could be greeting patient, notifying nurse collecting copays, you know, copying insurance cards, answering calls, scheduling appointments that could take minutes upon minutes per patient. But a third party physician coming in who does not operate their business from this location may have a need just for limited duties . And it could be as simple as greeting the patient, provide them paperwork to fill out, notify the nurse patient arrive . So from a valuation standpoint, we've often fought with, when do you vary from how a lot of folks in the industry would do as exclusive or of PO type sharing or equal sharing amongst other positions . And at what point do you then maybe start adjusting that to what we call limited duty ? So from a valuation standpoint, you wanna make sure, and compliant wise , you're not just paying maybe 50 50 on that day for a receptionist, but really utilizing maybe 10% of the receptionist time. So it's something just to study and , and that we, we look into as a valuation firm to make sure that is, is the arrangement compliant? Are we, are , is our client, you know, paying or charging the appropriate amount? Then you want to go through a whole list of services and just make sure from a due diligence standpoint, that all services are covered. Items you may not think about just common area services, whether it's table tv, coffee , water in the exam rooms could be hazardous waste. You can have disposable medical supplies, table paper gloves. I think not only from a compliance standpoint, it's good to go through all of those account for those in the number, but also we found that by having the initial discussions between the parties as well lays out , um, less confusion on day one when the timeshare arrangement kicks off and when the third party shows up at the space, and there's expectations of utilizing more than really what was placed in the agreement. And then very important is the use period to make sure the use period makes sense. And from a valuation standpoint, you know, we've seen use periods that can follow a , a typical eight to 12 or one to five slide , but we've also seen many instances where the , uh, use period could be, say, 9:00 AM to 1:00 PM or 9:00 AM to 2:00 PM is the expectation of the third party position coming in. But in that case, then you have to battle, well, could the space be rented to another party for those excess three hours? And if they, if really you cannot rent that, then you need to discuss with that third party position . Look, I think from a compliance standpoint, it'd be better if we then just structure this eight to five. We'll just make this a full day slide if you're gonna be, you know, leaving at three. And I think that protects the , uh, the hospitals as well, you know, just for making sure no one do benefits given for a very specific , uh, time slot that then leave the , um, the landlord, I guess, without being able to rent the space . So do you have any , any comments just on some of those , uh, points?
Speaker 3:Yeah, Mike, the one thing that, that, I guess a question that comes to mind for me, and, you know, you talked about the use period , um, you know, it strikes me, and , and, and I'm wondering how you make this determination, but at what , at what point do you say this is really not commercially reasonable anymore? Um, you know, we've had some odd arrangements where somebody wants to come in for an hour or two and take a long lunch and then come back, you know, and, and, and I guess to your example, they're in , in , in some ways they're sort of occupying it throughout the day, or at least they're preventing others from occupying it. Um, and yet the expectation of the parties is, well, this is just a timeshare , you know, it's not a, this is not a full-time arrangement. We don't wanna pay full-time rates. Um, I mean, at what point do you kind of counsel your client and say, look, we are not sure this is commercially reasonable, or if it is, you know, you've gotta account for downtime.
Speaker 2:I think, I think the key is, you know, you're gonna set that agreement in advance, and that's part of the, the discussion point and why it's good to, when you're having that discussion between both parties to have, whether it be an , an attorney or especially evaluation firm that's experiencing that, to listen to the conversation and then try to bring the two parties together and what would be commercially reasonable. So if you have a, you gotta remember that in the, in the healthcare arena, we're trying to make sure that there's no kind of kickback , undue benefit. Um , and we try to look at this in a fair market standpoint as what would any willing rental or a lesser or rent to a lessee and what are the expectations? And so, I mean, you have in the industry, you , you could rent conference rooms for an hour or two hours, you know, you can rent, there's spaces that can be you on small buckets. The key is , is , is the space set up to accommodate that. So if you're talking about a physician office that's fully operational hospital has several employed physicians in there, and they have a little space left over for another provider, you know, you wanna try to stick to at least the four hour time slot or an eight hour . Now there's gonna be cases that, because the, especially in what we call outreach timeshares, where you have a physician coming from a city driving two or three hours, we understand that they're not gonna get there right at eight o'clock. So there's a lot of back and forth of, you know, we would like to start our clinic at 10 and we're gonna end at two because we need to now drive two hours back. The problem is that, that less or cannot rent the space from eight to 10, most likely, and they probably cannot rent the space from two 30 'cause they have to clean the rooms to five. So when you're gonna take up that type of slot and you have just taken away the ability of the hospital or that landlord to then rent and recoup payment for , for our opinion is then you need to just pay for an eight to five time slot full day. Now, where adjustments can be made from a valuation standpoint is if you have certain variable costs . So let's say in an instance that your third party physician coming into hospital space wants to be there from 10 to two, we will make adjustments where if, let's say a medical assistant is being provided they're in that spot, or maybe it's even a 50 50 sharing of a nurse, we're not gonna charge that third party then eight to five usage of that nurse. If that nurse is already functional for the hospital and is doing other functions once that doctor leaves just going back into normal dues . But there's some areas, so where when we talk about we'll do a 10 to two, but we'll make it an eight hour day, that'll cover all the fixed costs , your space, furniture and equipment, and those items that are fixed costs that the landlord needs to recruit their monies for , but variable services that are very specific to that time slot, we can make adjustments in the monthly or the, the daily amount being paid , uh, by that party. If that helps answer that , uh, question <inaudible> .
Speaker 3:Yeah, Mike, that I it does, and I think one other thing actually that it brings to mind is , um, the , um, the markup. I , I mean, to what extent is it required that, you know, if you're accommodating and the landlord is, is accommodating these sort of unusual schedules of a particular tenant for a particular use? To what extent does the rate being charged need to account for the landlord's either loss of that use in the, in the interim , um, or just the additional, like you said, cleaning turnover , um, those additional costs that are involved. I guess not only that, but, but even the brokerage fees, you've gotta find more tenants to, to , you know, in order to maintain a reasonable schedule. Um, to what extent do you run into that Mike, where you've, where you've got a landlord that either wants to charge more or maybe should charge more for that?
Speaker 2:Well, now we're starting to leap into what, what some of the industry would maybe reference as a premium or a markup. Different, different terms are used. And I think the biggest key from a valuation standpoint and establishing what is that daily rate gonna look like? A starting point should always be one. We wanna make sure from a cost approach that you captured every potential service, every potential what square footed usage of rooms and you wanna build up on a true cost basis on your costs . Then you go to the next step of, you know, there are hidden costs . You know, you , you talk about, we want to talk about the premium, yet you could have other hidden overhead costs, whether that would be accounts payable, human resources management that certainly can be built in as a percentage to some of these costs to make sure you're also, you know, capturing some hidden , uh, costs . But one of the, one of the big items that we've seen, especially over the years, and , and it's a , it's a gray area as far as what markup or what premium should we be charging. So what I guess then would establish this as fair market value and not just a cost sharing arrangement. A years ago we spent a lot of cost sharing arrangements, and in the industry you'll hear , uh, many times , uh, certain percentages , uh, thrown out. You'll hear , uh, 10%, 20%, 25, nothing. You know, so it , it's, it's an an up and down , um, percentage game of what's an appropriate premium. You know, one of the ways to look at that, that we've considered through the years is if it's any potential outside, you know, party to another party, what would, you know, other industries do outside of healthcare? What does that look like? You know, what premiums are you paying? If you were to just go rent hotel space, sign something for a year , you know, what would you pay if you need an executive office suite and in Chicago and you needed something two days a week , uh, for a whole year, or, you know, there's, there's many instances of what are folks paying for premiums? What is that premium? And, you know, one of the deep dives we did as a valuation firm is , um, really kind of analyze other markets outside of healthcare. Just understand, well, what type of premiums are being charged to give the privilege of another party coming into your space one day a week, or whatever the arrangement is. Two days a week, could be just two times a month, and is there a premium that needs to be charged for that? And it's, it's definitely our opinion that, you know, there is a premium to be paid that needs to be added to that, and that premium can also vary based on the arrangement. So we've seen many valuations , uh, or , or different timeshare arrangements where a one day a week can turn to two days a week and then turn to three days a week, four days a week. And , and all of a sudden you start seeing where it went from being a hit and miss kind of timeshare set in advance for a year, just like you mentioned Joel . But it's starting to move towards a full-time arrangement. And you have to recognize that if you're gonna go just say one day a month versus three and a half days a week, you're starting to utilize more of the space. And what, what's happening is the risk attributed to the landlord is decreasing because they're locking another party in to rent their space for longer periods of time, therefore recouping their money. And so as that use period begins to extend out, it's important too , you start adjusting that premium or markup, whatever word would be used to where it's starting to move towards what a full-time markup would be. Hopefully that, that Joel, that kind of helps answer some of your questions from a valuation perspective of how Lisa and H m Ss how we look at it. Yeah.
Speaker 3:No, I appreciate it. Thanks.
Speaker 2:Uh , there are other discussions. You know, we talked about Bill , you and I, the , uh, advanced imaging equipment. You know , we talked about , um, some of the differences as well , uh, traditional , uh, exclusive use timeshares versus space distribution. Is there anything , uh, from your perspective , um, as, as a attorney that you would ask evaluation firm to dive into a little bit deeper , uh, to help understand maybe some of these other nuances that could happen or examples that we've seen? You know ?
Speaker 3:Yeah , Mike, one thing that I always look for if I'm, I'm reviewing an appraisal for example, is are there appropriate comparables that are being utilized? Because sometimes you will wind up with a, an appraiser who really doesn't do a lot of healthcare valuations. Uh , maybe it's a local firm or something like that, nothing against, you know, small business, but they just don't have the experience to , uh, to provide what I would, you know, see as a, an adequate comparable. And I , I, from my perspective as an attorney, I view that as a risk because I view it as, and of course I'm in the real estate industry, but even somebody that wasn't in the real estate industry, some, you know, regulator from C M s coming in looking at this arrangement, are they going to look and say, Hey, you know, you're, you're charging this rate. Um, how did you come up with that? You know, you, you're , your comparables are some kind of general office or, you know, heaven forbid residential or something like that. But they, they just don't have the type of, you know, healthcare real estate. Um, if it's an on-campus, you know, hospital, they may say, well, yeah, it's the only hospital in the community, so I don't have any comparables. And, and, and, you know, I guess, and maybe that's a question for you, Mike. 'cause at what point do you say this, this is a small community, I've gotta look at comps maybe outside of the traditional geographic area just so that I can get an apples to apples comparison. Uh , because again, I'm, you know, I'm not an expert evaluation expert, but when I look at, at some of these appraisals and I see that it's a red flag to me to ask some further questions,
Speaker 2:It's, you know, I'm not, I'm not a real estate appraiser, but I do work hand in hand with our real estate appraisal team and some of the mais on staff , uh, daily. And I have seen where no doubt , uh, you get into the small communities, you have to begin to expand your territory when it comes to your comp . And I think the biggest key too is as you expand, you try to find lifetime communities within that reach, and then that's where the adjustments begin to take place. But I agree with you that you can't just give up in that one community if there's only one or two, and then they're not even medical office spaces. You have to find and begin to expand your reach on the comps to make sure that you have done your due diligence and you're studying an area that could branch out 50, 75, a hundred miles of lifetime light size communities of , of that. So hopefully that it , it's definitely something we, we study and , and look at, you know.
Speaker 3:Sure. Yeah.
Speaker 2:You know, Joel, I was, as we wrap up, I wanted to just kinda , I guess leave with a few takeaways. Um, I think what's critical as well, and , and I'll speak, you know, for any hospital clients you have, so a lot of hospitals obviously with employed physicians are , are entering into a lot of these arrangements. And so if there's any attorneys representing your healthcare system and they're looking to go , uh, you know, have their space utilized by outside physicians, one of the keys is , you know, we talked about initially , uh, the discussion of what the arrangement's gonna look like. Then we talked about there's an agreement that's gonna be put in place and signed by both parties. But I think what's really critical is the education part, post agreement with the folks that are boots on the ground. And it's to review that agreement, or at least the terms with the practice manager in that space with your nursing staff, with the receptionist. Because what happens is that's where the abuse can take place. If the staff are not educated to the arrangement, the third party group coming in, they're not as educated on the topic as well, and they're just gonna see it as flexibility that if all of a sudden their patient volume went from 20 to 40 in a day and they look across the hall and see two or three extra exam rooms not being used, they're gonna ask the nursing staff, Hey, you think that's something we could use? We're super busy today. You're not using it. If the, if the staff are not really up to speed on what the signed agreement is, they're more than likely just gonna say absolutely. Uh , have , have at it. You know, I know y'all are using three exam rooms now. We're not using those three. You could have all six today. We have no problem with that. And that is a problem. Uh, that's when you begin to get away from the agreement. And a lot of undue benefit is , is being provided. So there's certain just educational aspects of post agreement that I think the attorney, the health system, really want to educate their staff to make sure, because these arrangements are, they're set in place to really, they're , they're good arrangements. It's a great business model to try to expand a position reach without opening a full-time office into other communities. It's great opportunity for smaller community hospital systems to maybe bring in a specialist , uh, that is not offered , uh, for their patients in that surrounding community. So that the idea of timeshares and space distributions is a great model. It can be very compliant. It just needs to be educated and, and monitored really by the staff, by both parties. And, and if it's, you know, set up correctly, agreement put in place and everyone educated to it, it can be a great compliant, you know, way to , um, to help build a business and help bring another position to a community. So hopefully that helps go , I don't know if you have any final comments on that.
Speaker 3:No, I, the only thing I would add, and I really agree with you, Mike, that you know, you and I can do our job as best we can and provide a, a compliant arrangement. It's, it , you know, the space has been set forth properly and, and we're being, you know, the tenants are being charged the proper , um, rate. But if the, if the management of that arrangement isn't being done properly, I can still result in compliance risk. I think that's a great point. I mean, the, one of the cases I mentioned earlier, briefly, it was a , a Georgia case a few years ago. It , they, they had , um, some of the allegations included, a, there was a 20 year lease and nobody was charging rent escalators, you know, and, and now I don't know whether that the lease PR provided for that, if it had a , an appraisal, probably it did. Um, and , but nobody charged it. And, and, you know, you talked about physicians using space free of charge or, you know, and that can happen both on a, on a timeshare basis or a full-time arrangement where somebody says, Hey, you know, I could really use this storage closet , um, you know, to store some things. And the landlord says, sure, you know , no problem. And , um, that doesn't get documented. So I think you're right that, that there is a big piece of education that has to go along with this for it to be really of any lasting value , um, beyond just the drafting stage. So, yeah, I think you , you raised a great point, Mike,
Speaker 2:And, and the key is, the final take on that is if, if there is a need to expand and, and exam rooms are available, or staff's available, or more services available, it's, it's to be communicated upfront and then to allow , uh, ample opportunity for an amendment , uh, to be signed , um, by both parties, you know, to increase, decrease the rate or whatever , uh, needs to take place to then , uh, make sure there is an agreement in place and that we get proper amount of being , uh, charged for the, the , the changes that have been made. So. Well , Joel, I really appreciate you , uh, joining me today on this A H L A podcast and , uh, hopefully all of our listeners , um, really learn something , uh, new today. And, and if feel free to reach out to , uh, myself, Mike Vetter at H m s , uh, evaluation partners, or , uh, Joel SW at Hot Hall Render. Um, if you have any questions or concerns or wouldn't wanna talk any further on this topic, we'd be happy to , uh, discuss with you. Uh , so with that, Joel , hope you have a great afternoon.
Speaker 3:Thanks, Mike, and thanks to h l a for having us. Really appreciate it.
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