Subleasing and Sharing Medical Space

People use these terms loosely, so be precise about which one you mean. Each has different consequences under the lease and under healthcare rules.

• Sublease of defined space. A provider takes specific rooms, full time, under a written sublease. The subtenant has its own suite within yours, and it may use its own staff and reception or share yours.
• Scheduled part-time use. A provider has specific rooms on specific days, for example a visiting specialist two mornings a week. The rooms belong to each party only during its block.
• Timeshare or license. One party grants permission to use space, and sometimes equipment, staff and supplies, without a lease interest. Under Stark, the timeshare exception has its own conditions.

Informal arrangements, such as a handshake with a colleague who pays by the visit, are the ones most likely to create problems under both sets of rules below. A written agreement is the starting point for all of them.

Start with your own lease. Epstein Becker Green's attorneys say most leases prohibit transfers by assignment and subletting, or require the landlord's prior written consent subject to conditions. Letting another provider use rooms may count as a transfer even when you do not call it a sublease, depending on the wording.

• ✓Does the lease require landlord consent to sublet or to let others occupy or use the space?
• ✓Is there an exception for physicians or providers practicing with us?
• ✓Must the landlord be reasonable, and how long does it have to respond?
• ✓Can the landlord recapture the space when we ask to sublet?
• ✓Does the landlord take a share of the sublease income? Are there administrative fees?
• ✓Does the subtenant's specialty fit our permitted use and any other tenant's exclusive?
• ✓Does our insurance, and the landlord's, respond to a shared-use arrangement?

If you are still negotiating the lease and expect to share space, ask for this right at the start. Epstein Becker Green suggests provisions such as a reasonableness standard on consent and a short deadline for a landlord response. TAG can raise it with the other business terms, and your attorney can draft it.

If the practices can refer patients to each other, the arrangement can be a financial relationship. The Stark law rental exception at 42 CFR 411.357(a) and the Anti-Kickback space rental safe harbor at 42 CFR 1001.952(b) are the first places counsel will look. Conclusions here belong to counsel. These are the points that most often affect how a sharing deal is structured:

• Term. Both look for a term of at least one year. Varnum's attorneys note this can be hard for arrangements meant to be short or as-needed.
• Exclusive use. The Stark rental exception calls for the lessee to use the space to the exclusion of the lessor and anyone related to it while the lessee is using it. A room shared at the same time with the lessor may not fit.
• Schedule. For periodic use, the safe harbor says the lease must specify exactly the schedule, the precise length of the intervals and the exact rent for them. A loose arrangement to use a room whenever it is free is hard to square with that.
• Rent. Rent is to be set in advance, consistent with fair market value and not based on referrals. Stark also bars rent formulas based on a percentage of revenue from the space, and per-unit charges to the extent they reflect patients the lessor refers to the lessee.
• Size. The space rented should not exceed what is reasonably necessary for the purpose.

Paying per patient or per procedure is the classic arrangement to bring to counsel before you agree to it. Providing free or discounted staff, supplies or front-desk services to a referral source also needs review, because OIG describes remuneration as including anything of value.

Stark's timeshare exception at 411.357(y) may fit some arrangements. Its conditions include that the arrangement is between a physician and a hospital or a physician organization of which the physician is not an owner, employee or contractor, and that the premises are used predominantly for evaluation and management services and on the same schedule. It also limits certain equipment, such as advanced imaging. The fair market value exception at 411.357(l) now also reaches office space. Varnum describes it as offering more flexibility, with no exclusive-use or one-year requirement, though it has conditions of its own. Counsel should choose among these.

Stark concerns physician referrals for designated health services. The Anti-Kickback Statute reaches referrals of federal program business more broadly. If neither party refers to the other or bills federal programs, the question may be simple, but let counsel say so.

Legal structure is only half of it. A shared suite has to work for two sets of staff and patients, so put the operating rules in writing.

1. Draw the plan: which rooms are exclusive to each party, which are common areas, and how common costs are divided.
2. Set the calendar in the agreement, including who changes it and how much notice is required.
3. Decide who staffs reception, and how each party's patients are checked in without exposing the other's records.
4. Separate records, phones, computers and storage. Have each party's privacy lead confirm reasonable safeguards under HIPAA.
5. List who pays for and handles sterilization, cleaning and medical waste, and check the rules that apply in your state.
6. Confirm each party's insurance, and name who responds if a patient is injured.
7. Agree how the arrangement ends, including notice, patient communication, and what happens if your master lease ends first.

Check whether you stay answerable to your landlord for the space and for the subtenant's conduct, as many master leases provide, and make sure the sublease passes those duties through.

If you are the visiting provider or subtenant, sharing can be a low-commitment way to test a location. Ask to see the relevant parts of the master lease, confirm that the landlord has consented, and find out what happens to your space if the sublandlord defaults or moves. Ask your attorney what happens to the sublease if the master lease ends, and about protections such as a non-disturbance agreement. Your own referral relationship with the sublandlord deserves the same legal review as if you were the one offering the rooms.