Structuring compliant telehealth timeshare arrangements within fair market value: A solution to improve patient access

Insight Article - JuneĀ 16, 2020

Compliance Regulations

Staffing Models

Patient Care Technology

Wade Blundell ASA, CVA
Mike Vetter CVA
Telehealth has become increasingly popular in recent years, as hospitals implementing computerized telehealth systems grew from 35% to 76% based on an American Hospital Association survey.1 The same growth has been seen outside of hospitals. As a result of the pandemic, 46% of consumers are utilizing telehealth for healthcare services as compared to only 11% in 2019.2  In terms of providers, they have had to adapt quickly and have grown their telehealth visits 50 times higher than pre-pandemic levels.3 Many rural health systems across the United States have also embraced this growth to improve patient access to specialized care. Creating medical office timeshares to connect patients remotely with health systems and/or physicians in another city is one tool to achieve that growth.

Telehealth timeshare arrangement: The basics4

Ms. Adams is 20 weeks pregnant and her primary OB/GYN physician tells her that a recent ultrasound reveals that her baby may have a congenital heart defect. Her OB/GYN refers her to a maternal fetal medicine (MFM) physician for ongoing surveillance during the rest of her pregnancy. Unfortunately, the closest MFM is four hours away.

Ms. Adams’ example is common among rural patients who need specialty care. Rural communities are experiencing shortages in primary care, with 39.8 primary care physicians (PCPs) per 100,000 people as compared to 53.3 PCPs per 100,000 in urban areas. The shortage is even more extreme when comparing specialists: There are 30 specialists per 100,000 people in rural areas, versus 263 per 100,000 people in urban areas.5 Traditional medical office timeshares rely on the physician tenant physically coming to the location to see patients during a specific time slot. While these physician tenants may benefit from expanding their patient base as far as two to five hours from their primary location, the expense associated with their time results in specialists trying to find alternatives. Telehealth timeshares are one such alternative.
 
Telehealth medical office timeshare arrangements grew from these challenges in specialties such as cardiovascular surgery, orthopedic surgery, maternal fetal medicine and neurology, placing needed diagnostic equipment in these communities to assess, diagnose and establish treatment plans for patients remotely. Utilizing diagnostic equipment in the timeshare space at the patient’s location, along with the necessary telehealth video conferencing equipment, allows for simultaneous view of a high-definition image of an ultrasound, X-ray, CT scan or MRI with the physician tenant/specialist. In the case of Ms. Adams, she is able to have a remote consult with her MFM while being able to visualize the ultrasound of her baby.   

Benefits of a telehealth timeshare arrangement

Utilizing telehealth through a timeshare arrangement provides multiple advantages for providers and patients. Table 1 illustrates some of the benefits from these arrangements.


 
These benefits have been echoed through multiple surveys of providers and patients.7,8 

Key components of fair market value (FMV)

Hospitals and physician practices are subject to regulatory requirements under federal law and a variety of state-specific fraud and abuse statutes, which can come into play when entering into a medical office timeshare arrangement. Many of the existing safe harbors and/or exceptions to these rules require transactions or financial relationships be at FMV to ensure that there is no undue benefit provided to the physician tenant. In structuring a compliant agreement at FMV, there are key areas to examine: space, furniture and equipment, services and short-term use premiums.

Space

The space cost utilized for the telehealth visit needs to be determined based on a real estate appraisal providing the FMV full-service rental rate and an architect drawing defining the square footage subject to the arrangement. Common along with dedicated exclusive use areas need to be clearly demarcated in the calculation to ensure that the space utilization is calculated accurately. After the total square footage applicable to the tenant is identified (exclusive use square feet + allocated shared common area square feet), it is multiplied by the FMV full-service rental rate of the space determined by a real estate appraiser to ensure all building operating expenses are considered. In the case of telehealth services, it is important to consider the storage for the telehealth equipment during non-use. Should the equipment be stored at the landlord’s cost, this expense should be included in the lease payment.

Furniture and equipment

Similar to the space analysis, the furniture and equipment utilized within the common and dedicated exclusive use areas need to be included. These could involve waiting room chairs, desks, tables, computer/office equipment, etc. Often under these telehealth arrangements, the physician tenant or local health system will own the diagnostic and/or remote telehealth equipment. If this is the case, you can exclude the equipment cost not borne by the landlord.

Services

There is variability in the specific services offered under these arrangements. These services can range from telecommunication, front desk receptionist, medical and office supplies, magazines, water and coffee supplies, among others. Also, under a telehealth arrangement, it is critical to understand the clinical labor costs needed to provide the service. For instance, does the diagnostic test under the telehealth service require a specific staffing resource, such as a medical assistant, radiology technician or registered nurse? Does the telehealth visit require this staff member to be present throughout a portion of the visit?  The value needs to consider the extent that the staff member(s) are being utilized.

Short-term use premium

A major component often missing from the medical office timeshare value is a short-term use premium. In other industries, a premium is paid for the part-time use of space or services (e.g., conference room, executive office suite, rental car, hotel, equipment). Medical office timeshares are no exception; in fact, it’s essential to ensure compliance. This premium can be affected by the number of tenant time slots leased, the landlord utilization risk and current market comparable transactions.

Key compliance takeaways

Telehealth has created an opportunity for specialists, located at a distance from patients in rural areas, to remotely care for patients in a cost-effective, efficient and quality-driven manner. It has also allowed the physician landlord to provide a convenience to their patient base needing this additional specialized care. COVID-19 has only accelerated this growth through regulatory waivers, increased telehealth funding and the need to maintain patient volumes.
 
To ensure the arrangement is compliant, each component must be calculated accurately and appropriately given the specific facts and circumstances of each arrangement.  With well-documented support, a medical office timeshare can be a great option to reach a larger patient base while increasing convenience and improved access to care for patients.
 

Notes:

1. AMA. “Fact sheet: Telehealth.” February 2019. Available from: https://bit.ly/3e7VZV9.
2. Bestsennyy O, Gilbert G, Harris A, Rost J. “Telehealth: A quarter-trillion-dollar post-COVID-19 reality?” McKinsey & Company. May 2020. Available from: https://mck.co/30M2glp.
3. Erickson M. “Stanford Medicine increases use of televisits to help prevent spread of coronavirus.” Stanford Medicine News Center. March 30, 2020. Available from: https://stan.md/3d5eSXy.
4. COVID-19 has resulted in numerous regulatory waivers that impact telehealth type of visits, place of service and reimbursement during the state of emergency. The authors understand the potential impact of these waivers should they persist after the public health emergency. Contemplation of this fact is beyond the scope of this piece. For more details, visit the MGMA COVID-19 Action Center at mgma.com/covid.
5. National Rural Health Association. “About Rural Health Care.” Available from: https://bit.ly/2UPyAjG.
6. Federal Communications Commission. “2020 Broadband Deployment Report.” April 24, 2020. Available from: https://bit.ly/2C5N3kS.
7. Devitt M. “Survey, FP Expert Agree: Interest in Telehealth on the Rise.” AAFP. May 14, 2019. Available from: https://bit.ly/2UPcT33.
8. Siwicki B. “Survey: Americans’ perceptions of telehealth in the COVID-19 era.” Healthcare IT News. April 3, 2020. Available from: https://bit.ly/3huMu4B.
 

About the Authors

Wade Blundell
Wade Blundell ASA, CVA
Partner HMS Valuation Partners

Mike Vetter
Mike Vetter CVA
Director HMS Valuation Partners
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