Time-shares one way to get more use from equipment

A column examining the ins and outs of contract issues

By Steven M. Harrisis a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted March 7, 2005.

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Recently I was asked to review a proposed time-share leasing arrangement between a cardiology practice group and referring physicians for use of MRI and CT scanners.

The cardiology group owns and operates the scanners. This practice has been approached by several nonaffiliated physicians and practices to lease the equipment, facility, and personnel on certain days and times.

After completing a utilization analysis and reviewing all revenues and expenses related to the MRI and CT scans being provided to the group practice's patients, the cardiology practice then explored the viability of entering into time-share agreements.

This column will detail the anatomy of such a transaction and highlight key contract issues, including purchased services, billing, supervision requirements and regulatory issues.

Purchased services

It is important that you determine the purchased service limitations available to your practice. You must consider the implications of a per-click lease arrangement, in which you're paid per procedure, versus a time-share arrangement, in which you're paid based on the time used.

Pursuant to the Medicare Claims Processing Manual, if you are providing services to Medicare patients and assignment is accepted, a physician or practice group may submit a claim to receive Medicare Part B payment for the technical component of diagnostic services that the physician or group purchases from an independent physician, medical group or other supplier. In other words, your group would get paid for running the machine, but the physician group leasing the services would get paid for reading the results. You should note that this claim and payment procedure does not extend to clinical diagnostic laboratory tests.

In order to purchase a diagnostic test, the purchaser must perform the interpretation, and the physician or other supplier who furnishes the technical component must be enrolled in the Medicare program. The purchaser must also keep on file the name, provider identification number and address of the interpreting physician. For Medicare payment, the test must be ordered by the treating physician and the test must be supervised by a physician.


Under the proposed time-share lease arrangement I received, the physician group leasing the equipment and facility for the provision of MRI and CT services to its patients was solely responsible for providing the services, billing for all technical and professional components of such services, and collecting all payments.

The parties also agreed that total compensation paid for access to and use of the facility, facility personnel, and equipment provided pursuant to the agreement is the fair market value cost at which the leasing party could have obtained the same equipment and facilities from other providers.

Make sure you decide which practice group and entity will bill for the professional and technical components prior to submitting claims. You should also make sure the facility where services are being provided is added as a site of service to the applicable provider numbers.

Supervision requirements

Make sure you determine the supervision standards based upon the list of procedures to be performed under the lease agreement. For Medicare patients, if a test is performed or supervised by a physician, that physician may bill under the normal physician fee schedule rules.

This includes situations in which the test is performed or supervised by another physician with whom the billing physician shares a practice. The supervision requirement for physician billing is not met when the test is administered by supplier personnel regardless of whether the test is performed at the physician's office or at another location.

Regulatory issues

There are several regulatory labyrinths through which you must navigate in order to be in compliance with Stark regulations, federal anti-kickback statutes and any applicable state laws.

Under the proposed transaction, if the new imaging center's investors or their immediate family members refer patients to the imaging center, then the proposed time-share agreement, when combined with membership interests in the imaging center, would create an "indirect compensation arrangement" between each of the referring investors and the imaging center pursuant to Stark.

Therefore the time-share lease agreement would need to comply with the Stark law regulatory exception for indirect compensation arrangements. The imaging center opted to implement safeguards to prevent Medicare and Medicaid referrals by the center's physician investors so that Stark would not be triggered.

I also reviewed the proposed lease agreement in light of the federal anti-kickback statute. CMS and the Office of the Inspector General have indicated in regulatory comments that both agencies are scrutinizing "per-click" leases involving referral sources. In its 2001 commentary to the Stark I final rule, CMS observed that while per-click equipment leases can be structured to comply with Stark, such arrangements create "the obvious potential for abuse" when the physician-owners of the equipment generate referrals and may violate the anti-kickback statute.

The OIG expressed a similar concern in 1991. It said that per-use agreements with referring physicians threaten to violate the federal anti-kickback statute because the payments are directly tied to the volume of business generated, providing an improper motive to refer.

Therefore, you would be better off using a time-share agreement, setting a fixed amount of hours per month per group, and charging a uniform rate for each practice.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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