Hospital system's enticement: a real estate deal

A Texas hospital system is working on a deal for affiliated physicians: a stake in its medical office buildings even if the doctors don't rent space in them.

The opportunity is being pulled together by Texas Health Resources, which has 24 hospitals owned or affiliated in the state. It is the latest twist in the trend of hospitals wanting closer alignment with physician interests -- but in a way that doesn't violate federal laws prohibiting paying for referrals.

Details of the deal are being worked out, but health lawyers not affiliated with the health system say legal problems are unlikely as long as physicians are offered shares at a price in line with what can be found outside the Arlington, Texas-based hospital system.

"The issue for physicians is: Is it fair market value?" said David M. Glaser, an attorney with Minneapolis-based Fredrikson & Byron.

To that end, Texas Health is working with Dallas-based Cambridge Healthcare Properties to place its 22 medical office buildings into a real estate partnership. Qualified physicians on the medical staff -- tenants and nontenants in the buildings -- will be given an opportunity to become a part of the partnership by midyear. Cambridge will own a stake in the portfolio and form another entity to manage the facilities, which have a total of 1.6 million square feet of space.

"Physicians will be allowed to participate in some way," said Leslie DeShazer, Cambridge's chief marketing officer. "This is part of an alignment strategy that Texas Health Resources is working on."

Those involved in offering the deal are shying away from the word "investment," preferring "participation in the partnership." Organizers said the deal is in the hands of lawyers who are working to ensure that it does not violate federal or state regulations.

In addition to legal concerns, experts advised physicians thinking about participating in the program to investigate the real estate, much like any other investment.

"Health care real estate is one of the segments that has remained healthier than many other segments of the real estate market, but that doesn't mean it has not been subject of the pressures of the downturn," said Mary Ranum, chair of the real estate practice group at Fredrikson & Byron.

"Anybody who is investing in real estate needs to understand the fundamentals of the real estate, regardless of the type. What is the percentage of vacancies? Who is managing the buildings? Do they have the authority to buy additional real estate and borrow money? You want to make sure you know what is there now and what authority the managers have to make changes in the future."

Health system reform has led many hospitals to look for closer alignment with physicians. Many hospitals are employing physicians directly, although that is illegal in Texas for the most part. In addition, many physicians are not interested in becoming employed, and not all hospitals want physician employees. To achieve closer connections without employment, hospitals have been establishing co-management agreements, joint ventures and other programs.

Experts say they are unaware of any other hospital or health system offering physicians who are not leasing office space an opportunity to participate in a medical office building portfolio as part of the alignment strategy.

"It's pretty unique," DeShazer said. "There's certainly not anything like it in the Dallas area, and we don't think there is anything like it in the country.