SCOTTSDALE, AZ—Developers are offering alternative solutions, such as credit-tenant leasing arrangements. Those arrangements provide the healthcare provider the benefits of ownership upon the expiration of the lease term. In addition, the new timeshare exception is impacting providers to reconsider how timeshare arrangements are currently structured.

At RealShare Healthcare's session titled: “Navigating Change: The New Rules Impacting Leasing Arrangements” panelists discussed how developers are working with facility managers and tenants to meet these new challenges and explore potential opportunities.

Speaker Melinda Pasquini, shareholder at Polsinelli, briefly discussed changes to the Stark Law with attendees. Enacted more than two decades ago with the simple purpose of curbing physician self-referral, Stark Law has evolved into a complex set of regulations, which some argue impede efforts to transition away from a fee-for-service system. Pasquini focused on the importance of knowing the exceptions of the law such as things like fair market value. “While some of the rules have loosened up, the exceptions are really something to be aware of.”

And one of the 2016 changes, referred to as the timeshare exception, is key, said Kyle Arnold, national lease transaction manager at Catholic Health Initiatives. Arnold talked about how his firm is on the conservative side of policies in terms of compliance. “As the rules got moved out, it really gives the opportunity—as a tenant—to expand into markets in a cost effective manner in order to provide services that aren't otherwise provide in markets.” He explained that in some of the company's tertiary markets, it makes a lot of sense to go stick ancillary services that are going to benefit the hospitals long term.

Moderator Andrew Dow, shareholder, co-chair of the real estate industry group and chair of the healthcare industry group at Winstead PC, added that the timeshare exception helps in those markets where there isn't a full-time need for a specialist. “It allows them to rotate through on a timeshare basis…at least that is the intent of it.”

As the market changes, putting specialists out into smaller markets to fill a need, even if only one day a month, is important, added Scott Knode, VP of Real Estate Medical Office Buildings at Houston Methodist. He explained that it is also great incubator space when courting a doctor. “We are setting up a brand new timeshare, for example, in a brand new MLB, to have a great testing ground.”

As for how those changes are altering how spaces are designed, Arnold said that they have designed a whole timeshare space in order to bring in specialists. “The new timeshare rules allow for creativity and design for operations to make more of an efficient delivery of healthcare.”

As for how accounting rule changes affect systems leasing strategy, most of the leases that have historically been off the balance sheet and are now going to be brought back on the balance sheet as classified leases, explained Dow.

Knode pointed out that his accounting group has anticipated FASB changes for a number of years. “It doesn't affect us the same as others. Many we have spoken to, though, say that real estate decisions aren't really driven by accounting decisions.”

On a technical side, Pasquini said that on the day-to-day leasing and lease up, it is too early to tell how the changes will affect things. On the deal side, though, she expects to see more scrutiny on the numbers when acquiring buildings. “That will likely take a little more work so investing in good finance people is a pretty smart move.”

Dow explained that “The implementation has just been delayed but one of the trends that we are seeing is hospital systems buying back real estate that they had previously monetized. I have to think at least one factor of that is because they aren't getting the benefit of the off-balance sheet treatment.”

Instant Insights /

Healthcare Panelists Say “Timeshare Exception” Makes Sense in Tertiary Markets

Related Stories

Recommended For You