Author: Jacob Jones, Senior Associate

From a real estate standpoint, relatively little is needed in the way of space build-out for telemedicine providers to administer care besides four walls, a reception area, a secure internet connection, and enhanced A/V equipment.  Because of this, the most common locations for telemedicine practice tends to be vacant or underutilized spaces in traditional medical office properties, hospitals, and other healthcare real estate; however non-traditional medical properties such as retail uses and even supermarkets are becoming increasingly prevalent.  Although the versatility in the type of real estate in which telemedicine can be practiced could be seen as a benefit, this does create a potential fair market value (“FMV”) issue.  The usage of non-acuity space within higher-acuity facilities has created a bifurcation of rental rates within facilities and warrants diligence on RE personnel to clearly define space and time usages within these facilities to avoid Stark Law violations.

In terms of lease mechanics, telemedicine space leases are often structured as timeshare lease arrangements.  The timeshare model saves the telemedicine provider money by allowing them to lease the space on a part-time, or as-needed basis.  Timeshare rate calculations are based primarily on prevailing rental rates for similar space in the marketplace as the baseline for determining the session lease rate.  That base rental rate is then broken down to procure an hourly rental rate for the space on a per square foot basis.  This rate is then adjusted to account for a variety of items including number of block usages per month, telemedicine A/V equipment, the size of the suite, etc., and are commonly referred to as the ‘Administrative Surcharge’. Typical surcharge percentages generally range from 25 to 200 percent, depending on these factors.

As telemedicine advances the way that physicians provide care, it is important for health systems to stay current on emerging trends to ensure that each arrangement is Stark Law compliant.