Healthcare Real Estate Issues Building Owners Need to Know
Healthcare real estate continues to go forward, as hospitals, healthcare systems, medical providers and physicians increasingly seek to expand their practices and serve patients in convenient locations. Healthcare leasing has also greatly expanded, from traditional hospital campus medical office buildings to a diverse scope of settings.
Whether a medical tenant is considering a site in a repurposed grocery store, shopping mall, freestanding office building or even an industrial site, these nontraditional, off-campus spaces create new issues for healthcare leasing. Here are a few healthcare lease issues that building owners need to consider when leasing space to health care tenants.
The Anti-kickback Statute and the Stark Law Nonmedical landlords typically have fewer regulatory burdens than hospitals or healthcare systems, but if the landlord’s ownership structure consists of physicians or medical providers, the Anti-Kickback Statute and the Stark Law likely will come into view. These laws place specific limitations on the manner in which certain landlords may lease space to physician tenants.
The Anti-kickback Statute makes it a crime to knowingly offer or receive payment in exchange for referrals for services or goods that are reimbursable under Medicare or Medicaid. The Stark Law prohibits physicians from making referrals for certain designated health services, which include both inpatient and outpatient services, to entities with which the physician has a financial relationship.
The Stark Law regulates referral payments; significant civil penalties are possible if the law is violated. The Anti-kickback Statute is meant to force providers of health services reimbursable by governmental programs to consider seriously the means and manner of payment; criminal penalties may be imposed if it is violated. These laws significantly up the ante for real estate practitioners, because the ramifications of lease-related mistakes in the healthcare field are far more extensive than in a typical leasing transaction.
The HIPAA Privacy Rule HIPAA broadly requires a covered entity, which includes most healthcare providers, to establish policies and procedures to protect the confidentiality of individuals’ personal health information.
Many leases provide maintenance and janitorial personnel fairly free access to leased office space after hours. The landlord often has access to the space as well, under certain circumstances. Healthcare leases present a challenge when it comes to this type of access. Reasonable precautions, such as ensuring that file cabinets are locked or that access is supervised, help to educate the landlord and building staff regarding privacy issues.
The Affordable Care Act Because of the Affordable Care Act of 2010 (ACA), many hospitals and healthcare systems have been forced to seek to achieve greater efficiencies by streamlining services and, in some instances, relocating physician tenants to nontraditional locations. This creates obvious challenges for healthcare real estate practitioners, who have two meaningful ways to meet these new demands. They can either repurpose existing unused or underutilized space move medical tenants into new suburban areas.
Use and Zoning Issues Repurposing of traditional office, retail and other types of buildings for medical use can be an efficient way to reuse reasonably inexpensive space in more accessible locations. Zoning is rarely an issue on hospital campuses, but it can be an obstacle in general retail settings. Also, other tenants’ leases may contain restrictions that prohibit certain uses or activities within the building or shopping center.
Medical Waste and Utilities Medical tenants often require more power and water than retail tenants. Both landlords and medical tenants should address utility costs as well as availability at the start. Nonmedical landlords may not have much experience with biomedical and/or biohazardous waste, so medical tenants often bear the burden of handling and disposing of these types of waste, as well as assuring their landlords about them.
Tenant Improvements and Allowances Medical tenants usually need more buildout allowances, and structuring these can be challenging. Also, improvements installed into the leased premises may be valuable to the medical tenant after the lease agreement expires or is terminated. Ownership of these leasehold improvements must be adequately addressed upfront during lease negotiations.