Stark laws have been dominant in medical real estate for nearly 20 years, and continue to influence the relationship between medical facilities and medical practitioners. In 2010 Rush University Medical Center paid $1,500,000 to settle allegations that the administration had violated Stark through the Federal False Claims Act. Additionally, The Justice Department announced that between January of 2009 and March of 2010 it recovered over $3 billion in False Claim Act fines pursuant to numerous Stark infringements.
The onerous potential for violation of federal mandate continues to motivate hospitals and healthcare medical professionals to strongly consider third parties intervention in the form of asset monetization. Monetization of medical real estate is simply selling real capital assets to a third party for monetary consideration.
"If I could show you a way to financially benefit by selling your real estate yet maintaining as much control as you have had in the past, and create a barrier protecting you from potential legal exposure would you be interested?"
Hospitals and health systems have the unique opportunity to leverage real property assets to a third party often times above market. This prospect benefits the organization by freeing up capital better used for core business interests, enhancing credit profiles, and preventing potential entanglements that could occur with tenant-landlord relationships. As a real estate professional, the model of purchasing property sponsored by credit medical institutions is highly desirable. For the institution the caveat is not about ownership, but rather control.
Interestingly, as a 2010 Cain Brothers white paper entitled Medical Real Estate Monetization mentioned, the main concern hospital executives weigh with third party monetization is the chance poor property management could yield a negative effect between the hospital and its clients, the physicians. This concern stems from the belief that a third party will initiate a highly aggressive lease rate strategy causing physicians to seek alternative privileges. It has been my experience, having been a principal in monetization efforts, that this fear is highly unfounded and from the perspective of the hospital overwhelmingly controllable. To the contrary, professional property managers have proven to improve operations and tenant satisfaction.
Experienced third party owners of medical property understand the delicate and sometimes difficult relationship between physicians and hospitals. Today, it is increasingly more important for real estate investors to account for dynamic market strategies, unknown capital investments and a better comprehensive understanding of the changing healthcare landscape.
Hospital executives need to establish surviving terms for extended control during negotiations, while being mindful of the buyer's monetization strategy. The onus to promote the hospitals Mission and long term strategic plan is in the best interest of both parties.
James Ellis, CEO, Health Care Realty Development Company, is a nationally recognized successful real estate investor and developer of medical office properties with a comprehensive knowledge of sophisticated real estate transactions, cost effective designs, and efficient property management.
Aaron Razavi is Associate Marketing Director at Health Care Realty Development.
Visit their blog at http://www.hcrealty.com/medicalrealestatedevelopment/