DEPARTMENT: Legal / POLICY DESCRIPTION: Physician Real Estate Transactions; Physician Space Leases
PAGE:1 of 7 / REPLACES POLICY DATED: 2/24/97, 2/11/98,3/1/00, 1/1/01, 6/1/02, 8/1/03, 8/1/04, 4/30/05, 1/1/06, 7/1/06, 11/15/06, 5/1/07, 3/1/08, 2/1/12, 2/28/12, 3/1/13, 5/1/14
EFFECTIVE DATE: October 1, 2014 / REFERENCE NUMBER: LL.004
APPROVED BY: Ethics and Compliance Policy Committee
SCOPE: This Policy applies to HCA Holdings, Inc. (the “Company”) and all of its HCA US Affiliates (“Affiliates”). Affiliate means any person or entity controlling, controlled by or under common control with the Company (“HCA Affiliates”). “Control” means the direct or indirect power to govern the management and policies of an entity; or the power or authority through a management agreement or otherwise to approve an entity’s Real Property Transactions, as hereinafter defined.
PURPOSE: To provide direction with respect to Real Property Transactionsbetween HCA Affiliates andReferral Sources.
POLICY: The following policies and procedures apply to all agreements with a Referral Source in connection with a Real Property Transaction. For purposes of this Policy, "Real Property Transaction" means any transaction, lease, or agreement involving real property including, but not limited to, the following: sales or purchases; leases or subleases (where the Company is either the lessor or lessee); easements; time-share or space distribution agreements; ground leases; and construction or renovation, includingbut not limited to, hospitals, ASCs, medical office buildings, parking garages, urgent care centers, outpatient facilities and other facilities or buildings.
Notwithstanding the foregoing, a Real Property Transaction does not include an M&A Transaction. “M&A Transaction” means a transaction that is an acquisition of a business from a person or entity by HCA or its Affiliates overseen by the HCA Corporate Development Department. An M&A Transaction includes all aspects of the M&A Transaction through the closing.
Except as approved by the Senior Vice President for Development, all leases for space to non-employed physicians and other potential referral sources will be managed by professional third-party managers. These property managers ensure that all physicians and other potential referral sources have written leases, the rent payable under the leases is consistent with fair market value (without taking into account the volume or value of any referrals or other business generated between the parties), all leases would be commercially reasonable even if no referrals were made between the parties, and all rental payments are either current or appropriate collection proceedings are being pursued. This Policy does not apply to the lease of space to a potential referral source for a meeting, seminar or other short-term event; such leases must comply with the terms of the Use of Facility-Owned Space by Physicians Policy, LL.024.
The procedures established by the Corporate Real Estate Department as to the use of Lease Term Approval Forms (“LTAFs”) and Standard Business Lease Terms (“SBLTs”) are to be followed in the leasing of both medical office building as well as non-medical office building space to and from physicians and other potential referral sources. Pursuant to APG #4, all real estate leases pursuant to which an HCA Affiliate is the lessee, regardless of term or value, must be approved and executed by the Corporate Real Estate Department.
All leases for space between the Company or its Affiliates and a Referral Source must comply with the following:
1.a written lease, signed by both the lessor and the lessee before the lessee begins occupying the space and before payments are made, unless the Property Manager obtains prior approval, and specifying the space/equipment subject to lease must be entered into;
2.the lease term must be at least one year, with this requirement being satisfied even if the lease agreement is terminated during the term, with or without cause, as long as the parties do not enter into another lease for the same space and/or equipment during the first year of the original term of the agreement;
3.the rental payments must be set in advance, consistent with a fair market verification by an independent third party and not determined in a manner that reflects the volume or value of referrals or business otherwise generated between the parties;
4.if the arrangement is for part-time use of space/equipment, the lease must state the period of use and payment for each time period;
5.the space/equipment rented or leased must not exceed that which is reasonable and necessary for the commercially reasonable business purposes of the lessee;
6.the space/equipment must be used exclusively by the lessee when being used by the lessee (except that space leases can provide for prorated payments for common areas);
7.the lease covers all of the premises/equipment leased between the parties for the term of the lease;
8.the lease would be commercially reasonable even if no referrals were made between the parties;
9.notwithstanding the “exclusive use” requirements set forth in paragraph (6) above, subleases are permissible as long as the lessee (or sublessee) does not share the rented space or equipment with the lessor (or anyone related to lessor) when it is rented or used by the lessee (or sublessee);
10.a month-to-month holdover tenancy is allowed for up to six (6) months if it is on the same terms and conditions as the prior one-year (at a minimum) agreement, though the rent may include a premium during the holdover period if the agreement in effect immediately prior to the holdover states the premium amount to be charged; and
11.if the lessor provides tenant improvements for the benefit of a physician tenant that are unlikely to be chargeable to a subsequent tenant, the lessor should allocate the entire cost of the tenant improvements to the lessee. Improvements the lessor reasonably expects would be chargeable to subsequent lessees may be allocated over the expected useful life of the improvements.
Appraisals
All Real Property Transactions involving a Referral Source must be appraised by a third party appraiser. The appraiser must give a range of fair market value, in writing. No Real Property Transaction may be entered into by the Company or any of its Affiliates outside the range given in the original appraisal, unless both the Company's General Counsel (“GC”)and Senior Vice President for Development (“SVPD”) have approved obtaining a new appraisal.
Approvals
HCA or any HCA Affiliate must receive written approval by the GC and SVPD prior to entering into any Agreement with respect to leases TO Referral Sources where all charges and payments are below the fair market value range, or with respect to leases FROM Referral Sources where all charges and payments are above the fair market value range, as appraised pursuant to this Policy.
Approvals as set forth belowmust be coordinated by the appropriate Corporate Real Estate (“CRE”) representative working with the Managing Counsel, Real Estate (“MCRE”). The CRE representative must direct its applicable approved outside attorney to prepare an approval request containing a description of the transaction, together with all relevant supporting documentation, including without limitation the LTAF, appraisal, and rent study. Said approval request and all information and documents supplied, must be delivered to the MCRE at least ten (10) business days prior to a decision being requested. During times when Company officers typically can be expected to schedule vacation (year-end, holidays, spring break, etc.) additional notice/time may be required.
The following matters must receive prior approval by the Company’s VicePresident Operations Counsel and the SVPD pursuant to this Policy:
  1. Leases and Timeshares To and From Referral Sources, and the Renewal, Amendment and Assignment thereof, which meet any of the following conditions:
  1. The transaction documents are not on unmodified HCA-approved forms, or have not been prepared or approved by an MCRE-approved attorney (“HCA Approved Documents”).
  2. The outside property management representative (“PM”) has not verified in writing that (i) with respect to leases TO Referral Sources, all charges and payments are notbelow the fair market value range, or with respect to leases FROM Referral Sources, all charges and payments are not above the fair market value range; and (ii) all terms are commercially reasonable even if no referrals were made between the lessor and lessee (“PM Certification").
  3. A fully-executed LTAF has not been received (“LTAF Requirement”).
  4. The Company has not received a compliance certification from outside counsel in a form satisfactory to the Company regarding the Real Property Transaction (“Counsel Certification”), except that no Counsel Certification shall be required for the renewal of existing leaseswhich are renewed in accordance with the automatic one year renewal provisions contained in the Company’s lease forms.
  5. The cumulative rent exceeds $1,000,000 (“Million Dollar Rule”).
  6. More than five Referral Source Physicians are involved and the cumulative rent exceeds $250,000 (“Five Physician Rule”).
  7. The term is more than seven years.
  8. With respect to leases FROM Referral Sources: (i) the Real Estate Usage Plan portion of the LTAF (“REUP”) has not been completed or approved, except that completion of the REUP must not be required for renewals and extensions; or (ii) a Company representative has not approved the LTAF.
  1. Leases Between the Company and HCAPS or by one HCAPS-owned Affiliate to another, which meet any of the following conditions:
  2. The lease is not on HCA Approved Documents.
  3. A Vice President of HCA Physician Services or his designee has not certified inwriting that (i) the physicians employed or contracted by all relevant HCAPS Affiliates are not on a “PCE Compensation Model” (or any model where rent expense is part of the physician’s compensation calculation), and (ii) there nothing in the physicians’ contracts that ties their compensation, liabilities, amounts owed or ongoing obligations to the expenses associated with the leased premises (“HCAPS Certification").
  4. The LTAF Requirements are not met.
  5. The leased premisesare located in California.
  6. Early Terminations of Leases and Timeshares TO or FROM a Referral Source, which meet any of the following conditions:
  1. The Termination Agreement is not an HCA Approved Document, or the termination is not in accordance with a termination option set forth in the lease.
  2. PM Certifications or Counsel Certifications have not been received or LTAF Requirements have not been met,
  3. Meets the Million Dollar Rule or the Five Physician Rule with respect to cumulative rent that would have been paid during the remaining lease term.
  4. With respect to termination of an HCAPS Lease: (i) the HCAPS Certification has not been received; or (ii) the leased premises are located in California.
  1. Acquisitions and Dispositions of Real Estate TO or From a Referral Source,which meet any of the following conditions:
  1. With respect to acquisitions, the sales price (or total ground lease rent) is ABOVE the appraised fair market value range.
  2. With respect to dispositions, the sales price (or total ground lease rent) is BELOW the appraised fair market value range.
  3. The sale documents are not HCA Approved Documents.
  4. For acquisitions only, the Company has not delivered to the CRE representative a business plan for its use of the real estate being acquired that demonstrates a valid business need for the real estate without taking into account the volume or value of any physician referrals and confirmation that the transaction does not confer any benefit on a Referral Source without fair market value compensation being paid by the Referral Source for such benefit.
  5. Counsel Certification has not been received.
  6. Meets the Five Physician Rule or the sales price exceeds One Million Dollars.
DEFINITIONS:
"Referral Source" means: (a) a person or entity (including, but not limited to, Physicians, Physician medical groupsand/or Physician owned real estate companies) who or that is in a position to influence referrals to any Company Affiliated facility; and (b) if a natural person, then also that person's immediate family members.
“Physician” means a doctor of medicine, osteopathy, dental surgeon, dental medicine, podiatric medicine, or optometry, as well as a chiropractor.
An “immediate family member” of a physician is a spouse; natural or adoptive parent, child or sibling; stepparent, stepchild, stepbrother or stepsister; fatherinlaw, motherinlaw, soninlaw, daughterinlaw, brotherinlaw or sisterinlaw; grandparent or grandchild; and the spouse of a grandparent or grandchild.
The “fair market value” of rental space means the value of the rental property for general commercial purposes, and must not take into account its intended use or the additional value that one party would attribute to the property as a result of its proximity or convenience to source(s) of referrals or business otherwise generated for which payment may be made in whole or in part under Medicare or a State health care program.
Compensation is “set in advance” if the aggregate compensation, a time-based or per unit of service based (whether per-use or per-service) amount, or a specific formula for calculating the compensation is set in an agreement between the parties before the furnishing of the items or services for which the compensation is to be paid. The formula for determining the compensation must be set forth in sufficient detail so that it can be objectively verified, and the formula may not be changed or modified during the course of the agreement in any manner that reflects the volume or value of referrals or other business generated by the referring physician.
The “Approving Authority,”for purposes of the equipment lease provisions of this Policy, is the Division President or the Market President, except where the Division or Market President is also the CEO of the facility, in which case approval should come from the next highest position.
When determining whether or not “five Physicians who are Referral Sources are involved” in a transaction, the only persons to be counted must be the Physicians and their immediate family members that have an ownership interest in or are employed by the parties to the transaction that are not wholly-owned by the Company.
PROCEDURE:
As to leases, the CEO of each facility must certify that:
1.except as disclosed in the certification, there are no other arrangements, written or oral, with the Referral Source;
2.the lease payments represent fair market value as demonstrated by comparable market place leases;
3.the lease terms are commercially reasonable and not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties; and
4.the aggregate space rented does not exceed that which is necessary to accomplish the commercially reasonable business purpose of the rental.
The Approving Authority must certify that the terms of the equipment lease are commercially reasonable and in accordance with this Policy.
REFERENCES:
42 U.S.C. § 1320a-7b
42 C.F.R. § 1001.952(a)-(v)
42 U.S.C. § 1395nn(e)(1)
60 Fed. Reg. 41914 (Aug. 14, 1995)
63 Fed. Reg.1659 (Jan. 9, 1998)
69 Fed. Reg. 16054 (March26, 2004)
HCA Accounting Policy Guideline (“APG”) # 4
Global Anti-Corruption Policy, LL.AC.001
Use of Facility-Owned Space by Physicians Policy, LL.024
Fair Market Valuation Policy, LL.025

9/2014