Editor’s Note: How has health IT emerged in its first 10 years? How is it reshaping the medical and legal landscape? How are electronic health records (EHRs) transforming healthcare? Manatt Health answered those questions and more in our recent webinar for Bloomberg BNA, “The Evolution of Health IT and EHRs: Setting the Stage for Growth and Value.” The webinar detailed the emergence of health IT, focusing primarily on developments over the last decade that have accelerated the adoption and use of EHRs. The article below, focused on legal issues around EHR adoption, is the first in a series summarizing key segments of the presentation. Click here for a hard copy of the full presentation. Or, if you missed the webinar, click here and enter promo code LGAUDC100 for a free CD. 

Recognizing the potential long-term value of EHRs for improving care and reducing costs, many hospitals considered offering physicians financial support to purchase EHR software and related health IT items and services. Because these items and services have value to physicians, however, they implicate a range of regulations restricting financial relationships between hospitals and physicians, including the Stark law, the anti-kickback statute, and rules governing tax-exempt organizations. The laws were presenting a major barrier to EHR adoption, since they prevented hospitals from offering financial support to providers. As a result, the government intervened to facilitate hospital support for physician EHR adoption.

The Stark Law

Section 1877 of the Social Security Act, commonly referred to as the Stark law, prohibits physicians from making referrals for designated health services (DHS) payable by Medicare to an entity with which the physician has a “financial relationship” unless that relationship fits within an exception. Entities are likewise prohibited from billing Medicare for DHS provided as a result of those referrals.

Stark law exceptions cover certain types of services, ownership, investment interests or compensation arrangements. Generally, EHRs and other health IT that hospitals provide to employed physicians and are used only in connection with their employment should not raise risks under the Stark law. Health IT is viewed as part of the infrastructure hospitals provide to enable employees to generate revenue. It is not treated as something of value given to a physician for his or her personal benefit.

When hospitals provide technology to physicians who are not employees, more complicated legal issues arise. The Stark law’s medical staff incidental benefits exception generally lets hospitals provide technology to physicians on its medical staff, if the technology is used solely for accessing hospital medical records to treat hospital patients. In contrast, technology that can be used by physicians in their private practices is not covered by the medical staff incidental benefits exception. The provision of these types of items must be structured to fit one of the following Stark law exceptions.

To support implementation of the Medicare Part D prescription drug program and promote e-prescribing, the Centers for Medicare and Medicaid Services (CMS) created an exception to Stark in 2006 that allows entities to offer physicians and hospitals hardware, software, or information technology and training services necessary to receive and transmit electronic prescription information. E-prescribing items and services may be provided:

  • By a hospital to the physicians on its medical staff,
  • By a group practice to the members of the group, or
  • By a Prescription Drug Plan or Medicare Advantage Plan to a prescribing physician.

Other key requirements include:

  • The donor may not limit or restrict the use or compatibility of the items or services with other e-prescribing or EHR systems.
  • For items or services that can be used for any patient without regard to payer status, the donor may not limit or restrict the physician’s right or ability to use the items or services for any patient.
  • The physician may not make the receipt of items or services a condition of doing business with the donor.
  • The physician’s eligibility for the items or services may not be determined in a manner that takes into account the volume or value of referrals or other business generated between the parties.
  • The arrangement is reflected in a written agreement signed by the parties that covers all of the e-prescribing items and services being provided, and specifies those items and services, as well as the donor’s cost.

In conjunction with creating the e-prescribing exception, CMS established Stark exceptions for donating EHR technology. While the EHR exception shares many of the same elements as the e-prescribing exception, there are important differences between the two.

The Stark law’s EHR exception covers “software or information technology and training services necessary and used predominantly to create, maintain, transmit, or receive electronic health records ....” The exception covers only EHR software and related services such as training, support and maintenance. Unlike the e-prescribing exception, it does not cover hardware. Other key requirements include:

  • The items and services must be provided by an entity that is a direct service provider.
  • The software must be deemed interoperable at the time it is provided to the physician.
  • The donor may not take any action to restrict or limit the use, compatibility or interoperability of the software with other electronic prescribing or EHRs.
  • Before receipt of the items or services, the physician must pay at least 15 percent of the donor’s cost of the items or services.
  • The arrangement may not violate the anti-kickback statute or any state or federal law or regulation governing billing or claims submission.

The Federal Anti-Kickback Statute

The federal anti-kickback statute prohibits any person from knowingly and willfully soliciting, receiving, offering or paying remuneration in return for:

  • The referral of a patient for the provision of items or services covered by a federal healthcare program, or
  • Purchasing, leasing, ordering or arranging for, or recommending the purchase, lease or ordering of, any item or service for which payment is made by a federal healthcare program. Federal healthcare programs include Medicare and Medicaid.

As under Stark, hospitals providing EHRs or other health IT to their employed physicians should not raise any anti-kickback concerns. There is an anti-kickback statute safe harbor covering any remuneration that an entity provides to an employee.

Providing nonhospital employees with EHRs or other health IT raises the same issues under the anti-kickback statute as under the Stark law. Therefore, the HHS Office of Inspector General (OIG) has created an exception to the federal anti-kickback statute that allows entities to offer physicians and hospitals hardware, software, or information technology training and services necessary to receive and transmit electronic prescription information. OIG also created exceptions for donations of EHR technology.

State Fraud and Abuse Laws

Many states have adopted their own fraud and abuse laws modeled on the Stark law or the anti-kickback statute. State self-referral laws typically apply to services billed to Medicaid and/or commercial insurers, extending the reach of the self-referral prohibition beyond Medicaid. Some state anti-kickback statutes similarly expand the scope of kickback restrictions to services covered by private third-party payers.

In certain states, fraud and abuse laws incorporate all Stark law exceptions or anti-kickback safe harbors. Other states have more stringent statutes for a narrower range of exemptions. In the absence of interpretive guidance, it is reasonable to apply the CMS rule to the state law.

Tax Exemption Issues

To provide tax-exempt hospitals with guidelines for offering EHR subsidies, the IRS released a memorandum in May 2007 titled Hospitals Providing Financial Assistance to Staff Physicians Involving Electronic Health Records. In the memorandum, the IRS determined that a tax-exempt hospital may provide financial assistance to its physicians related to EHR technology if the hospital meets the regulatory requirements in the Stark exceptions and anti-kickback statute safe harbor, as well as certain additional requirements. The added requirements include the following:

  • The hospital must enter into a health IT subsidy agreement with its staff physicians for the provision of health IT items and services at a discount.
  • The subsidy agreement must require both the hospital and participating physicians to comply with the Stark exceptions and anti-kickback statute safe harbor on an ongoing basis.
  • The hospital must be able to access all records created by physicians using the health IT.
  • The hospital must ensure that the subsidized EHR technology is available to all staff physicians.
  • The hospital must provide the same level of subsidy to all of its staff physicians.