The IRS released today an internal memorandum from the Director of the Exempt Organizations Division addressing the provision of fi nancial assistance by tax-exempt hospitals to staff physicians in the context of electronic health record (“EHR”) arrangements. The memorandum acknowledges the August 2006 U.S. Department of Health and Human Services fi nal regulations allowing hospitals to provide certain items of EHR software and related services on a discounted basis (i.e., below fair market value) under specifi ed conditions without violating the Stark Law and Anti-Kickback Statute. The IRS memorandum essentially provides that, if hospitals structure EHR arrangements on a subsidized basis consistent with the HHS fi nal regulations, such arrangements will not result in impermissible private benefi t or inurement, provided that:

  • The arrangement requires both the hospital and the participating physicians to comply with the HHS fi nal regulations on an ongoing basis;
  • The hospital is able to access medical records created by physicians pursuant to the subsidized EHR arrangement to the extent permitted by law;
  • The hospital makes the subsidized EHR software and services available to all physicians on its medical staff; and
  • The hospital provides the same level of subsidy to all medical staff physicians, or the hospital varies the subsidy level by applying criteria related to meeting community healthcare needs.

The foregoing conditions establish some subtle distinctions from the standards set forth under the HHS fi nal regulations, and thus will require careful review by hospitals in evaluating EHR arrangements currently in the planning stages or in the early phases of implementation.

The IRS memorandum does not address the treatment of ancillary items of software or services that are not integrated with the EHR, such as practice management systems. The memorandum also does not address the question of whether the subsidized amount constitutes taxable income to participating physicians.

A copy of the new memorandum can be accessed at the following link: