IRS Memorandum

On May 11, 2007, the IRS published a memorandum providing guidance on the provision of Electronic Health Records technology by hospitals to physicians. Last fall, the Office of the Inspector General (“OIG”) and the Centers for Medicare and Medicaid Services (“CMS”) jointly published rules establishing a safe harbor to the Anti-Kickback Statute and an exception to the federal Stark Act regarding Electronic Health Records technology.

Previously, the IRS announced its intention to consider the implications when tax-exempt hospitals were involved in these arrangements, given that subsidizing Electronic Health Records technology for private physicians represents the provision of a financial benefit to the physicians. The IRS memorandum is welcome news of the IRS’s decision that it will not view these arrangements as impermissible private benefit or inurement so long as the following conditions are met:

1. The arrangement must comply with the Electronic Health Records safe harbor established by the OIG and the Electronic Health Records exception established by CMS (see summary below), and the hospital and physician must enter into a written “Health IT Subsidy Arrangement” containing a requirement that both the hospital and physician comply with the Electronic Health Records safe harbor/exception on a continuing basis.

2. The hospital must offer the Electronic Health Records technology to all physicians on the hospital’s medical staff at the same subsidized rate or on a basis that varies according to “criteria related to meeting the healthcare needs of the community.”

3. The hospital must be able to access all medical records created by physicians receiving the Electronic Health Records technology to the extent such access is permitted by law.

While the IRS essentially instructs tax-exempt hospitals to follow the Electronic Health Records safe harbor/exception, please note the conditions listed as items 2 and 3 above are additional requirements not previously found in the Electronic Health Records safe harbor/exception. Further note that the rules issued last fall by the OIG and CMS also include a safe harbor/exception regarding Electronic Prescribing Systems, to which the IRS memorandum does not appear to apply.

Tax-exempt hospitals offering Electronic Health Records technology in a manner not satisfying these conditions risk violating the federal tax rules prohibiting private benefit and inurement. The IRS memorandum may be accessed on the web at:  http://www.irs.gov/pub/irs-tege/ehrdirective.pdf 

Safe Harbor/Exception

As the IRS requires compliance with the Electronic Health Records safe harbor/exception, we are reproducing a summary of those rules. Under the Electronic Health Records safe harbor/exception, certain items or services used for electronic health records systems may be given to a physician (or certain other health care entities) so long as all of the following requirements are met:

1. The Electronic Health Records items or services (“EHR Supplies”) must be software, information technology and/or training services necessary to create, maintain, transmit, or receive electronic health records, and must be used “predominantly” for this purpose. The EHR Supplies may not include hardware.

2. For purposes of the Anti-Kickback safe harbor, the EHR Supplies must be provided to an individual or entity engaged in the delivery of health care and provided by either: (a) an individual or entity that provides services covered by a federal health care program and submits claims or requests for payment, either directly or through reassignment, to the federal health care program; or (b) a health plan. The Stark exception applies only when EHR Supplies are provided by a DHS entity to a physician.

3. Before receipt of the EHR Supplies, the recipient must pay 15% of the cost of the EHR Supplies; the donor (or any affiliated individual or entity) may not finance the recipient’s payment or loan funds to be used by the recipient to pay for this contribution.

4. The EHR Supplies may not include staffing of the recipient’s office and may not be used “primarily” to conduct personal business or business unrelated to the recipient’s clinical practice or clinical operations.

5. Software provided as part of the EHR Supplies must be interoperable (as determined by a certifying body recognized by the Department of Health and Human Services).

6. Software provided as part of the EHR Supplies must contain electronic prescribing capability, either through an electronic prescribing component or the ability to interface with the recipient’s existing electronic prescribing system that meets the applicable standards under Medicare Part D at the time the items and services are provided.

7. The donor of the EHR Supplies may not take any action to limit the use, compatibility, or interoperability of the EHR Supplies with other electronic prescribing or electronic health records systems.

8. The donor may not restrict the recipient’s right or ability to use the EHR Supplies for any patient.

9. The recipient of the EHR Supplies may not condition doing business with the donor on the receipt of EHR Supplies or the amount of EHR Supplies.

10. The donor of the EHR Supplies may not condition the provision of EHR Supplies or the amount of EHR Supplies in a manner that takes into account the volume or value of referrals or other business generated between the parties.

11. The donor and recipient must enter into a written arrangement signed by both parties that describes the EHR Supplies provided, states the cost of the EHR Supplies, the contribution of the recipient, and covers all of the EHR Supplies provided between the parties.

12. The donor may not have actual knowledge of (or act in reckless disregard or deliberate ignorance of) the fact that the recipient already possesses EHR Supplies equivalent to those provided by the donor.

13. The transfer of the EHR Supplies must occur, and all conditions of the Electronic Health Records safe harbor/exception must be met, on or before December 31, 2013.

14. The Anti-Kickback safe harbor mandates that the donor not shift the costs of the items or services to any federal health care program.

15. The Stark Act exception requires that the arrangement not violate the Anti-Kickback Statute or any other law or regulation governing billing or claims submission.