In a thoughtful amendment to Washington’s Anti-Rebate Statute, the Legislature has aligned the parameters of chapter 19.68 RCW with those of the federal Anti-Kickback Statute, granting greater protection for EHR donation programs and other legitimate activities that were previously vulnerable to potential legal challenges. The legislation was drafted by the Washington State Hospital Association and the Washington State Medical Association.  It was prompted by a recent Attorney General Opinion (the “Opinion”) suggesting that a clinical laboratory’s donation of EHR technology to a physician customer violated the Anti-Rebate Statute.

The Opinion surprised Washington health care providers, several of which had either established or participated in EHR donation programs under a specific safe harbor of the Anti-Kickback Statute and a corresponding exception to the federal Stark law. Recognizing the importance of promoting EHR usage and the need to clarify the law, the Legislature amended the Anti-Rebate Statute such that its prohibitions do not apply to any activity that fits within a safe harbor or otherwise does not violate the Anti-Kickback Statute.

The text of the bill can be read here: SB 5601. A more detailed review of the Anti-Rebate Statute, the Attorney General’s Opinion and the new amendment is set forth below.

Washington’s Anti-Rebate Statute

The Washington Legislature enacted the Anti-Rebate Statute in 1949. Section 19.68.010 has been charitably characterized as inscrutable. The state Supreme Court described the statute as “not a model of clarity” and the Attorney General (AG) recently described it as a “single, dense, 156-word sentence.” Various combinations of the clauses from this sentence could potentially be strung together to prohibit many existing business relationships among physicians and hospitals, clinical laboratories and other providers along the health care continuum.

Violation of the statute is a misdemeanor. To date, no state enforcement actions have been brought based upon statute, but the AG has issued five opinions in an attempt to characterize the statute’s scope. The statute has also been invoked by parties in private litigation, with three cases resulting Supreme Court opinions.

AGO undermines EHR donation programs

The AG’s November 2012 Opinion addressed the following question:

Under RCW 19.68.010, can a clinical laboratory licensed by the State of Washington lawfully make a monetary donation to a physician to cover 85 percent of the software cost of that physician's electronic health record (EHR) when the physician's office that is the recipient of the EHR donation either continues a referral arrangement with the laboratory, or subsequently initiates an arrangement for the referral [of] specimens to the donating laboratory for analysis?

In answering this question, the AG applied a rigid and formulaic analysis of the Anti-Rebate Statute and determined that the hypothetical donation described above would violate the law.

Although federal law permits physicians and other providers to receive EHR donations from third parties, the AG’s Opinion undermined the legality of such programs in two ways. First, the Opinion concluded that at least some donation programs violate the state Anti-Rebate Statute. Second, the Opinion undermined the theory that the Anti-Rebate Statute is implicitly preempted by the Anti-Kickback Statute.

The Legislature’s response: SB 5601

In amending the Anti-Rebate Statute, the Washington Legislature considered the implications of the AG’s Opinion, the importance of promoting EHR technology, and the tension between state and federal law. The amendment’s text provides that nothing in chapter 19.68 RCW “may be construed to limit or prohibit the donation of [EHR] technology or other activity by any entity, including a [licensed] hospital … that operates a clinical laboratory, when the donation or other activity is allowed by or otherwise does not violate” the Anti-Kickback Statute or its implementing regulations. It should be noted while the amendment specifically references EHR donations, its language extends to all activities that are allowed by or do not violate the federal Anti-Kickback Statute.

In aligning the Anti-Rebate Statute with the Anti-Kickback Statute, the Legislature did make one exception. The new law does not apply to any entity which principally operates as a clinical laboratory licensed or certified under section 353 of the Public Health Service Act, 42 U.S.C. Sec. 263a, or other applicable Washington law.

The amendment to chapter 19.68 RCW takes effect on July 28, 2013, and applies retroactively to June 1, 2006, as well as prospectively. Because the amendment is retroactive, Washington hospitals, physicians and others who participated in EHR donation programs in reliance on the Anti-Kickback Statute’s safe harbors are now protected from potential claims under the Anti-Rebate Statute.