The Centers for Medicare and Medicaid Services (“CMS”) created a Stark Act
exception in 2006 to allow hospitals and other entities to provide physicians
with software and other assistance relating to the implementation of electronic
health records systems. Over the past few years, the utilization of this
exception has increased significantly. Further, parties have examined which
types of donations would not qualify as remuneration or compensation under the
Stark Act and thus need not fit within this exception.
This article briefly discusses nine of key points relating to this electronic
health records exception. A separate article discusses a specific advisory
opinion relating to the donation of a software module that does not constitute
remuneration or compensation.
1) The exception only protects relationships otherwise prohibited by the
Stark Act. The Anti Kickback Statute safe harbor protecting the provision of
electronic health records software is slightly different, which CMS explained as
follows in its August 8, 2006 commentary.
We have attempted to ensure as much consistency as possible between our
final electronic prescribing exception and the corresponding final safe
harbor, given the differences in the respective underlying statutes. One
significant difference in the statutory schemes is that complying with a
safe harbor under the anti-kickback statute is voluntary, whereas fitting in
an exception under section 1877 of the Act is mandatory. In other words,
arrangements that do not comply with a safe harbor may not necessarily
violate the anti-kickback statute. Rather, such arrangements are subject to
the customary case-by-case review under the statute. If an arrangement fails
to meet all requirements of a physician self-referral exception, however, it
violates section 1877 of the Act. Another difference is that section 1877 of
the Act applies only to referrals from physicians, while the anti-kickback
statue applies more broadly.
2) Under the electronic health records exception, the physician practice must
pay 15% of the value of the donation. The donor (or any party related to the
donor) may not finance the physician practice’s payment or loan funds to be used
by the physician practice to pay for the items and services.
3) The selection of the donee cannot be based on the volume or value of
referrals by physicians to the hospital. Moreover, there are a number of
standards by which to defend that a donation is not based on the volume or value
[W]e are providing several bright-line criteria in the final rule, along
with a general provision that permits other reasonable and verifiable
selection criteria that do not relate directly to the volume or value of
referrals. We are finalizing the criteria enumerated in the proposed rule,
in addition to a criterion related to the provision of uncompensated care,
The determination is based on the total
number of prescriptions written by the physician (but not the volume or
value of prescriptions dispensed by the donor);
- The determination is based on the size of the physician’s medical
practice (for example, total patients, total patient encounters, or
total relative value units);
- The determination is based on the total number of hours that the
physician practices medicine;
- The determination is based on the physician’s overall use of
automated technology in his or her medical practice (without specific
reference to the use of technology in connection with referrals made to
- The determination is based on whether the physician is a member of
the donor’s medical staff, if the donor has a formal medical staff;
- The determination is based on the level of uncompensated care
provided by the physician; or
- The determination is made in any reasonable and verifiable manner
that does not directly take into account the volume or value of
referrals or other business generated between the parties.
4) The electronic health records function of software must be predominant.
This is intended to assure that the donation is really aimed at the adoption of
electronic health records and not aimed at providing other components to
physicians that could be viewed as a kickback or other compensation.
Although electronic health records purposes must predominate, protected
software packages may also include other software and functionality directly
related to the care and treatment of individual patients (for example,
patient administration, scheduling functions, billing, clinical support
software, etc.). This condition recognizes that it is common for electronic
health records software to be integrated with other features.
5) The electronic health records software must be “interoperative”. This
means that it can be used with multiple different systems and not simply with
the system used by the hospital providing the software. The intent is to avoid a
situation where hospitals donate specialized software to lock in business with
physicians. CMS defines “interoperable” as follows.
Having reviewed the public comments and upon further consideration, we
are defining “interoperable” to mean that, at the time of the donation, the
software is “able to (1) communicate and exchange data accurately,
effectively, securely, and consistently with different information
technology systems, software applications, and networks, in various
settings, and (2) exchange data such that the clinical or operational
purpose and meaning of the data are preserved and unaltered.
6) The software cannot be duplicative of other software and programs the
physician practice already owns. This is intended to help assure that hospitals
encourage the use of electronic health records but not to get into a bidding war
with physician practices. In essence, this restriction ensures that the donated
software meets a genuine need and does not lead to ulterior activities.
[I]f a donor knows that the physician already possesses the equivalent
items or services, or acts in deliberate ignorance or reckless disregard of
that fact, the donor will not be protected by the exception. Thus, prudent
donors may want to make reasonable inquiries to potential physician
recipients and document the communications. We do not believe this
requirement necessitates the hiring of technical experts by either the donor
or physician recipient.
7) The electronic health records exception does not extend to the provision
of hardware of any sort. CMS itemized the following exceptions.
We interpret the scope of covered electronic health records technology to
- Hardware (and operating software that makes the hardware function);
- Storage devices;
- Software with core functionality other than electronic health records
(for example, human resources or payroll software); and
- Items or services used by a physician primarily to conduct personal
business or business unrelated to the physician’s practice.
8) The exception is now available to any donor that provides designated
health services, not just hospitals.
Recognizing that extending the protection of the exception to a wider
group of donors may further facilitate the dissemination of the technology
and after carefully considering the recommendations of the commenters, we
have expanded the list of protected donors. In an effort to create a bright
line rule, protected donors include all entities (as that term is defined at
§411.351) that furnish DHS. DHS entities may donate covered technology to
any physician. To the extent that a PDP sponsor or MA organization is an
entity that furnishes DHS, donations of electronic health records software
or information technology and services by the PAP sponsor or MA organization
would be permissible, provided that all conditions of the exception are met.
(When PDP sponsors and MA organizations do not satisfy that definition, the
physician self-referral prohibition may not be implicated.) Moreover, PDP
sponsors and MA organizations potentially may avail themselves of other
9) The exception does not provide a hard cap on the amount of electronic
health record technology that can be provided. However, as a reminder, the
physicians must pay 15% of the value and the software must be used predominantly
for electronic health records purposes.
We agree with the commenters that determining the value of donated
technology poses certain difficulties and we are not including a cap on the
amount of protected donations in the final exception. While gifts of
valuable items and services to existing or potential referral sources
typically pose a high risk of program or patient abuse, we believe that the
combination of conditions in the final exception should adequately safeguard
against abusive electronic health records arrangements.
If you have any questions regarding the application of this exception, please
contact the authors.