Electronic Health Records Donations: Tax Exempt Issues to Consider

The Centers for Medicare and Medicaid Services created a Stark Act exception and an Anti Kickback Statute safe harbor in 2006 to allow hospitals and other entities to provide physicians with software and other assistance relating to the implementation of electronic health records (“EHR”) systems. However, tax-exempt hospitals still were concerned with private inurement issues related to the donation of EHR systems to physicians.

On May 11, 2007, the Internal Revenue Service issued a memorandum entitled “Hospitals Providing Financial Assistance to Staff Physicians Involving Electronic Health Records” (the “IRS Memorandum”) approving the furnishing of EHR technology by tax exempt hospitals to their medical staff physicians.

The IRS Memorandum allows a tax-exempt hospital to donate EHR technology to physicians if the hospital meets not only the regulatory requirements found in the Stark exception and the Anti Kickback safe harbor, but certain additional requirements. The regulatory exceptions were set forth in the July 28, 2008 list serve entitled “Increased Interest in Electronic Health Record Donations under the Stark Act: Nine Issues to Consider.” The additional requirements set forth in the IRS Memorandum to permit such donations are as follows:

1. The tax-exempt hospital enters into a Health Information Technology (“Health IT”) subsidy agreement with its medical staff physicians for the provision of Health IT items and services at a discount (the “Subsidy Agreement”).
2. The Subsidy Agreement requires both the hospital and any participating physicians to comply with the Stark Act exception and the Anti Kickback safe harbor on an ongoing basis.
3. The hospital is able to access all of the electronic health records created by participating physicians using the donated EHR technology.
4. The hospital ensures that the donated EHR technology is available to all of its medical staff physicians.
5. The hospital provides the same level of subsidy to all of its medical staff physicians.

Thus, if a tax-exempt hospital meets the criteria set forth in the Stark Act exception, the Anti Kickback Statute Safe Harbor and in the IRS Memorandum, then the tax exempt hospital’s donation of EHR technology will not likely constitute private inurement.

If you have any questions regarding these requirements, please contact us.