Understanding The Updated EHR Donation Rules

Regulators have extended a rule allowing hospitals to underwrite the cost of EHR software for affiliated practices, but with a few new wrinkles.

Michelle Holmes, Principal, ECG Management Consultants

January 9, 2014

4 Min Read

We recently learned that hospitals can continue donating most of the cost of electronic health record (EHR) systems, so what do hospital executives need to think about now versus when the rules were first published in 2006?

Let’s start with a good understanding of the rules themselves -- one from the Centers for Medicare and Medicaid Services (CMS) and a nearly mirror-image rule from the Department of Health and Human Services’ Office of the Inspector General (OIG).

First, the Stark Law (or physician self-referral statute) prohibits a physician from referring services to a hospital (among other entities) with which they have a financial relationship; if a referral is made, the hospital cannot bill Medicare for the service, unless the OIG publishes a specific exception. That's what happened in in August 2006, with a rule allowing physicians and hospitals to maintain their referral patterns even if the hospital provides the physicians with an EHR. Second, the anti-kickback statute (AKS) stipulates federal penalties (including significant fines and even prison) if a hospital or physician (again, among other entities) gives or receives remuneration that results in referrals. The AKS safe harbor that was introduced by CMS in 2006 does not say that it is acceptable to make or accept bribes -- but it does say that a hospital can donate an EHR to a physician without being subject to AKS sanctions, as long inducing referrals is not the hospital’s reason for providing the EHR.

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The Stark law exception and AKS safe harbor established in 2006 were set to expire on December 31, 2013. A proposed extension was announced in April 2013 and the final rules from CMS and the OIG including an extension to 2021 were made available on December 23, 2013. If the exception and safe harbor were not extended, hospitals with active donation arrangements would have had to change their pricing strategies, most likely to a Fair Market Value (FMV) arrangement – which requires that the FMV be determined with consideration to both the hospital’s actual costs and market benchmarks.

But to revisit our original question – now that an extension has been finalized, what does it mean for hospitals? For those hospitals that took advantage of the option when it originally became available, they will find that the majority of the donation parameters crafted in 2006 still apply. There are really only three relevant changes for hospitals beyond the extension. Least impactful is the elimination of the ePrescribing capability requirement which was determined to be redundant with other government programs. The new rule clarified the hospital’s inability to limit interoperability between the donated EHR and other technologies. And perhaps most notably, the interoperability certification requirement was aligned with the CMS EHR Incentive Programs.

As noted by Ms. Elana Zana, an attorney with Ogden, Murphy, Wallace, PLLC: "The modification of the interoperability deeming provision to deem certified EHR technology as interoperable encourages hospitals and physician groups to work with each other to meet meaningful use. Now not only does the donation arrangement exception provide an avenue for the purchase of electronic health records but aligning the certification with the meaningful use standards further enables physician groups to avoid payment adjustments and possibly qualify for incentive dollars."

The implications are far more significant for hospitals that did not yet have an offering but may welcome the chance to establish one; many were considering such a strategy already but had not pursued planning in detail with the expiration looming. These hospital executives need to now understand what they can and cannot include in the donation, what criteria can be used when selecting donation recipients, and how to establish donor’s costs and physician prices. The Internal Revenue Service (IRS), for example, has indicated that the donation must be provided to all medical staff, however there may be some stratification of the donation based on community benefit. Therefore, there is ambiguity and opportunity in identifying participants and crafting the donation criteria. Contract terms addressing issues like term and termination, service level agreements, data ownership and transferability, and conditions for participation are similarly vitally important.

The market landscape is much different than it was in 2006, making some of the details embedded in the exception and safe harbor more relevant now than in the past. For example, there are limits on donations to organizations that already have comparable technology. EHR adoption by office-based providers has increased from 17% in 2008 to 40% in 2012 according to the Office of the National Coordinator for Health IT. But 31% of doctors plan or would like to switch to a new EHR system, according to recent market research from Black Book Rankings. Hospital EHR donation recipients therefore are much more likely to be replacing a legacy EHR system with that provided by the hospital; the nuances of upgraded and enhanced integration to differentiate the new EHR so that a donation is permissible have significant implications.

In summary, hospitals that are designing EHR donation offerings for the first time as a result of the extension must now learn the intricacies of both rules with the knowledge that many of the stipulations have much broader impact in today’s environment.

About the Author(s)

Michelle Holmes

Principal, ECG Management Consultants

Michelle Holmes joined ECG Management Consultants Inc. in 2005 with extensive experience in assisting with the implementation of an EHR in a large, ambulatory healthcare system. She focuses on helping physician groups leverage their EHRs to address strategic and operational challenges. She has Master's degrees in business administration and health services administration from the University of Washington, a Bachelor of Arts degree in health services administration from Eastern Washington University, and a Bachelor of Science degree in business management from The University of Utah.

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