Although still cautious with their money, not-for-profit hospitals and systems have proven more comfortable subsidizing electronic health records for the practices of staff physicians since the Internal Revenue Service sought to remove itself as an obstacle a year ago.
In May 2007, the IRS declared in a memo that helping physicians pay for interoperable EHR systems would not be viewed as lavishing a private benefit on the recipients and thereby call into question the organization's tax exemption.
"This had been an area we had a lot of concern about," said Matt Koschmann, vice president of business development and external affairs at 136-bed Lake Forest (Ill.) Hospital. A year after the IRS memo, the suburban Chicago hospital has just started the first phase of its program, expected to bring 50 primary-care physicians in small practices online, with the hospital contributing $750,000 toward the cost of rolling out eClinicalWorks record and practice-management software. After the IRS memo was issued, Koschmann said, "We went back to our board and got a lot of support to get the startup financing for providing the record to our groups."
Setting up a safety zone
Earlier, hospitals worried that efforts to bring physicians online would violate the Stark law and anti-kickback statute until, in rules finalized in 2006, the CMS and HHS' inspector general's office carved out a safety zone in the interest of speeding takeup among physicians who have long found the costs prohibitive.
According to one survey conducted this past February, only about 14% of physicians were using electronic health-record systems, with numbers somewhat higher or lower depending on practice size.
Whether the IRS would provide its own corresponding leeway on the issue of IT-sharing was uncertain until the 2007 memo was issued.
"It was extremely helpful because there was a lot of doubt," said lawyer Gerry Hinkley, a partner in Davis Wright Tremaine in San Francisco, though he points out that the memo was an internal document intended to guide the agency's own field reviewers rather than a formal pronouncement. But Hinkley said he's confident the clear spirit of the document indicates the IRS isn't itching to stand in the way of something the Bush administration has held up as a priority and for which HHS has explicitly cleared a path.
"The hospital clients we work with that want to go forward with an EHR are figuring out a way to do it," Hinkley said. "The ones that don't want to do it are still concerned about regulatory compliance issues."
An IRS spokesman said the service considers the matter largely settled and hasn't received any requests for private-letter rulings on donation programs, though the exempt-organizations technical branch is now considering several applications regarding the treatment of regional health information organizations, which are groups formed to share records. (Private-letter rulings are individualized opinions on whether the service finds specific programs acceptable.)
The principles outlined in the 2007 memo, as well as a companion Q&A, include a few caveats to the general message: that donations that are in line with HHS rules will be permissible in the eyes of the IRS. But the finer points haven't proved burdensome according to some who have attempted to follow them.
Rules to live by
The memo stipulates that the hospital be able to access the records the physician created with the technology and services the hospital helped pay for, at least to the extent permitted by the Health Insurance Portability and Accountability Act of 1996 and state privacy laws. Also, the hospital is required to make the technology and associated services available to all physicians with staff privileges at the facility, and the subsidy must be the same for everyone or vary by criteria connected to meeting the needs of the community.
"What does that mean from reality, in terms of implementation?" posed Laura Jantos, a principal in ECG Management Consultants in Seattle. "You're probably going to provide it to all of your medical staff in the first place," Jantos said. "It didn't create that much of a hiccup in terms of what organizations were doing that really want to move forward. What it takes in a competitive environment is for one to do this and everyone else to figure out how they're going to counter."
Koschmann said ensuring that Lake Forest Hospital's EHR-system deployment didn't favor its most lucrative physicians wasn't complicated. The assistance is geared first toward primary-care practices, because they have the most technical and financial need, and the order beyond that has been dictated by the base technical requirements of the system. The physician offices located in the hospital's buildings so far are the only ones with the infrastructure in place to get started.
From the vendor perspective, "The marketplace is seeing lots of activity," said Hugh Zettel, director of government and industry relations for GE Healthcare. GE in February sealed an $8.3 million contract with Inova Health System, Falls Church, Va., a five-hospital system that's helping physicians implement GE's Centricity system. "The guidance is there and doesn't create any more roadblocks," Zettel said. "There's a certain amount of judiciousness. That's just part of the culture within this industry."
Geoff Brown, Inova's senior vice president and chief information officer, said he and his colleagues worked to find out how the IRS might come down on the issue before the memo was published, and since then they've had a number of conversations with IRS staff to make sure the system's approach will satisfy the caveats.
At the end of those talks, Brown said, there's always a disclaimer that the conversations don't necessarily represent an official IRS determination, as would a more burdensome private-letter ruling. "Am I sitting here saying to you we believe it is totally a closed issue? I'm not saying that," Brown said.
Inova is allowing practices to get onboard with a deeply discounted per-physician fee for assessment, planning, training, implementation and licensing. The system is just now marketing the offer to the 3,000 community physicians who are on staff with Inova hospitals. The commitments returned will be date-stamped and put in a queue to ensure no one is getting favorable treatment for untoward reasons. "We've taken a fairly neutral route around how we make this available," Brown said, and he's comfortable that "it really does fall under the community goodwill platform vs. one that would yield a commercial advantage to practices that are heavily linked with physician referrals."
Bozeman (Mont.) Deaconess Hospital, a client of ECG Management Consultants, started working toward a practice donation program about six months ago for EMRs and enterprise practice-management software made by NextGen Healthcare Information Systems. That was before the IRS revealed its views on the matter, with the hospital betting that the agency would embrace the concept while asking that the execution be rooted in community benefit.
"We'd already done it," said Liz Lewis, the 70-bed hospital's senior vice president of operations/legal. The program's participation and use agreements require that physicians take on-call duty in the hospital's emergency room, support its free clinic and accept patients who are discharged and don't have a primary-care physician, Lewis said.
The confirmation from the IRS, however, was welcome. "It could have gone the other way," she said. "We were glad we didn't have to back out on it. We were already down the road."
This story initially appeared in this week's edition of Modern Healthcare magazine.
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