IRS Memo on IT Donations to Docs Raises Patient Privacy Concerns

Reprinted from the June 2007 issue of REPORT ON PATIENT PRIVACY, the industry’s most practical source of news on HIPAA patient privacy provisions.Hospitals may donate health information technology (HIT) to physicians without fear of jeopardizing their tax-exempt status, the IRS recently announced. But the agency’s insistence that physicians grant hospitals full access to their medical records if they accept HIT assistance has privacy officials and experts scratching their heads.

Last month, the IRS released an internal memorandum in response to a November 2006 request for guidance from the American Hospital Association (AHA). AHA said hospitals were “poised to implement HIT sharing with physicians” but were worried about whether doing so would threaten their tax exemption.

Hospitals already had what they considered to be a partial go-ahead to donate HIT. To spur the adoption of HIT, including electronic health records and e-prescribing technology, Congress included a provision in the 2003 Medicare reform law requiring HHS to write rules that would provide a safe harbor under the anti-kickback statute and provide an exception under the physician self-referral statute for hospitals that wanted to share HIT.

AHA Fears Policy May Be Altered

HHS released such rules in August 2006, but AHA said nonprofit hospitals needed the IRS to weigh in on the issue before they felt comfortable going ahead with HIT sharing. A survey of chief information officers conducted this spring revealed that a majority did not plan to make such donations, out of fear that the rules, issued when Republicans controlled Congress, could be altered now that Democrats are the majority. Rep. Pete Stark (D-Calif.), in particular, has stated his opposition to the HHS rules.

AHA’s letter seeking clarification was sent to Lois Lerner, the IRS’s director of exempt organizations. AHA says non-profit should be allowed to make IT donations without tax consequences. “The HHS regulations permit hospital and health care systems to provide software and other health IT and support services (but not hardware) to physicians for the purpose of promoting health by improving patient safety, and the efficiency and effectiveness of care,” the letter states.

The memo that the IRS released on May 11 was written by Lerner, addressed to her staff and posted on the IRS’s Web site under the topic “Electronic Health Records Directive.” The IRS described the memo as a “directive for cases on hospitals that help physicians acquire electronic health records.”

“We will not treat the benefits a hospital provides to its medical staff physicians as impermissible private benefit or inurement in violation of section 501(c)(3) of the Code if the benefits fall within the range of Health IT Items and Services that are permissible under the HHS EHR Regulation and the hospital operates in the manner described below,” Lerner writes in the memo.

The rub for privacy experts comes from the phrase “the manner described below.” The memo goes on to state that following the HHS rules is not enough. Hospitals that want to share HIT will enter into “Health IT Subsidy Arrangements” or agreements, Lerner writes.

“The Health IT Subsidy Arrangements provide that, to the extent permitted by law, the hospital may access all of the electronic medical records created by a physician using the Health IT Items and Services subsidized by the hospital,” the memo states.

In addition, the hospital must:

• Ensure that the Health IT Items and Services are available to all of its medical staff physicians; and
• Provide the same level of subsidy to all of its medical staff physicians or vary the level of subsidy by applying criteria related to meeting the health care needs of the community.

These requirements do not apply to for-profit hospitals.

Ambiguity on Access Issue: Continue article here: http://www.aishealth.com/Bnow/061307e.html

Not everyone benefits from IRS ruling, analysts say

6/11/07 Richard Pizzi www.healthitnews.com

Not all electronic medical records vendors will benefit equally from the recent Internal Revenue Service ruling allowing not-for-profit hospitals to provide healthcare information technology to physicians, according to a recent report by analysts at Leerink Swann & Company.

George Hill and Bret Jones of Leerink Swann’s Health Care Equity Research team wrote the report for investors in the wake of the May 11 IRS memorandum. They believe that vendors that currently have a high profile position in the national EMR market are best positioned to capitalize on the “potential influx of spending from not-for-profit hospitals,” but that the ruling could actually harm smaller, regional vendors.

The recent IRS ruling was important because it declared that a not-for-profit hospital’s purchase of an EMR system for a physician would not be considered an “impermissible private benefit,” according to the terms of the exemption to the Stark Anti-trust laws provided by CMS, and would not put a hospital’s tax-exempt status at risk.

In their report, Hill and Jones anticipate that the number of hospitals planning to assist physicians with the purchase of an EMR system may be greater than previously thought.

The Leerink Swann analysts contend that some regions, particularly urban areas, could see a “heightening competitive environment” as hospitals offer financial assistance to physicians for EMR purchases in order to attract more referrals for surgeries and other hospital-based procedures.

While hospital spending on EMRs for physicians is likely to increase, Hill and Jones suggest that contract signings with vendors may not spike in the immediate future. Hospital systems are generally conservative, they say, and their longer cycle capital budgeting process probably means that contract awards are several quarters away.

The analysts point out that the relaxation of the Stark Law may have some negative effects on ambulatory EMR vendors. In the near term, physician practices might choose to delay the purchase of EMR systems, “in the hopes that some local hospital will pick up a large portion of the tab for the costs” of a new EMR.

Hill and Jones also claim that competition for the large hospital-physician contracts that the Stark relaxation allows could lead to increased price competition and discounting among EMR vendors. If so, this could result in “lower net pricing and potentially lower levels of profitability for EMR software vendors.”

While the analysts suggest that many companies that offer an ambulatory EMR package will benefit from the IRS ruling, not all vendors will realize financial rewards.

The Leerink Swann report predicts that hospitals may be willing to be interoperable with a few outpatient EMR systems, but by no means all. If this proves to be true, it could act as a barrier to entry for smaller vendors in the ambulatory market.

“A hospital could choose to work with its inpatient vendor, another 3-4 outpatient [EMR] systems vendors, and then all other smaller vendors could essentially be locked out of that regional market as RHIOs are developed,” Hill and Jones warn in the report.

This possibility unnerves many smaller EMR vendors, says Don Schoen, CEO of Des Moines, Iowa-based MediNotes.

“Hospitals need to allow physician practices – particularly smaller practices – to make choices about which product they want to use in the office,” Schoen said. “This ruling can be a good thing, but it’s very dangerous for a hospital to push for only one specific product in every physician office in a community.”

Article: http://www.healthcareitnews.com/

 

IRS gives physician EMR donations the OK for Non-profits

By Nancy Ferris Published on May 14, 2007 Government Health IT

A long-awaited Internal Revenue Service memo has made it clear that nonprofit hospitals can give e-health records software and support services to their staff doctors without jeopardizing their tax-exempt status.

The May 11 memo was welcomed by health IT advocates, who had expressed concern that uncertainty about how the IRS might rule was inhibiting hospitals from including the doctors’ offices in their medical records networks.

The IRS memo cites Department of Health and Human Services regulations that created exemptions from anti-kickback and physician self-referral laws. Those regulations, which became final in August 2006, were intended to encourage hospitals to share their systems with doctors who practice at the hospitals.

The alignment between the IRS and HHS actions prompted Scott Wallace, president and chief information officer of the National Alliance for Health IT, to call the memo “absolutely as good as anyone could have hoped for.” He predicted it would encourage more doctors to use EHR systems. Once hospitals install such system for their internal operations, “the incremental cost of adding a physician is fairly low,” Wallace said.

“The AHA is pleased that the IRS moved quickly in responding to hospitals’ request for guidance on this important issue,” said Lawrence Hughes, regulatory counsel of the American Hospital Association.

According to the AHA, nearly 3,000 of the nation’s 4,936 community hospitals are nonprofit organizations.

The memo from Lois Lerner, the IRS’ director of exempt organizations, notes that some hospitals believe their medical staff physicians need financial incentives to use EHR software that would exchange information with hospital systems.

Wallace said such arrangements are likely to help especially with small medical practices, which have a much lower rate of EHR usage than larger practices.

Article: http://www.govhealthit.com, also see the HHS EHR Regulation here

To learn more about the ruling:

- read this Health Data Management item
- read the IRS ruling (.pdf)