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:


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