Technology: Yours for a Fraction of the Price

March 1, 2007

The federal government is changing its interpretation of the Stark law that has long prevented hospitals from helping practices access electronic health records. Our expert explains how it will affect you.


Recently, the government revised self-referral laws to allow physicians to purchase electronic health record systems from hospitals at a fraction of their cost. Sound too good to be true? We set out to investigate.

Something significant happened in the often bewildering world of federal regulations governing healthcare IT laws late last year, although few people were precisely sure what it was. Busy physicians, far too occupied with their daily workloads to read the Federal Register, did not notice two final rules posted there by CMS on Aug. 8.

But by now you may have begun to hear about changes in the federal regulations that govern the Stark self-referral and anti-kickback laws.

These changes specifically address the sticker shock many physicians have been experiencing when shopping for electronic health record (EHR) systems for their practices. Price tags often topping $20,000 per physician for EHR software - not to mention the hardware, training, and technical support required to keep such sophisticated systems functional - have kept many practices from making the switch.

The Bush Administration has moved to ease the economic sting of pricey EHR systems by allowing hospitals and health systems to sell their EHR software to practices at a fraction of their cost.

To achieve this goal, one rule as stated in the Federal Register creates “an exception to the physician self-referral prohibition for certain arrangements in which a physician receives compensation in the form of items or services (not including cash or cash equivalents) that is necessary and used solely to receive and transmit electronic prescription information.”

In addition, another rule “creates a separate regulatory exception for certain arrangements involving the provision of nonmonetary remuneration in the form of electronic health records software or information technology and training services necessary and used predominantly to create, maintain, transmit, or receive electronic health records.”

To determine how these rules translate into layman’s terms and how physicians may take advantage of them (or decide whether it is wise for them to do so), Physicians Practice turned to Bruce Armon, an attorney who has concentrated his practice on corporate healthcare law for the past ten years and who is a partner in the Philadelphia-based firm, Saul Ewing LLP.

Armon has assisted physicians, dentists, ancillary providers, hospitals, pharmaceutical companies, insurers, and product manufacturers in a host of matters including: drafting, editing, and negotiating contracts and shareholder documents; establishing medical practices; understanding statutory, regulatory, and compliance matters including HIPAA implementation; complying with fraud and abuse statutes; and advising his clients on payment and reimbursement issues.

Armon regularly lectures to medical audiences on healthcare-related legal issues, and he writes for several healthcare industry publications. He has also authored several chapters for and is the assistant editor of the book, “Bringing Your Medical Device to Market.”

Physicians Practice:What precisely are the new regulatory conditions under which a physician can obtain EHR software from a hospital or health system?

Bruce Armon: This first thing that’s important for all physicians and physician practices to understand is that there were actually two sets of new regulations that were put forth. One of the regulations addresses compliance under the federal anti-kickback statute. And the second regulation addresses compliance pursuant to the physician self-referral law, a.k.a. the Stark statute.

Within each of those sets of regulations, there were two discrete subjects that were addressed: One dealt with e-prescribing, and the other dealt with electronic health records. So in essence, when these final regulations were published in August 2006, there were actually four new regulations, two dealing with e-prescribing, and two dealing with electronic health records.

One of the important distinctions for people to remember - at least for the purposes of these regulations - is that the regulation uses the term “electronic health record” rather than the common vernacular that many physicians and advisors use, which is electronic medical records. The definition of an EHR as described in the regulation is a fairly broad definition. … And at least for each of these regulations as they are envisioned, there are two parties involved in the transactions related to EHRs: a donor and a recipient. For the purposes of these rules, the physicians are deemed to be the recipients of the software technology that allows for interoperable electronic health records.

Because of these new regulations, there is now a formal vehicle for donors through which they can actually contribute this technology to physician practices without running afoul of the federal fraud and abuse laws.


One of the other important elements to remember as it relates to this donor relationship is that there’s a cap in terms of the overall payment that can be made in that a recipient has to pay 15 percent of the donor’s costs for the items and services. So it’s not a giveaway; in many respects, it’s a partnership. And the rationale from the government’s perspective is that they recognize the potential for abuse in a program like this, and requiring a physician or physician practice to invest a quantifiable buy-in in terms of paying a portion of the costs for these services is an opportunity to minimize such risks.

PP:To which types of abuses are you referring?

BA: The type of abuses in which a hospital would potentially give this very valuable EHR software to a large admitter to the hospital, and do so at no cost. Or to the extent that other giveaways might be included in that EHR package. One of the things that CMS made clear in the regulations is that the EHR software has to be interoperable. The purpose of that is that it’s not specific to Hospital A or Medical Subspecialty B, but rather that it can be used by any hospital or any physician practice, no matter what their interaction is with any hospital.

They also made clear in the rulemaking process that it was limited to software, and that this program is not to be construed as a means by which a donor could provide hardware or could provide specific staff to run the operating system, which again, from a fraud and abuse perspective, there’s a potential for inappropriate conduct depending upon the scope of the relations between the donor and the recipient.

PP:How many hospitals and physicians have taken advantage of these new regulations?
BA: I’m not sure … of the number of hospitals. I can tell you that CMS, which administers the Stark program, estimates that each year, about 61,000 physicians will start to use EHRs. And of that 61,000, they estimate that every year about 20 percent, or 12,000 physicians, will be recipients of software technology from donors - hospitals, in most circumstances.

PP:Can hospitals pick and choose to whom to offer this software?

BA: There is a process by which a hospital can determine who is eligible to be a recipient of this software. But … the eligibility process cannot be determined in a manner that directly takes into account the volume or value of referrals or other business generated between the parties [physicians and hospitals]. So they did put that bold, underlined text out that says a hospital cannot give this software to its largest admitter at the expense of the single solo practitioner.

Then regulators assessed a number of different factors by which the government would determine whether or not the donor was considering the volume or value of referrals when offering an EHR to a specific recipient. For example, they said the determination could not be based on a volume or value mechanism if it’s based on the total number of hours that the recipient practices medicine. So hospitals can’t try to differentiate the potential benefits of a full-time practitioner versus a part-time practitioner. They also cannot base their offer on the size of the recipient practice. That is, they can’t look at total patient encounters or total RVUs, which in some respects could favor a larger practice depending upon the criteria that the donor uses.

PP:Who is policing this program to ensure such abuses do not occur?

BA: There are two different policing mechanisms. Any violation of the federal anti-kickback statute would go through the Office of the Inspector General (OIG) at the Department of Health and Human Services. If there was a potential Stark law violation, that’s governed by CMS.

This underscores the dichotomy that there are two sets of rules that came out that are largely identical. The difference is that to prove wrongdoing there are different threshold tests. Most providers know that under the anti-kickback statute, the government needs to prove that there was an intent; under the Stark statute, intent is not necessary. And if a donor and/or recipient act inappropriately, that’s a potential violation of Stark, regardless of either party’s intent.

In some respects, it’s like any arrangement in which there is a potential violation, or a potential whistleblower, or a potential complaint. A government investigator would get involved. So it’s self-policing in that respect, since I expect that no donor is going to want to incur the risk of attracting unwanted attention to a program like this. Again, particularly since it’s not designed as a program in which Hospital A can say, “We’re going to give our EHR software to the practices that are our biggest admitters first, and we’re going to let everybody else - or people who have privileges at multiple institutions - sort of hang by the wayside.”

PP:Does the donor need to obtain clearance from the OIG or CMS before they offer their EHR software to physicians?

BA: No. There’s no prerequisite or preapproval process. In terms of the interoperability of the software, there is a certification recognition program conducted by a national body, so there’s some broad, independent third party that lends legitimacy to the donor’s software that they are contributing.

And the software also must have the capability to do e-prescribing. … That’s certainly been one of the initiatives of the current administration in terms of looking to move forward and get as many different entities into the “e-system,” if you will.


The government also declared that, unlike most of its safe harbor programs, this program will sunset on Dec. 31, 2013. The thought is that at that point everyone will be using some mechanism of electronic health records.

PP:Can physicians insist that their local hospital provide them with an EHR?

BA: In short, no. There’s no requirement that they can insist, because in these circumstances the physician is the recipient rather than the donor.

PP:So, suppose I am a three-physician practice, and I’m down the street from my local hospital. I can’t demand its EHR software, but can I go and say that I am interested?

BA: Yes. Any physician or physician practice can express an interest, saying, “I understand that the hospital is now offering this program. What are the participation requirements, and can I participate?”

The hospital is not under any obligation to say yes, but I suspect that if a hospital is participating in this program, they’re going to make it available. Because once the software is developed and out there, it’s in the interest of the hospital to make sure that everybody has access to quality patient care through these EHRs, and that people are working on some system that makes it as uniform as possible.

PP:So if I cannot demand EHR software from a hospital, I suppose it goes without saying that I can’t specify which system I want?

BA: Correct. And from the donor’s perspective, they can’t give you any software that you want; the software that they give you has to be interoperable. That is, it can’t be specific to Hospital A, or it can’t limit your ability to access another hospital or interact with another hospital’s records. In terms of the CMS’s use of the term “interoperable,” they really try to make it as broad as they can so the donor can’t shoehorn a practice into taking something that stagnates its ability to interact with other parties.

PP:What strategic business issues should physicians consider before accepting an EHR from a hospital?

BA: A couple things come to mind. Certainly, cost is going to be a relevant factor. Given that any recipient has to pay 15 percent of the donor’s cost, they should find out the price of the system and what’s included in it.

Also keep in mind that while the EHR software has to be the predominant feature of the system, it doesn’t have to be its only feature. So to the extent that a practice is further ahead or behind where it would like to be in terms of EHRs, that’s one of the parameters that a practice should think about.

Also, they should certainly make sure that there’s an agreement in place between the donor and the practice that comports with what the anti-kickback statute safe harbor and the Stark referral provision require. I don’t envision these agreements being particularly long or exhaustive, but there should be things in there that certainly delineate the cost of the software, what happens if something breaks, where a practice can or cannot go for technical support, and what sorts of rights and recourse the hospital may have.

PP:So physicians who accept an EHR from a hospital are not obligated - or compelled - to refer patients to that specific hospital?

BA: Absolutely correct. There is no obligation that recipient physicians have to refer patients to their donor. It’s truly an arms-length transaction in which the donor is paying for 85 percent of this software, but there’s no quid pro quo in which the physician has to do certain things or not do certain things.

PP:Can that hold up in reality? There is still no universal standard for EHR interoperability.

BA: Correct.

PP:So if I am a physician, and Hospital A gives me EHR software, and we are using compatible products, but Hospital B isn’t using the same standards, wouldn’t I necessarily refer to Hospital A?

BA: Part of the issue begs the question of what exactly is included in the electronic health record software you receive and how far along different hospitals are in terms of implementing their EHR systems. I would think that most physicians are not going to send patients to one facility rather than another because of an interoperable electronic health records system; rather, they would be more concerned with the quality of care being provided by that institution and the availability of specific medical equipment and support staff that an individual patient requires.

At some point all hospitals are going to have EHR systems. The challenge is going to be for medical practices that generally have fewer resources than large hospitals in terms of IT expenditures. How can they best catch up with that wave and make sure they can interact as electronically seamlessly as possible with the institutions to which they admit?

PP:If a physician accepts an EHR from a hospital, does that hospital now have access to that physician’s patient records?

BA: Absolutely not. There was a comment in the preamble to one of the rules to this effect. There is nothing in either of the rules that regulates the sharing of health information. So it’s totally separate, and a medical practice would be well served to make sure they have firewalls in terms of how any party can access such information. Just because a hospital donates a particular piece of software, there is no obligation whatsoever for a physician or a practice to share any of its health information. Physicians are duty-bound to keep the confidences of their patients.

PP:So if I am a physician interested in taking advantage of this program, what should my first step be?
BA: The first step should be to talk to the hospital administration and get a sense of what they are including in their offer. The second thing is that if physicians are so inclined, they can always go back and look at the Federal Register [Vol. 71, No. 152] rules, though I suspect that won’t be a first option for people. … They should know that it’s out there, that it’s not hidden information, and that they can access it if they want to better understand what the rules allow and what they don’t allow. And the third thing they can do is always turn to their attorney, who should be knowledgeable in healthcare legal issues and be able to digest, interpret, and recommend changes to any donor agreement.

Ultimately, physicians need to consider all of the opportunities out there. Depending upon how many affiliations they have with hospitals, different hospitals may be further along in the process in terms of making this opportunity available. Like any purchase you make - particularly as it relates to the healthcare world - you should recognize that there’s no quid pro quo and you have to do what’s best for your practice in the short term and the long term. Make sure whatever software you purchase will actually be a useful investment.

PP:What do you foresee these regulation changes as enabling in the delivery of healthcare?

BA: In an ideal world, I think the potential upside benefit is that more and more hospitals and more and more medical practices - whether large or small or rural or urban - will have the opportunity to obtain a meaningful electronic health record system that is not unique to a specific institution or unique to one type of specialty, but is really fungible in that a large multispecialty practice as well as a solo practitioner could use it.

As technology continues to advance, EHRs will become more the accepted norm rather than the exception in terms of how medical practice is delivered.

But I think that things were becoming stagnated because there was a recognition that medical practices are not going to spend $50,000 to outfit themselves with EHRs. We need to find a way to make this technology available and accessible to physicians without creating additional fraud and abuse risks or further expanding government expenditures.

Barbara A. Gabriel, MA, is the managing editor of Physicians Practice. She can be reached at bgabriel@physicianspractice.com.
This article originally appeared in the March 2007 issue of
Physicians Practice.