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IRS Creates EHR Safe Harbor

In an announcement akin to the launching of the rocket that signifies the running of the bulls in Pamplona, the Internal Revenue Service (IRS) announced a new safe harbor (IRS Safe Harbor) for ¤ 501 (c) (3) hospitals to provide electronic health records (EHR) techno-logy to physicians beginning in May of 2007.
Before the new IRS Safe Harbor, hospitals that rushed to provide EHR technology to physicians may have been running wildly - safe from violating the federal Stark law and anti-kickback statute, but exposed to goring at the risk of jeopardizing the hospital's ¤ 501 (c) (3) status. Now, providing EHR technology can be structured within regulatory guidelines that prevent violations of the federal self-referral law, the anti-kickback statute, and a hospital's
¤ 501 (c) (3) tax exempt status.
A. Background
In August 2006, the Centers for Medicare and Medicaid Services (CMS) and the Office of Inspector General for the Department of Health and Human Services (OIG) jointly announced new regulations that permitted hospitals to provide EHR technology to physicians until December 31, 2013 (the EHR Regulations) without violating the Stark law or anti-kickback statute. Both CMS and OIG agreed that a physician could receive EHR software, training, and internet connectivity from a hospital if the physician paid at least 15% of the cost of the EHR technology.
At the time the EHR Regulations were promulgated, the IRS made no comment about the new regulations' effect on a hospital's tax exempt status. Neither CMS nor OIG had the authority to address whether such an arrangement would violate a hospital's ¤ 501 (c) (3) tax status.
The IRS Safe Harbor confirms a widely held belief that hospitals that subsidized EHR technology to physicians consistent with the EHR Regulations would not run afoul of the ¤ 501 (c) (3) prohibitions on private benefit or inurement. This is welcome news in Maryland, since nearly all of the hospitals in Maryland are ¤ 501 (c) (3) tax exempt entities.
B. Conditions
To qualify for the IRS Safe Harbor, the following conditions must be met:
1. The agreement between a ¤ 501 (c) (3) hospital and a physician must satisfy the EHR Regulations;
2. The hospital must have access to the EHR to the extent permitted by state medical records law and the Health Insurance Portability and Accountability Act;
3. The hospital must offer the same EHR items and services to all of its medical staff physicians;
4. The hospital must provide either the same level of subsidy to all physicians or have documented criteria of varying levels of subsidy related to the needs of the community; and
5. The hospital must not otherwise permit other arrangements with medical staff physicians that allow the hospital's earnings to inure or benefit those physicians.
Failure to meet the IRS Safe Harbor does not result in a violation of a hospital's ¤ 501 (c) (3) status, but could subject that hospital to a fact-specific review by the IRS regarding any potential impermissible private benefit or inurement.
C. E-Prescribing
Curiously, the IRS made no mention of a safe harbor for hospital donations of electronic prescribing (e-prescribing) technology, which donations were also the subject of similar CMS and OIG joint regulations in August of 2006-but not identical to the EHR Regulations. The CMS/OIG e-prescribing regulations permitted the outright donation of hardware and software solely for e-prescribing, but did not address whether such a donation could violate a hospital's ¤ 501 (c) (3) status.
Since the EHR Regulations permit hospitals to provide e-prescribing software, but not hardware, some hospitals may choose only to provide e-prescribing assistance to their medical staff physicians pursuant to the EHR Regulations so as to fall within the IRS Safe Harbor.
D. Conclusion
With the IRS Safe Harbor, hospitals and medical staff physicians may now integrate their EHR, with hospitals bearing much of the cost, but without violating the federal fraud and tax exempt status laws and regulations. In other words, hospitals are free to roam the streets, woo medical staff physicians, and provide desirable EHR technology without being gored or trampled by restrictive federal regulations.


September 22, 2007




Rosen, Barry F.


Health Care