Hospital Support of Private Physician EHRs: Regulatory and Business Perspectives

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Hospital Support of Private Physician EHRs
Regulatory and Business Perspectives

• Ira Kalina
• Healthcare Information Technology

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Introduction

• Changing landscape for delivery of healthcare
  services
• Industry intensely regulated
• Information technology arrangements no exception
• Anti-Kickback Statute (OIG)
• Stark Law (CMS)
• Federal Income Tax Laws (IRS)

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Introduction (continued)

• The playing field
• Stark Law Exceptions
• Final regulations issued August 1, 2006
• Anti-Kickback Statute Safe Harbors
• Final regulations issued August 1, 2006
• Tax Law
• IRS guidance issued May 11, 2007
• Follow-up guidance (FAQs) issued June 29, 2007

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• New Anti-Kickback Statute Safe Harbors/Stark Law
  Exceptions

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Stark Law (Self Referral Prohibition)

• Physician may not refer
• Medicare or Medicaid patients
• for designated health services
• To an entity with which the physician or an
  immediate family member
• Has a financial relationship
• Unless an exception applies
• DHS entity prohibited from billing for services
  provided as a result of prohibited referral

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Anti-Kickback Statute

• Whoever anyone hospital, physician, agent
• Knowingly and willfully - One purpose test -
  need not be the sole or primary purpose
• Offers or pays Both sides to the arrangement
• Any remuneration (in cash or in kind)
• Cash, cash equivalents
• Free equipment
• Technical support
• To induce or reward the referral of items or
  services reimbursed by Federal health care
  program
• Has committed a felony

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Overview of New Regulations

• Two new safe harbors under Anti-Kickback Statute,
  and two new exceptions to Stark Law
• E-Rx Safe Exception/Harbor
• Protects arrangements involving donation of
  hardware and software used solely for electronic
  prescribing
• EHR Safe Exception/Harbor
• Protect arrangements involving the donation of
  some IT, software and services to physicians and
  other designated providers, under certain
  conditions
• Rules effective October 10, 2006
• Provisions sunset on December 31, 2013

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General Requirements for EHR Donation

• Permissible Donors
• Stark Exception
• Designated health services (DHS) entities
• Non-DHS entities are not covered by Stark Law
• AKS Safe Harbor
• Individuals or entities that provide items or
  services covered by federal health care program
  and submit claims, or
• Health Plans
• Not IT, Pharma or device vendors
• Permissible Recipients
• Physicians or other health care providers
• Not IPAs or MSOs

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General Requirements for EHR Donation
(continued)

• EHR software, IT and training services
• Necessary and used predominantly to create,
  maintain, transmit or receive EHRs
• Necessary recipient must not already possess
  equivalent software or services
• Donor must not have any actual knowledge, or act
  in reckless disregard or deliberate ignorance of,
  a recipients possession of technology that is
  functionally or technically equivalent to that
  being donated
• Electronic Health Record (EHR) defined
• A repository of consumer health status
  information in computer processable form used for
  clinical diagnosis and treatment for a broad
  array of clinical conditions

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General Requirements for EHR Donation (continued)

• Items services donated
• Include software and training services (not money
  or hardware)
• Software must
• Be interoperable
• Contain electronic prescribing capability

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General Requirements for EHR Donation (continued)

• Additional Recipient Requirements
• Recipient doesnt make receipt of technology a
  condition of doing business with donor
• Recipient pays 15 of donors cost of the
  technology before receiving the technology
• Additional Donor Requirements
• Donor doesnt limit the ITs interoperability or
  compatibility with other EHR systems
• Donor doesnt finance or loan funds to the
  recipient to pay for technology
• Donor doesnt restrict recipients ability to use
  technology for any patient without regard to
  payor status

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Permissible Items and Services

• Software with core functionality of creating,
  maintaining, transmitting or receiving EHR
• Software with other functionality directly
  related to individual patient care and treatment
  (e.g., registration, scheduling, billing,
  clinical support software, etc.)
• Interface and translation software
• Patient portal software
• Secure messaging
• Upgrades/enhancements to existing technology
• To enhance functionality
• To make IT more current or user friendly
• Items and services needed to standardize systems
  among donors and recipients (if standardization
  enhances the EHR functionality)

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Permissible Items and Services (continued)

• Connectivity services (including broadband and
  wireless internet services)
• Clinical support and information services related
  to patient care
• Maintenance services
• Training and support services
• Data migration services
• But, not through the provision of staff to the
  recipients

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Non-Donatable Items and Services

• Money
• Reimbursement for previously-purchased items and
  services
• Software with core functionality other than EHR
  (e.g., HR or payroll software)
• Hardware
• Equipment
• Operating Software that makes the hardware
  function
• Storage devices
• Modems, routers or hubs used for connectivity
• Hardware support
• Technology that is duplicative of technology
  currently possessed by recipient

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Non-Donatable Items and Services (continued)

• Support and information services unrelated to EHR
  or patient care (e.g., research or marketing
  support services)
• Provision of staff (e.g., to migrate data from
  paper to electronic records)
• Items and services used primarily to conduct
  personal business or business unrelated to the
  physicians medical practice

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Interoperability

• EHR technology must be interoperable at the time
  provided to the recipient
• Interoperable -- Software must be able to
• Communicate and exchange data accurately,
  effectively, securely, and consistently with
  different IT systems, software applications, and
  networks, in various settings, and
• Exchange data such that the clinical and
  operational purpose and meaning of the data are
  preserved and unaltered
• Donor must not take any action to limit or
  restrict the use, compatibility or
  interoperability of the items or services with
  other Rx or EHR systems

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Interoperability (continued)

• Rules acknowledge that technology will evolve
• Standard of interoperability whether feasible
  given the prevailing state of technology at the
  time provided to the physician
• May be deemed interoperable if certified by
  recognized body
• Software must have an up-to-date certification at
  the time of donation
• Must have been certified within 12 months prior
  to the date of donation
• HHS has recognized CCHIT as a certification body

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Selecting Recipients

• Donors may use any method for selecting
  recipients, provided that the method does not
  directly take into account the volume or value of
  referrals or other business between the parties

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Selecting Recipients (continued)

• Acceptable criteria for selection of recipients
  include (without limitation)
• Total number of Rxs written by physician
• Size of practice
• Total number of hours that physician practices
  medicine
• Physicians overall use of automated technology
  in practice
• Medical staff membership

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Payment for Technology

• Recipient must pay at least 15 of donors cost
  for the items or services
• Also applies to related services, such as
  training, help-desk and maintenance
• Payment must be made before receipt of items or
  services
• Donor may not finance recipients payment or lend
  funds to recipient for payment for such items
• Must apply consistently to all recipients

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Documentation

• Must document EHR arrangement with written
  agreement between donor and recipient
• Documentation must be made prior to the donation
• Documentation must
• Describe the donated technology (items and/or
  services)
• Indicate donors costs
• Describe and confirm recipients contributions

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Documentation (continued)

• Documentation may also contain representations by
  the parties that
• Softwares interoperability has not been
  restricted
• Donation is not a condition of doing business
• Donation is not based on volume or value of
  referrals
• Physician does not possess equivalent software or
  services
• Physician has not received any loans from donor
  to finance physicians cost-sharing obligation

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• Federal Income Tax Laws

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Federal Income Tax Laws

• Recent IRS guidance
• IRS internal memorandum dated May 11, 2007
  (followed by FAQs in June)
• EHR arrangements subsidized in a manner permitted
  by the Stark/Anti-Kickback regulations will not
  result in impermissible private benefit or
  inurement, if certain conditions are met

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Federal Income Tax Laws (continued)

• Tax-Exempt donor and recipients must comply with
  Stark/Anti-Kickback regulations on an on-going
  basis
• Donor must be able to access medical records
  created by physicians pursuant to the subsidized
  EHR arrangement, to the extent permitted by law
• Donor makes the subsidized EHR software and
  services available to all physicians on its
  medical staff
• Clarified to state that Donor may make access
  available to
• various groups of physicians at different times
  according to criteria related to meeting the
  healthcare needs of the community.
• Donor provides the same level of subsidy to all
  medical staff physicians, or hospital varies the
  subsidy level by applying criteria related to
  meeting community healthcare needs

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Federal Income Tax Laws (continued)

• Initial Reactions
• Good news, takes several tax issues (private
  benefit, inurement and excess benefit
  transactions) off the table as to EHR
  arrangements
• But, does not address
• Provision of practice management systems or other
  ancillary items or services
• Unrelated business income tax
• Income tax consequences to participating
  physicians
• Exposure remains for automatic EBTs based on
  failure to report subsidy as compensation to
  participating physicians who hold positions of
  substantial influence in relation to hospital

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• Conflicts and Gaps

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Conflicts Between CMS/OIG Final Regulations and
IRS Guidance

• IRS Guidance is stricter than CMS/OIG Final
  Regulations
• Hospital must make IT items and services
  available to all medical staff physicians
• Final Regulations permit selection of recipients
  based in manner not directly related to volume or
  value of referrals
• Note IRS recently clarified that Donor may make
  access available to various groups of physicians
  at different times based on meeting the
  healthcare needs of the community.
• Hospital must provide same level of subsidy to
  all medical staff physicians or must vary level
  of subsidy by applying criteria related to
  meeting the healthcare needs of the community
• Preambles to Final Regulations note that
  differentiated levels of subsidy will be closely
  scrutinized, but does not prohibit them
• Hospital must comply with new Safe
  Harbor/Exception
• Transactions outside the safe harbors are not per
  se illegal just subject to scrutiny under facts
  and circumstances analysis

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Gaps and Other Gray Areas

• Donation of practice management systems
• 1099s for all MDs
• 1099s for insiders
• Cost vs. FMV
• Employee vs. Independent MD roll-out
• Incremental cost analysis
• What happens upon sunset on December 31, 2013?

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• What This Means.

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ASP Model

• Donor may provide access to internet-based
  ambulatory EHR to physicians
• Cost analysis must be conducted through legal
  filter to determine donatable vs. non-donatable
  items and services
• Total cost of ownership model includes donors
  hardware, software, implementation and
  maintenance costs
• Allocable overtime to MDs
• MDs must pay upfront
• One-time payment of office implementation fee
• Fixed vs. periodic license fee
• Monthly access fees
• Monthly maintenance fee
• Donor may not finance
• MDs must pay monthly in advance
• Donor must have right to terminate access if
  payments are not made

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Pricing Considerations

• In establishing physician pricing for EHR
• Include all relevant costs
• Make reasonable estimates as to number of
  physicians anticipated to participate
• Project out capital and operating costs for
  reasonable period into the future
• Charge all participating physicians consistently
  if subsidy levels vary, must be based on reasons
  relating to community needs
• Where EHR is initially rolled out to employed
  physicians, be reasonable in assigning costs
  (incremental or otherwise) to non-employed
  physicians who later join in
• Allow for pricing adjustments from time to time
  as necessary to comply with applicable law and
  regulation

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Relationship between EHR and PMS

• Carefully evaluate practice management
  functionality
• Should be incidental to EHR donor should not
  offer access to PMS without EHR, and should not
  market or otherwise promote PMS to staff
  physicians
• Charge fair market value for PMS and associated
  services (i.e., no cost-sharing)
• Particularly true if PMS is not wholly integrated
  with EHR software (e.g., if separate vendors)
• Report payments for PMS and related services as
  unrelated trade or business income

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Managing Physician Relationships

• Ensure sufficient dialogue with participating
  physicians
• Up front
• Ongoing
• Control expectations
• Terms of participation
• Timing of roll-out and access
• Degree of training
• Need for patience and cooperation
• Be realistic

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Ira Kalina312-569-1466ira.kalina_at_dbr.com

• Mr. Kalina is a partner in the Chicago office of
  DrinkerBiddle GardnerCarton.  Mr. Kalina is both
  a member of the firm's Health Information
  Technology practice and a leader of its
  consulting company, Innovative Health Strategies,
  which was ranked number one in the category of
  vendor selection in the KLAS 2006 Year-End
  Report.  In these roles, Mr. Kalina assists
  clients from vendor selection and pricing
  negotiations through implementation and
  post-implementation vendor management with
  respect to procurement of clinical information
  systems, PACS, imaging equipment,
  telecommunications systems and other information
  technology requirements.  Mr. Kalina also
  counsels hospitals, educational medical centers,
  practice groups, industry associations and
  vendors with respect to all aspects of
  information technology and Internet-based
  business initiatives. During his career, Mr.
  Kalina has also been in-house counsel at a video
  game and gaming company, and Vice President of
  Business Development at an internet venture
  delivering outsourced HR services.