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IRS Tries Again: More Guidance
Regarding Health Information Technology Cost-Sharing Arrangements
By Susan
Schalla and LaVerne
Woods
[July 2007]
In an effort to allay concerns regarding its position on health
information technology (HIT) cost-sharing arrangements between
tax-exempt hospitals and medical staff physicians, the Internal
Revenue Service (IRS) has released a series of six questions
and answers (Q&As). The Q&As are available on the IRS
website.
The Q&As follow up on an IRS internal directive issued
to IRS staff in May 2007 regarding the treatment of cases in
which tax-exempt hospitals engage in HIT cost-sharing arrangements
to allow physicians to connect with the hospitals’ electronic
health records (EHR) systems. (For coverage of the directive
see our May
2007 Advisory Bulletin.) The IRS directive stated that tax-exempt
hospitals would not be deemed to provide impermissible private
benefit or inurement in violation of Section 501(c)(3) of the
Internal Revenue Code if the cost-sharing arrangements met certain
parameters.
The IRS issued its directive in response to action by the U.S.
Department of Health and Human Services (HHS), which published
anti-kickback safe harbors and Stark regulatory exceptions,
effective October 2006, that allowed permitted organizations
to share the cost of certain HIT and related services with referral
sources. (A full description of the final HHS regulations is
set forth in our August
2006 advisory bulletin.) Hospitals and physicians had anxiously
awaited guidance from the IRS that would provide assurance that
such cost-sharing arrangements would not run afoul of the tax
law.
Rather than providing comfort, the IRS directive generated
concern in some quarters. Observers suggested that the IRS guidance
imposed further requirements, beyond those contained in the
HHS regulations, in order for EHR cost-sharing arrangements
to be deemed permissible. Commentators were particularly concerned
about two parameters in the IRS directive: that (i) the hospital
must make the HIT available to all of its medical staff physicians;
and (ii) to the extent permitted by law, the hospital may access
all of the electronic medical records created by a physician
using the HIT items and services that the hospital subsidized.
Some observers took the view that the IRS’s parameters
went so far beyond the HHS regulations as to make the IRS’s
position impracticable.
The Q&As make it clear that the May 2007 directive provides
a “safe harbor” under the tax law and not a mandate,
and that arrangements that do not meet its parameters will not
necessarily create impermissible private benefit or inurement.
Rather, the IRS will review those arrangements based on their
particular facts and circumstances.
The Q&As clarify that a hospital does not have to ensure
that the HIT and related services are available to all of its
medical staff physicians at the same time. The hospital may,
instead, provide access to various groups of physicians at different
times, according to criteria related to meeting the health care
needs of the community. In this situation, the hospital should
establish a plan for providing such access.
The Q&As also clarify that a physician may deny a hospital
access to electronic medical records created by the physician
using the HIT and related services if that access would violate
federal and state privacy laws or the physician’s contractual
obligations to patients. Further, in the HIT subsidy agreement,
the hospital and physician may agree to impose reasonable conditions
on the hospital’s access. For example, the Q&As suggest
that the agreement could allow the hospital to access a patient’s
medical records only if that patient becomes a patient of the
hospital. The physician might also deny the hospital access
to a patient’s non-medical information, such as billing
and insurance eligibility information.
Finally, the Q&As address the ramifications of a hospital
providing a HIT subsidy to a physician who is a “disqualified
person” for purposes of the intermediate sanctions rules
under Section 4958 of the Internal Revenue Code. If the hospital
meets all the parameters set out in the May directive, then
the HIT subsidy will not be an “excess benefit transaction”
that would subject the disqualified person to penalties. The
Q&As do not address what the result would be if the hospital
did not meet all of the directive’s parameters. Presumably
the IRS would review the situation under all relevant facts
and circumstances.
For more information, please contact:
This advisory
is a publication of the Health Law and Tax-Exempt Organizations
Groups of Davis Wright Tremaine LLP. Our purpose in publishing
this advisory is to inform our clients and friends of recent
legal developments. It is not intended, nor should it be used,
as a substitute for specific legal advice as legal counsel may
only be given in response to inquiries regarding particular
situations.
Copyright © 2007, Davis Wright
Tremaine LLP.
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