Tax-Exempt Organizations Advisory Bulletin
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 Tax-Exempt Organizations and Health Law 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 be given only in response to inquiries
regarding particular situations. Attorney Advertising. Prior results
do not guarantee a similar outcome. Thank you.
Copyright © 2007, Davis Wright Tremaine LLP.
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