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IRS Approves Furnishing of Electronic Health Records Technology by Tax-Exempt Hospitals

May 18, 2007

On May 11, 2007, the Internal Revenue Service (IRS) issued a memorandum approving the furnishing of electronic health records (EHR) technology by tax-exempt hospitals to their medical staff physicians.

The memorandum was issued nine months after the U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services issued final regulations allowing hospitals to provide medical staff physicians with EHR software and technical support, at reduced cost, without violating the federal anti-kickback law and the physician self-referral law, respectively, provided certain requirements are met (EHR Regulations). After the EHR Regulations were issued on August 8, 2006, there was much speculation as to whether tax-exempt hospitals could furnish EHR items and services without jeopardizing their tax-exempt status.

This speculation was put to rest when the IRS clearly stated in the memorandum that it will not treat EHR items and services provided by a tax-exempt hospital to its medical staff physicians, at reduced cost, as impermissible private benefit or inurement in violation of the hospital’s tax-exempt status as long as such items and services are within the range of items and services permitted under the EHR Regulations. (See the August 4, 2006 G&K update, "Newly Issued Final Rules under Stark and Anti-kickback Laws Permit Furnishing of Electronic Prescribing and Electronic Health Records Technology", addressing the new EHR Regulations.)

In addition to meeting the requirements of the EHR Regulations, an arrangement between a tax-exempt hospital and a participating physician must comply with the following requirements:

  • The hospital must enter into a health information technology subsidy agreement with its medical staff physicians for the provision of health information technology items and services at a discount.
  • The hospital and the participating medical staff physician must comply with the EHR Regulations on a continuing basis.
  • The arrangement must provide that, to the extent permitted by law, the hospital may access all of the electronic medical records created by a physician using the EHR items and services subsidized by the hospital.
  • The hospital must ensure that the EHR items and services are available to all of its medical staff physicians.
  • The hospital must provide the same level of subsidy to all of its medical staff physicians or vary the level of subsidy by applying criteria related to meeting the healthcare needs of the community.

Accordingly, tax-exempt hospitals may provide medical staff physicians with EHR items and services, consistent with the anti-kickback law, the Stark law, and now, their tax-exempt status. The IRS memorandum, however does not address whether the hospital’s subsidy will constitute taxable income to the physicians receiving this benefit. The IRS acknowledged that this issue would be addressed separately. Click here to view the memorandum from the IRS website.

If you would like assistance in developing or setting forth an arrangement in writing, please contact Choua L. Vang (920-831-6351 or, cvang@gklaw.com) or any member of the Godfrey & Kahn Health Care Team.

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