23 May IRS ruling could speed healthcare technology adoption
Madison, Wis. – As he delivered a keynote address at the recent Digital Healthcare Conference, a somewhat incredulous John Wade, the chair-elect of the Healthcare Information Management Systems Society, blasted a seemingly contradictory stance by the Internal Revenue Service on the subject of healthcare information technology.
Wade noted the IRS had threatened to remove the tax-exempt status of certain healthcare practices that adopt electronic medical records, and this threat came after President Bush had established a goal of full EMR adoption within 10 years.
“Tell me where the logic is in that?” Wade asked.
It may have been a cry uttered in Madison, but apparently it was heard in Washington, D.C. The day after the conference, the IRS issued a ruling that some believe will encourage the adoption of information technology at non-profit healthcare providers.
There are some, however, who wonder whether this was really a large barrier to healthcare IT adoption, especially in Wisconsin.
In a two-page memorandum, the IRS indicated that it wouldn’t consider such provisions of information technology and supporting services to be kickbacks that would impact the tax-exempt status of healthcare entities with non-profit status.
The ruling pertains to impermissible private benefits provided to hospital staff, including non-affiliated physicians, in violation of section 501(c)(3) of the Internal Revenue Code.
The IRS memorandum notes that some hospitals believe their medical staff physicians need a financial incentive to acquire and implement EMR software that would allow them to connect to the hospital’s EMR systems. It also referenced the Department of Health and Human Services, which in August 2006 issued final regulations that allow hospitals to provide, within specific parameters, EMR software and technical support services to their medical staffs without violating the federal anti-kickback law and the physician self-referral law.
Lois Lerner, director of Exempt Organizations for the IRS, indicated in the memorandum that the IRS will not treat the benefits a hospital provides to its medical staff physicians as an “impermissible private benefit or inurement” in violation of section 501(c)(3), provided the benefits fall within the range of health IT items and services that are permissible under Health and Human Services EMR regulations.
The directive applies if the hospital described in Section 501(c)(3) enters into health IT subsidy agreements with its medical staff physicians for the provision of health IT items and services at a discount. These arrangements require both the hospital and participating physicians to comply with the HHS electronic medical record regulations on a continuing basis.
Stephen Clarke, a tax law specialist with the Exempt Organizations division of the IRS, said the memorandum should provide “comfort and assurance” to non-profit hospitals investing in information technology.
“If the hospital arrangement [with medical staff] complies with the arrangement in our directive, then hospitals should have the assurance that we will consider the benefit to the physician permissible,” he said.
How much will the ruling speed the deployment of healthcare IT?
In Wisconsin, IT deployment at non-profit and not-for-profit healthcare facilities does not appear to have been impacted.
Gunderson Lutheran, based in La Crosse, not only has established an EMR, it is in the process of migrating to a wireless system on its campus. The healthcare network also is working on a wide area network for patient data exchange, and it’s working to complete the convergence of pagers, cell phones, and PDAs with IP telephony.
Ministry Healthcare boasts of the new St. Clare’s Hospital in Weston, Wis., which provides electronic medical records and other healthcare IT on a completely wireless network.
One of the current strategic initiatives at University of Wisconsin Hospitals and Clinics, a not-for-profit organization, is the implementation of an Epic Systems electronic health record.
Meriter Hospital in Madison has more than 250 IT projects on the docket for 2007, including an ongoing Epic Systems electronic health record installation, a Lawson enterprise resource management system, and an Internet phone system.
Martin Preizler, president and CEO of Physicians Plus Insurance Corp., a Madison-based health maintenance organization that includes the not-for-profit Meriter Hospital in its program, said the ruling clarifies for hospitals and doctors what they can or cannot do, but the uncertainty has not been an impediment to Meriter deploying the Epic EMR.
“It’s always helpful for any organization when you get a ruling that supports what you’re doing and doesn’t create a barrier, but my impression is that for the physicians who practice in the Meriter sphere of hospital care, this has not been an issue for them,” Preizler said.
Nationally, the picture is quite different.
A recent survey of members of the College of Healthcare Information Management Executives, taken before the IRS ruling, indicated how cautious some healthcare CIOs were. The survey found that a majority – 62 percent – had no plans to take advantage of the new Stark exemption and anti-kickback safe harbor laws pertaining to health information technology.
Respondents told CHIME that they were still concerned that the ruling could be reversed and that the laws were subject to interpretation.
Following the IRS ruling, Scott Wallace, president and CEO of the National Alliance for Health Information Technology, told Healthcare IT News that non-profit hospitals needed assurance that IT programs would not jeopardize their tax-exempt status.
The ruling is important, he said, because hospital providers are one of the lowest-cost providers of IT to physicians and other clinicians in their communities. The incremental cost to extend a hospital’s IT to physicians is relatively low, he noted, and doing so takes away a huge obstacle for small physicians who want to move to EHRs.
“The logic behind that [Stark exemption] is once they have built a network, adding another node to that network, connecting another doctor’s office or some other clinician, is relatively inexpensive,” Wallace said. “The goal was to try to push clinical IT through the lowest-cost channels, and clearly hospitals with established networks are a low-cost channel.”
Wade said the recent IRS ruling would allow hospitals to help physicians adopt ambulatory EMRs and e-prescribing, and he characterized it as a “great boon” to realizing the automation of ambulatory records. While not a panacea, he said it should speed the adoption of EMRs in physician offices.
“One ‘burden’ has been lifted from the hospitals – the threat of losing their tax-exempt status if they subsidize, within the guidelines, EMRs for their non-employed MDs,” he said. “At the same time, coming up with the funds to actually help pay for these EMRs is going to be a major challenge for each hospital’s CEO and executive staff.”
Given this ruling, Wade said physicians may start demanding that their offices get a free system from the hospital. It will be encumbent on the hospital leadership, he said, to determine the financial impact of supporting physicians in this endeavor and to make sure that there is no attempt to discriminate against any physician who practices at their organization.
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