Electronic Health Records: Manna from Hospitals?

For years, federal and state laws have prohibited hospitals from giving physicians any payments or gifts with the intention of inducing patient referrals. These rules, which include the anti-kickback law and the physician self-referral law (the “Stark” law) are so restrictive, they have led one commentator to observe that health care “is the only business where you’re not allowed to be nice to your customers.” Recent trends, however, have forced an exception from those rules for one particular subject: electronic health records (“EHR”).

It has been obvious for some time that EHR needs to be part of the modern face of health care. The implementation and use of EHR should reduce costs and medical errors, while at the same time enhance the quality of care through quicker and more efficient access to patient medical records.

There has been just one problem with the use of EHR: who is going to pay for all of it? While there is little doubt about the benefits of EHR, there is a lingering concern about the cost of the necessary hardware and software, training office staff, and transferring paper records into electronic form. Most physicians, whose incomes are already squeezed by lowered payments from insurance, Medicare and Medicaid, have collectively shaken their heads no with regard to incurring EHR-related costs. In most cases, only larger physician groups with access to sufficient capital have taken on the burden.

It is now clear that the adoption of EHR on a wider scale will happen only if hospitals spearhead the process by providing EHR items and services. However, the anti-kickback and Stark laws have stood as impediments to this goal, since they limit what hospitals can provide to physicians. Therefore, in October 2005, federal regulators, acting under authority contained in the Medicare Modernization Act of 2003, proposed a set of rules to allow hospitals to provide EHR to physicians without running afoul of these rules. Acting with somewhat atypical vigor, the regulators accepted comments from the public and, this past August, issued final rules for these exceptions.

Under these rules, hospitals and other providers of Medicare and Medicaid-covered services are permitted to provide physicians with software used predominantly for EHR purposes, along with related training, maintenance, and help-desk services. However, hospitals are not permitted to provide physicians with hardware and related operating software and storage devices. Also, hospitals cannot provide EHR technology that ties the physician recipients solely to the donor hospital; instead, it must integrate sufficiently with different providers and users, a feature which the rules refer to as “interoperability.”

A cost-sharing requirement was added in the final rule so that recipient physicians must pay at least 15% of the hospitals’ costs for the EHR items and services provided. Another interesting aspect is that hospitals may implement a reasonable method of selecting the physicians to whom the hospital will provide EHR, as long as the method doesn’t directly account for the value or volume of referrals from the physicians. This means hospitals are not obligated to provide EHR to every last physician on their medical staffs.

This article presents a very simplified discussion. The final rules are multi-faceted and will likely require the assistance of legal counsel or other consultants to work with hospitals that desire to provide EHR to physicians. The rules have already been identified as raising a number of significant questions, such as the means to determine that a particular EHR system complies with the “interoperability” requirement, a standard that is still in development. Also, the donated technology and its costs to the donor, as well as the physicians’ contributions, must be documented in writing prior to the donation.

Although compliance will require some work, in the end the rules may be a win-win for all parties involved. Hospitals may incur significant up-front costs, but the long-term savings and benefits can be tremendous. Physicians and patients will certainly reap the multiple benefits of EHR. And another big winner is expected to be the companies who develop and sell the software and training, all with the goal of creating what is hoped to be a national paperless health care system within the next decade.