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CMS Releases Advisory Opinion on Electronic Health Records Systems and Software

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Johanna M. Novak & Nicole E. Stratton
Foster Swift Health Care Law Report
June 2008

On May 28, 2008, the Centers for Medicare & Medicaid Services ("CMS") issued an advisory opinion regarding a proposed arrangement where a hospital system would pay a third-party vendor to develop a physician practice interface customized to each affiliated physician practice’s existing electronic health records software. The hospital system also planned to purchase licenses to authorize the affiliated physician practices to use the interface during the term of the license agreement. The proposed software would be used only to order or communicate the results of tests and procedures furnished by the hospital system and could not perform any other function or be altered in any way. The advisory opinion addressed whether the interface and licenses would result in a compensation arrangement under the Stark II Law ("Stark II"). (See 42 U.S.C. § 1395nn).

Generally, Stark II prohibits a physician who has a financial relationship with an entity from referring Medicare patients to that entity for designated health services and prohibits the entity furnishing the designated health services from submitting claims resulting from a prohibited referral, unless an exception applies. A financial relationship includes a compensation arrangement or any arrangement involving any remuneration between the physician (or an immediate family member of the physician) and the entity. (See 42 U.S.C. § 1395nn (h)). Stark II also identifies certain types of remuneration which, if provided, would not create a compensation arrangement subject to the physician self-referral prohibition. Such remuneration includes the provision of items, devices or supplies that are used solely to order or communicate the results of tests or procedures for such entity. (See 42 U.S.C. § 1395nn (h) (1) (C)).

Focusing on this definition of remuneration, CMS opined that the proposed arrangement did not meet the definition of a compensation arrangement and thus was not prohibited by Stark II. CMS also focused on the fact that the proposed software could not be altered to perform any other function, or resold, transferred, or assigned by an affiliated physician to any other party.

Because the opinion concluded that the proposed arrangement did not constitute a prohibited compensation arrangement, it was not necessary to address whether the arrangement satisfied any exceptions to Stark II. Specifically, the advisory opinion did not discuss the proposed arrangement in relation to the 2006 Stark II exception that allows physicians to accept donations of electronic health records capabilities from hospitals and certain other health care groups. (See 42 CFR § 411.357(w)). The opinion also did not address whether the proposal violated any other Federal, State or local statutes, including the Federal Anti-Kickback statute. Regardless, this CMS advisory opinion and the 2006 Stark II donated electronic health records technology exception provide some guidance for hospitals and physicians looking to utilize electronic health records technology.

Please contact us if you would like further information regarding the implementation of electronic health records.