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A Stark Future?

July 1, 2007
by David Raths
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Recent tweaks to the law give hospitals a freer hand in donating IT to physicians, but structuring these complex relationships is another story.

When Mikki Clancy was charged last year with the task of extending her hospital system's electronic health record software to community physicians, she soon discovered a tangle of legal, financial and cultural obstacles. But the vice president and CIO of Premier Health Partners in Dayton, Ohio, was unfazed. The leadership team of her three-hospital organization is determined to develop an EHR that follows patients through the entire continuum of care. "We expect to gain greater transparency through-out the system, with fewer duplicative tests and clinical information shared freely," she says of Premier's effort to extend its ambulatory EHR to physicians' offices.

Hospitals seeking to follow Premier's example got a recent boost from the Internal Revenue Service. A May 2007 IRS memorandum may have removed one of the major impediments to community-wide adoption of EHRs. The memo stated that hospitals donating up to 85 percent of the cost of EHR software to physicians, as permitted by legislative exceptions to the antikickback statute and Stark Federal Physician Self Referral law, would not be in danger of losing their nonprofit status.

While many hospital executives and their attorneys around the country viewed the memo as an opportunity to begin strategic planning, a few organizations such as Premier had no need to shift gears because they had already begun offering local physicians subsidized software.

After studying the Stark exceptions outlined by the U.S. Department of Health and Human Services in August 2006 and consulting with attorneys, the health system pushed ahead, assuming the IRS would rule the way it eventually did.

For example, before the end of 2007, Premier expects to support four pilot physician practices in implementing the ambulatory EHR from Verona, Wis.-based Epic Systems Corp. that is being installed throughout the hospital chain. The goal for 2008 is to have Epic in use by 75 percent of the 140 physicians in HealthNet, which is owned by Premier, and 20 independent practice physicians.

"The IRS memo helps validate our decision to be an early mover in this area," Clancy says. "It is promising that barriers continue to be removed."

Besides helping improve the quality of care, Clancy says Premier also saw the project as helping it maintain a regional leadership role in technology.

Executives at Premier, a Miami Valley organization with more than 1,700 beds, believe hospitals must work on EHR connectivity now, before physicians start buying their own software. Premier realized that if six or seven health record applications are in use, the interoperability issues become almost insurmountable. "If you are not considering doing something like this now," Clancy says, "you are opening yourself up to greater complexity down the road."

Tremendous interest

Whether the IRS memo will lead to a trickle or flood of new IT relationships between hospitals and physicians is unclear.

It is true that many organizations felt stymied by the law, originally sponsored by U.S. Rep. Pete Stark (D. Calif.), which prohibited hospitals from giving hardware or software worth more than $300 to physicians referring Medicare patients to that hospital. The law was designed to keep physicians from sending patients to facilities in which they had a financial stake.

The HHS regulations detailing the exceptions "were comprehensive and a real model of clarity," says Scott Wallace, president and CEO of the Chicago-based National Alliance for Health Information Technology (NAHIT). They spelled out that among other things, the software must be certified as interoperable; that before receiving software or services, physicians must pay 15 percent of the donor's costs; and eligibility to participate cannot be based on the volume of referrals or other business generated between the parties.

"Hospitals could feel confident that if they followed them, they were not going to violate Stark," he says.

But hospitals' attorneys quickly noted that if a not-for-profit gives something of value to a for-profit entity such as a physician practice, it could endanger its 501c3 status. Many organizations hesitated until the IRS memorandum, which stated that as long as hospitals follow the HHS regulations, the not-for-profit status would not be in peril.

Wallace says the IRS memo will not lead to an immediate groundswell, but it will help. "From my talks with CEOs of hospital systems and physicians, there is a tremendous amount of interest in this area," he says. "With information from physician offices, they believe they can do a more efficient job of treating patients when they show up in the hospital."

Three early movers

Some folks at hospitals and health systems have put a high priority on making patient information seamlessly available all the way from the private physician practice to the hospital bedside. They perceive enough community benefits that they are willing to devote considerable resources to overcoming the business, technical and cultural bumps along the way.

According to Clancy, the phase-in of Epic Care software at Premier's Miami Valley Hospital drew interest in early 2006 from affiliated physicians who didn't already have EHRs and wanted to be integrated with the Premier environment. "We were informally querying physicians about potential price points," she says, "but we felt stopped by the Stark law." Once the Stark exceptions were introduced and Premier could absorb up to 85 percent of the software's cost, every-thing changed.