IRS finally green-lights hospital underwriting of physician EHR systems

The safe harbors for hospital funding of physician EHR system acquisition have gone largely unused to date.  That should change — at least for the tax-exempt hospitals — now that the IRS has issued its eagerly-awaited memorandum regarding "Hospitals Providing Financial Assistance to Staff Physicians Involving Electronic Health Records."  It’s refreshingly short for a government document on such a heavily-chewed-on topic.  I’ll quote the operative language in full:

We will not treat the benefits a hospital provides to its medical staff physicians as impermissible private benefit or inurement in violation of section 501(c)(3) of the Code if the benefits fall within the range of Health IT Items and Services that are permissible under the HHS EHR Regulations and the hospital operates in the manner described below.

A hospital that is otherwise described in section 501(c)(3) of the Code enters into Health IT Subsidy agreements with its medical staff physicians for the provision of Health IT Items and Services at a discount (“Health IT Subsidy Arrangements”). These Health IT Subsidy Arrangements require both the hospital and the participating physicians to comply with the HHS EHR Regulations on a continuing basis. The Health IT Subsidy Arrangements provide that, to the extent permitted by law, the hospital may access all of the electronic medical records created by a physician using the Health IT Items and Services subsidized by the hospital. The hospital ensures that the Health IT Items and Services are available to all of its medical staff physicians. The hospital provides the same level of subsidy to all of its medical staff physicians or varies the level of subsidy by applying criteria related to meeting the healthcare needs of the community.

This memorandum does not apply to a hospital that allows its earnings to inure to the benefit of one or more medical staff physicians through arrangements that are other than Health IT Subsidy Arrangements, because the hospital would not be considered to be described in section 501(c)(3) of the Code.

The AHA is happy for its tax-exempt hospital members.  Presumably the AMA will be happy too.

Now, of course, we’ll have to wait and see who jumps on the bandwagon, what kind of spending they’re prepared to commit to, and how the rollout of new EHR systems will affect health care delivery.

Update 5/17/07:  Not everyone is so thrilled.  Some observers believe that, in an abundance of caution, the IRS may have gone too far by requiring equal access to subsidies for all docs on a hospital’s medical staff, and requiring that the docs provide access to patient data that’s in the EHR.  Seems to me that while the IRS may be a little heavy-handed here, hospital access to data in the EHR is a good thing, not a bad thing; the data in such a system should be protected by a business associate agreement (BAA).

— David Harlow