Hospital Support of Private Physician EHRs: Regulatory and Business Perspectives

1. Hospital Support of Private Physician EHRs: Regulatory and Business Perspectives Ira Kalina Healthcare Information Technology

2. Introduction Changing landscape for delivery of healthcare services Industry intensely regulated Information technology arrangements no exception Anti-Kickback Statute (OIG) Stark Law (CMS) Federal Income Tax Laws (IRS)

3. Introduction (continued) The playing field: Stark Law Exceptions Final regulations issued August 1, 2006 Anti-Kickback Statute Safe Harbors Final regulations issued August 1, 2006 Tax Law IRS guidance issued May 11, 2007 Follow-up guidance (FAQs) issued June 29, 2007

4. New Anti-Kickback Statute Safe Harbors/Stark Law Exceptions

5. Stark Law (Self Referral Prohibition) Physician may not refer: Medicare or Medicaid patients for designated health services To an entity with which the physician or an immediate family member Has a financial relationship Unless an exception applies DHS entity prohibited from billing for services provided as a result of prohibited referral

6. Anti-Kickback Statute Whoever � anyone � hospital, physician, agent Knowingly and willfully - �One purpose� test - need not be the sole or primary purpose Offers or pays � Both sides to the arrangement Any remuneration (in cash or in kind) Cash, cash equivalents Free equipment Technical support To induce or reward the referral of items or services reimbursed by Federal health care program Has committed a felony

7. Overview of New Regulations Two new safe harbors under Anti-Kickback Statute, and two new exceptions to Stark Law E-Rx Safe Exception/Harbor Protects arrangements involving donation of hardware and software used solely for electronic prescribing EHR Safe Exception/Harbor Protect arrangements involving the donation of some IT, software and services to physicians and other designated providers, under certain conditions Rules effective October 10, 2006 Provisions sunset on December 31, 2013

8. General Requirements for EHR Donation Permissible Donors Stark Exception Designated health services (DHS) entities Non-DHS entities are not covered by Stark Law AKS Safe Harbor Individuals or entities that provide items or services covered by federal health care program and submit claims, or Health Plans Not IT, Pharma or device vendors Permissible Recipients Physicians or other health care providers Not IPAs or MSOs

9. General Requirements for EHR Donation (continued) EHR software, IT and training services: Necessary and used predominantly to create, maintain, transmit or receive EHRs �Necessary� � recipient must not already possess equivalent software or services Donor must not have any actual knowledge, or act in reckless disregard or deliberate ignorance of, a recipient�s possession of technology that is functionally or technically equivalent to that being donated �Electronic Health Record� (EHR) defined: A repository of consumer health status information in computer processable form used for clinical diagnosis and treatment for a broad array of clinical conditions

10. General Requirements for EHR Donation (continued) Items & services donated: Include software and training services (not money or hardware) Software must: Be �interoperable� Contain electronic prescribing capability

11. General Requirements for EHR Donation (continued) Additional Recipient Requirements Recipient doesn�t make receipt of technology a condition of doing business with donor Recipient pays 15% of donor�s cost of the technology before receiving the technology Additional Donor Requirements Donor doesn�t limit the IT�s interoperability or compatibility with other EHR systems Donor doesn�t finance or loan funds to the recipient to pay for technology Donor doesn�t restrict recipient�s ability to use technology for any patient without regard to payor status

12. Permissible �Items and Services� Software with core functionality of creating, maintaining, transmitting or receiving EHR Software with other functionality directly related to individual patient care and treatment (e.g., registration, scheduling, billing, clinical support software, etc.) Interface and translation software �Patient portal� software Secure messaging Upgrades/enhancements to existing technology To enhance functionality To make IT more current or user friendly Items and services needed to standardize systems among donors and recipients (if standardization enhances the EHR functionality)

13. Permissible �Items and Services� (continued) Connectivity services (including broadband and wireless internet services) Clinical support and information services related to patient care Maintenance services Training and support services Data migration services But, not through the provision of staff to the recipients

14. Non-Donatable �Items and Services� Money Reimbursement for previously-purchased items and services Software with core functionality other than EHR (e.g., HR or payroll software) Hardware Equipment Operating Software that makes the hardware function Storage devices Modems, routers or hubs used for connectivity Hardware support Technology that is �duplicative� of technology currently possessed by recipient

15. Non-Donatable �Items and Services� (continued) Support and information services unrelated to EHR or patient care (e.g., research or marketing support services) Provision of staff (e.g., to migrate data from paper to electronic records) Items and services used primarily to conduct personal business or business unrelated to the physician�s medical practice

16. Interoperability EHR technology must be interoperable at the time provided to the recipient �Interoperable� -- Software must be able to: Communicate and exchange data accurately, effectively, securely, and consistently with different IT systems, software applications, and networks, in various settings, and Exchange data such that the clinical and operational purpose and meaning of the data are preserved and unaltered Donor must not take any action to limit or restrict the use, compatibility or interoperability of the items or services with other Rx or EHR systems

17. Interoperability (continued) Rules acknowledge that technology will evolve Standard of interoperability � whether feasible given the prevailing state of technology at the time provided to the physician May be �deemed� interoperable if certified by recognized body Software must have an up-to-date certification at the time of donation Must have been certified within 12 months prior to the date of donation HHS has recognized CCHIT as a certification body

18. Selecting Recipients Donors may use any method for selecting recipients, provided that the method does not directly take into account the volume or value of referrals or other business between the parties

19. Selecting Recipients (continued) Acceptable criteria for selection of recipients include (without limitation): Total number of Rxs written by physician Size of practice Total number of hours that physician practices medicine Physician�s overall use of automated technology in practice Medical staff membership

20. Payment for Technology Recipient must pay at least 15% of donor�s cost for the items or services Also applies to related services, such as training, help-desk and maintenance Payment must be made before receipt of items or services Donor may not finance recipient�s payment or lend funds to recipient for payment for such items Must apply consistently to all recipients

21. Documentation Must document EHR arrangement with written agreement between donor and recipient Documentation must be made prior to the donation Documentation must: Describe the donated technology (items and/or services) Indicate donor�s costs Describe and confirm recipient�s contributions

22. Documentation (continued) Documentation may also contain representations by the parties that: Software�s interoperability has not been restricted Donation is not a condition of doing business Donation is not based on volume or value of referrals Physician does not possess equivalent software or services Physician has not received any loans from donor to finance physician�s cost-sharing obligation

23. Federal Income Tax Laws

24. Federal Income Tax Laws Recent IRS guidance: IRS internal memorandum dated May 11, 2007 (followed by FAQs in June) EHR arrangements subsidized in a manner permitted by the Stark/Anti-Kickback regulations will not result in impermissible private benefit or inurement, if certain conditions are met

25. Federal Income Tax Laws (continued) Tax-Exempt donor and recipients must comply with Stark/Anti-Kickback regulations on an on-going basis Donor must be able to access medical records created by physicians pursuant to the subsidized EHR arrangement, to the extent permitted by law Donor makes the subsidized EHR software and services available to all physicians on its medical staff Clarified to state that Donor may make access available to: �various groups of physicians at different times according to criteria related to meeting the healthcare needs of the community.� Donor provides the same level of subsidy to all medical staff physicians, or hospital varies the subsidy level by applying criteria related to meeting community healthcare needs

26. Federal Income Tax Laws (continued) Initial Reactions: Good news, takes several tax issues (private benefit, inurement and excess benefit transactions) off the table as to EHR arrangements But, does not address: Provision of practice management systems or other ancillary items or services Unrelated business income tax Income tax consequences to participating physicians Exposure remains for �automatic� EBTs based on failure to report subsidy as compensation to participating physicians who hold positions of substantial influence in relation to hospital

27. Conflicts and Gaps

28. Conflicts Between CMS/OIG Final Regulations and IRS Guidance IRS Guidance is stricter than CMS/OIG Final Regulations Hospital must make IT items and services available to all medical staff physicians Final Regulations permit selection of recipients based in manner not directly related to volume or value of referrals Note: IRS recently clarified that Donor may make access available to �various groups of physicians at different times� based on meeting the healthcare needs of the community. Hospital must provide same level of subsidy to all medical staff physicians or must vary level of subsidy by applying criteria related to meeting the healthcare needs of the community Preambles to Final Regulations note that differentiated levels of subsidy will be closely scrutinized, but does not prohibit them Hospital must comply with new Safe Harbor/Exception Transactions outside the safe harbors are not per se illegal; just subject to scrutiny under facts and circumstances analysis

29. Gaps and Other Gray Areas Donation of practice management systems 1099s for all MDs 1099s for insiders Cost vs. FMV Employee vs. Independent MD roll-out Incremental cost analysis What happens upon sunset on December 31, 2013?

30. What This Means�.

31. ASP Model Donor may provide access to internet-based ambulatory EHR to physicians Cost analysis must be conducted through legal filter to determine donatable vs. non-donatable items and services Total cost of ownership model � includes donor�s hardware, software, implementation and maintenance costs Allocable overtime to MDs MDs must pay upfront One-time payment of office implementation fee Fixed vs. periodic license fee Monthly access fees Monthly maintenance fee Donor may not finance MDs must pay monthly in advance Donor must have right to terminate access if payments are not made

32. Pricing Considerations In establishing physician pricing for EHR: Include all relevant costs Make reasonable estimates as to number of physicians anticipated to participate Project out capital and operating costs for reasonable period into the future Charge all participating physicians consistently; if subsidy levels vary, must be based on reasons relating to community needs Where EHR is initially rolled out to employed physicians, be reasonable in assigning costs (incremental or otherwise) to non-employed physicians who later join in Allow for pricing adjustments from time to time as necessary to comply with applicable law and regulation

33. Relationship between EHR and PMS Carefully evaluate practice management functionality Should be incidental to EHR; donor should not offer access to PMS without EHR, and should not market or otherwise promote PMS to staff physicians Charge fair market value for PMS and associated services (i.e., no cost-sharing) Particularly true if PMS is not wholly integrated with EHR software (e.g., if separate vendors) Report payments for PMS and related services as unrelated trade or business income

34. Managing Physician Relationships Ensure sufficient dialogue with participating physicians Up front Ongoing Control expectations Terms of participation Timing of roll-out and access Degree of training Need for patience and cooperation Be realistic

35. Ira Kalina312-569-1466ira.kalina@dbr.com Mr. Kalina is a partner in the Chicago office of DrinkerBiddle GardnerCarton.� Mr. Kalina is both a�member of the firm's�Health Information Technology practice and a leader of its consulting company, Innovative Health Strategies, which was ranked number one in the category of vendor selection in the KLAS 2006 Year-End Report.� In these roles, Mr. Kalina assists clients from vendor selection and pricing negotiations through implementation and post-implementation vendor management with respect to procurement of clinical information systems, PACS, imaging equipment, telecommunications systems and other information technology requirements.� Mr. Kalina also counsels hospitals, educational medical centers, practice groups, industry associations and vendors with respect to all aspects of information technology and Internet-based business initiatives. During his career, Mr. Kalina has also been in-house counsel at a video game and gaming company, and Vice President of Business Development at an internet venture delivering outsourced HR services.