CMS Releases Favorable Stark Advisory Opinion Concerning Development of EHR Interface

June 23, 2008

On May 28, 2008, the Center for Medicare & Medicaid Services ("CMS") published CMS Advisory Opinion No. CMS-AO-2008-01 in which it analyzed under the physician self-referral law, Section 1877(h)(1)(A) of the Social Security Act, the "Stark law", a proposed arrangement whereby a hospital system would pay for the development of customized software that would allow the hospital's electronic health records ("EHR") system to communicate with similar systems owned by staff physicians.

The CMS concluded the proposed arrangement does not constitute a compensation arrangement under the Stark law and, therefore, does not have to meet a so-called Stark law exception as long as the software:

1. would be used only to order or communicate the results of tests and procedures furnished by the hospital system;
2. cannot be modified to perform an alternate function; and
3. cannot be resold, transferred or assigned by a staff physician or his physician practice.

Under the proposed arrangement, a third-party vendor would develop, and the hospital system would pay the development cost of, a software interface customized to the existing electronic health records software owned by the hospital system's staff physicians. The hospital system would also purchase licenses to authorize staff physicians to use the custom software interface during the term of the hospital's license agreement. Under the arrangement, the custom software would be used only to order or communicate the results of tests and procedures furnished by the hospital system and could not be used for any purpose other than the ordering or communicating of the results of tests or procedures furnished by the system. In this case, the hospital system certified that the software cannot be applied or altered by a staff physician or his practice to perform any alternative functions, nor may a staff physician resell or otherwise transfer or assign its license to use the software to access the hospital's system. The hospital also must certify that no other items or services would be provided to the staff physicians' practices in connection with the proposed arrangement.

The arrangement differs from the Stark exceptions regarding EHR found at 42 C.F.R. §§ 411.357(u) and (w), in that the arrangement in CMS-AO-2008-01 involves a software communication interface designed to communicate between, and to grant broader access to, EHR systems already in existence, rather than an arrangement to purchase a new operating system. According to the facts, the hospital has already developed a proprietary health care software information system that allows staff physicians to view patient data and order tests, and to communicate lab test results. However, the hospital wants physicians to have broader access to patient data and the ability to order lab tests from their practices, which would require integrating the hospital's inhouse system with individual EHR systems maintained by staff physicians in their practices.

CMS analyzed the arrangement under Section 1877(h)(1)(C) of the Social Security Act, which identifies certain types of remuneration that, if provided, would not create a compensation arrangement subject to the physician self-referral prohibition. "Remuneration" would not include "[t]he provision of items, devices, or supplies that are used solely . . . to order or communicate the results of tests or procedures for such entity."

Therefore, since the proposed arrangement: (1) would be used only to order or communicate the results of tests and procedures furnished by the hospital; (2) cannot be modified to perform an alternate function; and (3) cannot be resold, transferred or assigned by a staff physician or his practice, CMS concluded the proposal does not constitute a compensation arrangement under the physician self-referral laws of the Social Security Act.

Put differently, CMS's analysis of the proposed relationship parallels the OIG's analysis of whether placing free fax machines in a physician's practice for communication purposes violates the Anti-Kickback statute. In the preamble to the 1991 safe-harbor regulations applicable to the Anti-Kickback Act, the OIG concluded that such placement is permissible if the fax machine is used as part of a particular service, such as printing out results of laboratory tests, as long as the service does not represent any "independent value apart from the service being provided and the purpose of the machine is not to induce a financial relationship.

The vast majority of arrangements concerning EHR systems do involve the exchange of value, thus requiring those arrangements to meet a Stark exception and not to violate the Anti-Kickback statute. However, as with fax machines designed solely for communicating lab results, the proposed arrangement in CMS-AO-2008-01 concerns little more than the provision software that would allow communication between existing systems and, according to the opinion's reasoning, is intended to have such a specific and narrow use that it is effectively deemed to have no value at all.

As the opinion points out, the proposed arrangement would allow physicians to perform functions they already can perform at the hospital site, but allows for no other functionality or exchange of value. Thus, the advisory opinion, while having the effect of allowing parties to identify ways to integrate their existing EHR systems, does not need to comply with any EHR exceptions because, in the absence of value (as CMS concluded in this arrangement), there is no compensation arrangement under the Stark law and, hence, no need to satisfy an exception.

Phelps Dunbar specially thanks Will Beasley, summer associate in the Tupelo office, for serving as the contributing author of this article.