IRS ruling allows hospitals to provide healthcare IT to physicians
WASHINGTON – A short, two-page memorandum from the Internal Revenue Service issued Friday is expected to offer encouragement to not-for-profit hospitals that have considered providing healthcare information technology to medical staff physicians.
The IRS issued a memorandum indicating that it would not consider such donations of IT and supporting services as kickbacks that would jeopardize healthcare providers’ not-for-profit status.
Many in the industry say providers have been waiting for IRS clarification before proceeding with programs to provide IT to staff physicians.
The IRS memorandum defines medical staff as those who have staff privileges at a hospital. The ruling answers questions about the tax status of a facility that provides “financial assistance to acquire and implement software that is used primarily for creating, maintaining, transmitting or receiving electronic health records for their patients.”
The IRS response was sought after the Aug. 8, 2006, decision by the Department of Health and Human Services to issue regulations enabling hospitals to provide software and services, within specific parameters, for staff physicians without violating federal anti-kickback laws.
“We will not treat the benefits a hospital provides to its medical staff physicians as impermissible private benefits or inurement in violation of section 501(c)(3) of the Internal Revenue Code if the benefits fall within the range of health IT items and services that are permissible under the HHS EHR regulations,” the memorandum stated before providing some general guidelines for operations.
Not-for-profit providers were reluctant to take advantage of the exemptions because of potential tax implications. In fact, a recently released survey of executives by the College of Health Information Management Executives found that 62 percent of hospitals had no plans to take advantage of the new Stark exceptions and anti-kickback safe harbor laws.
The ruling was a key in giving not-for-profit hospitals assurance that programs would not jeopardize their tax-exempt status, said Scott Wallace, president and CEO of the National Alliance for Health Information Technology.
“Nobody’s going to threaten their tax-exempt status over [giving EHRs to physicians],” Wallace said. “Not-for-profits are worried about compensation rules and providing sufficient charity care. It’s not like they had to [provide healthcare IT and services] in order to survive. It’s a public good that they didn’t want to get smacked down for because they did it.”
Wallace believes that not-for-profit organizations will begin to make efforts to provide healthcare IT to staff physicians.
“The reason this is so important is that hospital providers are the lowest-cost resource for getting IT in physicians’ hands,” he said. “The incremental cost to extend a hospital’s IT to physicians is relatively low, and doing so takes away a huge obstacle for small physicians who want to move to EHRs.”
Even though the ruling took nine months, it was not known how the IRS would rule concerning the permissibility of IT contributions from tax-exempt facilities.
“You never know what the [IRS] is going to do,” Wallace said. “To get an absolute broad declaration that lines up perfectly with another agency’s directive is rare. Tremendous credit should go to the American Hospital Association, which met with the IRS on this and pushed on this issue.”