Sender's Direct Phone (202) Sender's Direct Facsimile (202) MEMORANDUM

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1 PHILIP C. OLSSON RICHARD L. FRANK DAVID F. WEEDA ( ) DENNIS R. JOHNSON ARTHUR Y. TSIEN JOHN W. BODE* STEPHEN D. TERMAN MARSHALL L. MATZ MICHAEL J. O'FLAHERTY DAVID L. DURKIN NEIL F. O'FLAHERTY PAMELA J. FURMAN BRETT T. SCHWEMER TISH E. PAHL ROBERT A. HAHN *PRACTICE WITHIN THE DISTRICT OF COLUMBIA IS LIMITED TO MATTERS AND PROCEDURES BEFORE FEDERAL COURTS AND AGENCIES ATTORNEYS AT LAW SUITE SIXTEENTH STREET, N.W. WASHINGTON, D.C (202) FACSIMILE (202) Sender's Direct Phone (202) Sender's Direct Facsimile (202) STEPHEN L. LACEY EVAN P. PHELPS VALERIE B. SOLOMON JOLYDA O. SWAIM KATHRYN E. BALMFORD COUNSEL NAOMI J.L. HALPERN OF COUNSEL JUR T. STROBOS JACQUELINE H. EAGLE KENNETH D. ACKERMAN MARK L. ITZKOFF DAVID A. BIEGING SENIOR POLICY ADVISORS JOHN R. BLOCK CHARLES W. STENHOLM BRIAN E. JOHNSON SALLY S. DONNER BRENT W. GATTIS MEMORANDUM TO: FROM: Coding and Reimbursement Committee American Academy of Audiology Robert A. Hahn RE: OIG Final Rule Creating New Safe Harbors Under the Anti-Kickback Statute Electronic Prescribing Technology and Electronic Health Records Technology The Department of Health and Human Services (HHS), Office of Inspector General (OIG) has published a final rule creating two new safe harbors under the federal Anti-Kickback Statute for certain arrangements involving the provision of electronic prescribing hardware, software, and services and electronic health records software and services. 71 Fed. Reg (Aug. 8, 2006). 1 The final rule will become effective on October 10, The final rule would protect certain arrangements from liability under the federal Anti- Kickback Statute, provided they meet specified conditions. The following arrangements would be protected: 1 The Centers for Medicare & Medicaid Services (CMS) simultaneously published a final rule creating two new exceptions to the Stark Law for certain arrangements involving the provision of electronic prescribing technology and electronic health records technology by entities that furnish designated health services to physicians. 71 Fed. Reg (Aug. 8, 2006). Because these new Stark Law exceptions apply only to arrangements in which electronic prescribing or electronic health records technology is being donated by an entity that furnishes designated health services to a physician, they are not relevant to audiologists.

2 Page 2 Arrangements involving the donation of hardware, software, or information technology and training services necessary and used solely to receive and transmit electronic prescription information (the electronic prescribing safe harbor ); and Arrangements involving the donation of software and information technology and training services necessary and used predominantly to create, maintain, transmit, or receive electronic health records (the electronic health records safe harbor ). Impact on Audiologists The electronic health records safe harbor will make it possible for audiologists to accept donations of electronic health records (EHR) software and related services from certain donors without having to worry about potential liability under the federal Anti-Kickback Statute. 2 Audiologists and audiology group practices may also be donors of EHR software and services under this safe harbor. To qualify for such protection, the arrangement must meet all of the conditions set forth in the safe harbor regulation (42 C.F.R (y)). The electronic prescribing safe harbor is not relevant to audiologists. That safe harbor only applies to arrangements involving the donation of electronic prescribing hardware, software, and related services by certain donors to certain recipients. Although prescribing health care professionals are among the specified recipients, the regulation defines prescribing health care professional as a physician or other health care professional licensed to prescribe drugs in the State in which the drugs are dispensed. Because audiologists do not prescribe drugs, they are not prescribing health care professionals for purposes of this regulation. Background The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) established a new prescription drug benefit in the Medicare program and directed HHS to adopt standards for electronic prescribing. The MMA also directed HHS to create a safe harbor from antikickback prosecution and an exception from liability under the Stark Law in order to allow hospitals, group medical practices, and other entities to donate electronic prescribing technology to physicians and other prescribing health care practitioners. 2 The Anti-Kickback Statute (42 U.S.C. 1320a-7b(b)) prohibits any person from knowingly and willfully offering, paying, soliciting, or receiving any remuneration to induce or reward the referral of business that is reimbursable under a federal health care program. Because of concern this broad prohibition would criminalize innocent arrangements, Congress and OIG have created a number of safe harbors from liability under the statute.

3 Page 3 As required by the MMA, OIG and CMS last year proposed to create a new safe harbor/exception for certain arrangements involving provision of hardware, software, and/or information technology and training services to receive and transmit electronic prescription information. Although not required by the MMA, OIG and CMS also proposed to create safe harbors/exceptions for certain arrangements involving the provision of electronic health records software and related training services. 3 (For a discussion of these proposed rules, see our memorandum dated October 28, 2005.) In response to the proposed rules, the Academy submitted comments to OIG requesting that the electronic health records safe harbor be expanded to include additional donors and recipients. Specifically, the Academy requested that audiologists and other non-physician practitioners be included in the list of acceptable recipients. This final rule adopts the Academy s suggestion, providing that any individual or entity engaged in the delivery of health care is an acceptable recipient of EHR technology under the safe harbor. Electronic Prescribing Safe Harbor The final rule provides legal protection for arrangements involving the donation of hardware, software, or information technology and training services necessary and used solely to receive and transmit electronic prescription information, provided all of the following conditions are met: The items and services are provided: (i) by a hospital to a physician who is a member of its medical staff; (ii) by a group practice to a prescribing health care professional who is a member of the group practice; or (iii) by a PDP (Prescription Drug Plan) sponsor or MA (Medicare Advantage) organization to pharmacists and pharmacies participating in its network or to prescribing health care professionals; 4 The items and services are provided as part of, or are used to access, an electronic prescription drug program that meets the standards under Medicare Part D at the time the items and services are provided; The donor (or any person acting on the donor s behalf) does not take any action to limit or restrict the use or compatibility of the items or services with other electronic prescribing or electronic health records systems; 3 HHS is encouraging all health care providers and suppliers to adopt electronic health records. HHS believes that widespread adoption of interoperable electronic health records will reduce medical errors, improve quality of care, enhance efficiency, and facilitate the use of pay-for-performance measures in determining reimbursement. 4 The final rule defines prescribing health care professional to mean a physician or other health care professional licensed to prescribe drugs in the State in which the drugs are dispensed.

4 Page 4 For items or services that are of a type that can be used for any patient without regard to payor status, the donor does not restrict or limit the recipient s right or ability to use the items or services for any patient; Neither the recipient nor the recipient s practice (or any affiliated individual or entity) makes the receipt of donated items or services, or the amount or nature of such items or services, a condition of doing business with the donor; Neither the eligibility of a recipient to receive items and services, not the amount or nature of the items or services, is determined in a manner that takes into account the volume or value of referrals or other business generated between the parties; The arrangement is set forth in a written agreement that: (i) is signed by the parties; (ii) specifies the items and services being provided and the donor s cost for those items and services; and (iii) covers all of the electronic prescribing items and services to be provided by the donor (or affiliated parties). The agreement may incorporate other agreements between the parties by reference or cross-reference a master list of agreements that is maintained and updated centrally and available for review by OIG upon request; and The donor does not have actual knowledge of, and does not act in reckless disregard or deliberate ignorance of, the fact that the recipient already possesses or has obtained items or services equivalent to those provided by the donor. As noted above (see footnote 4), this safe harbor does not apply to audiologists. This safe harbor only applies to donations of items and services by certain donors to certain recipients. While prescribing health care professionals are among the covered recipients, the regulation defines prescribing health care professional as a physician or other health care professional licensed to prescribe drugs in the State in which the drugs are dispensed. Because audiologists do not prescribe drugs, they are not prescribing health care professionals for purposes of this regulation. Electronic Health Records Safe Harbor The final rule provides legal protection for arrangements involving the donation of software 5 and information technology and training services necessary and used predominantly 6 to create, 5 Donations of hardware are not protected, because software and training services are the components of electronic health records systems most likely to be needed by recipients and because gifts of valuable, multi-functional hardware (such as computers and servers) would inherently pose a higher risk of constituting a disguised payment for referrals. 71 Fed. Reg. at The core functionality of the technology must be the creation, maintenance, transmission, or receipt of individual patients electronic health records. However, some software relating to patient administration, scheduling functions, billing and clinical support may be included. Donated items and services may include the following: Internet connectivity, including broadband and wireless Internet services; Interface and translation software; rights, licenses, and intellectual property related

5 Page 5 maintain, transmit, or receive electronic health records, 7 provided all of the following conditions are met: The items and services are provided to an individual or entity engaged in the delivery of health care; 8 The items and services are provided by: (i) an individual or entity that provides services covered by a federal health care program and that submits claims for payment, either directly or through reassignment, to the federal health care program; or (ii) a health plan; 9 The software is interoperable at the time it is provided to the recipient; 10 The donor (or any person on the donor s behalf) does not limit or restrict the use, compatibility, or interoperability of the items or services with other electronic prescribing or EHR systems; Neither the recipient nor the recipient s practice (or any affiliated individual or entity) makes the receipt of items or services, or the amount or nature of the items or services, a condition of doing business with the donor; to EHR software; maintenance services; clinical support and information services related to patient care (but not separate research or marketing support services); secure messaging; and training and support services (e.g., help desk support services). 71 Fed. Reg. at The regulation defines an electronic health record as a repository of consumer health status information in computer processable form used for clinical diagnosis and treatment for a broad array of clinical conditions. This broad definition is intended to facilitate widespread adoption of EHR technology. 8 Audiologists are specifically mentioned as acceptable recipients. 9 Manufacturers and vendors of medical devices and supplies are not acceptable donors. Our enforcement experience demonstrates that unscrupulous manufacturers have offered remuneration in the form of free goods and services to induce referrals of their products. 71 Fed. Reg. at The regulation defines interoperable to mean able to communicate and exchange data accurately, effectively, securely, and consistently with different information technology systems, software applications, and networks, in various settings, and exchange data such that the clinical or operational purpose and meaning of the data are preserved and unaltered. Software will be deemed to be interoperable if it has been certified by a certifying body recognized by HHS within no more than 12 months prior to the date it is provided to the recipient. HHS recently recognized criteria for interoperability developed by the Certification Commission for Healthcare Information Technology (CCHIT). 71 Fed. Reg (Aug. 4, 2006) (see for the list of recognized criteria).

6 Page 6 Neither the eligibility of a recipient to receive the items or services, nor the amount or nature of the items or services provided, is determined in a manner that directly takes into account the volume or value of referrals or other business generated between the parties; 11 The arrangement is set forth in a written agreement that: (i) is signed by the parties; (ii) specifies all the items or services being provided by the donor (or any affiliate), the donor s cost for those items and services, and the amount of the recipient s contribution; and (iii) covers all of the EHR items and services to be provided by the donor (or any affiliate); 12 The donor does not have knowledge, and does not act in reckless disregard or deliberate ignorance of, the fact that the recipient already possesses items or services equivalent to those being provided by the donor; 13 For items or services that are of a type that can be used for any patient regardless of payor status, the donor does not restrict or limit the recipient s right or ability to use the items or services for any patient; The items and services do not include staffing of the recipient s office and are not used primarily to conduct personal business or business unrelated to the recipient s clinical practice or operations; The EHR software contains an electronic prescribing capability, either through an electronic prescribing component or the ability to interface with the recipient s existing electronic prescribing system, that meets the applicable standards under Medicare Part D at the time the items and services are provided; However, the determination may be based on the following: (i) the total number of prescriptions written by the recipient (but not the volume or value of prescriptions dispensed or paid by the donor or billed to a federal health care program); (ii) the size of the recipient s medical practice (e.g., total patients, total patient encounters, total relative value units); (iii) the total number of hours that the recipient practices medicine; (iv) the recipient s overall use of automated technology (without specific reference to use of technology in connection with referrals to the donor); (v) whether the recipient is a member of the donor s medical staff; (vi) the level of uncompensated care provided to the recipient; or (vii) any reasonable and verifiable manner that does not directly take into account the volume or value of referrals or other business generated between the parties. 12 The agreement may incorporate other agreements by reference or cross-reference a master list of agreements that is maintained and updated centrally, is available for review by HHS upon request, and preserves the historical record of agreements. 13 According to OIG, [p]rudent donors may want to make reasonable inquiries to potential recipients, and document the communications. 71 Fed. Reg. at A donor may provide upgrades to items and services already possessed by the recipient in order to enhance the functionality of the electronic health records system. 14 This requirement means that the software must be capable of receiving and transmitting electronic prescription information. It appears that prescription information is not limited to prescriptions of

7 Page 7 Before receipt of the items and services, the recipient pays 15 percent of the donor s cost for such items and services; 15 The donor does not shift the costs of the items or services to any federal health care program; and The transfer of the items or services occurs, and all conditions are satisfied, on or before December 31, Even if an arrangement does not meet the conditions for safe harbor protection, it will not necessarily violate the federal Anti-Kickback Statute. If an arrangement does not qualify for safe harbor protection, it will be evaluated on a case-by-case basis based on all of the facts and circumstances. If the donor of the EHR technology is not an actual or potential source of referrals to the recipient, the Anti-Kickback Statute is not implicated. In addition, OIG notes: In general, fair market value arrangements that are arm s-length and do not take into account in any manner the volume or value of Federal health care program business, or arrangements that do not have as one purpose the generation of business payable by a Federal health care program, should not raise concerns under the antikickback statute. In addition, many arrangements can be structured to fit in [other] existing safe harbors. 17 drugs. For purposes of the electronic prescribing safe harbor, the final rule defines prescription information as information about prescriptions for drugs or for any other item or service normally accomplished through a written prescription. However, this definition is not repeated in the electronic health records safe harbor. Thus, it appears, but is not entirely clear, that this requirement is satisfied if the software is capable of receiving and transmitting prescriptions for any items or services that are normally accomplished through a written prescription. 15 This cost-sharing requirement is intended to increase the likelihood that the recipient will actually use the EHR technology. The donor (or any affiliated individual or entity) may not finance the recipient s payment or loan funds to be used by the recipient to pay for the items and services. Donors and recipients should be careful about imposing different levels of cost-sharing on different recipients. A differential in the amount of cost-sharing imposed by the donor on different recipients may give rise to an inference that an arrangement is directly related to the volume or value of referrals or other business generated between the parties, thus rendering the arrangement ineligible for safe harbor protection. 71 Fed. Reg. at This sunset provision reflects the view that electronic health records systems will become standard in a few years. HHS may extend this safe harbor through notice-and-comment rulemaking Fed. Reg. at

8 Page 8 Nevertheless, if an audiologist accepts EHR technology from an existing or potential referral source, it is strongly recommended that the arrangement be designed to fit within a safe harbor if at all possible. * * * * * We trust this information is useful. If you have any questions or would like copies of the final rules, please contact us. RAH:jdm cc: Laura Fleming Doyle Lisa Miller Phil Bongiorno Marshall Matz