Publication

June 24, 2008Client Alert

CMS Issues Stark Law Advisory Opinion Permitting Provision of Custom Software Interface to Physicians

In a May 2008 advisory opinion, the Centers for Medicare & Medicaid Services ("CMS") considered a proposed arrangement (the "Proposed Arrangement") under which a non-profit hospital system (the "Hospital System") would license a custom software interface (the "Physician Practice Interface") for use by physicians on its medical staffs (and/or their physician practices) (the "Affiliated Physician Practices"). The purpose of the Physician Practice Interface is to allow the Affiliated Physician Practices to access certain patient records remotely. Ultimately, CMS concluded that providing the Physician Practice Interface did not create a compensation arrangement as defined in section 1877(h)(1)(A) of the Social Security Act (the "Act"). As the Proposed Arrangement was not deemed to constitute a compensation arrangement and thus did not implicate the Stark Law, the opinion declined to address whether the Proposed Arrangement fell into an exception to the Stark Law's physician self-referral prohibition.

CMS Advisory Opinion No. CMS-AO-2008-01

The Proposed Arrangement

The Hospital System requesting the advisory opinion contracted with a third party to install a software system that operates over a protected internet connection to allow the Hospital System's medical staffs to view patients' laboratory reports.

The Hospital System wishes to expand the scope of its software system whereby Affiliated Physician Practices would be able to view patient lab reports and also order and communicate the results of tests and procedures. To do this, the Hospital System would need to integrate its software system with the electronic health records ("EHR") systems used by the Affiliated Physician Practices, to facilitate communication between the Affiliated Physician Practices and the Hospital System regarding patient records. However, the Hospital System would limit the Affiliated Physician Practices' use of the Physician Practice Interface to ordering or communicating the results of tests or procedures.

Under the Proposed Arrangement, the Hospital System would pay for a Physician Practice Interface specifically customized to the Affiliated Physicians Practices' EHR software. The Hospital System would also pay for the license to authorize the Affiliated Physician Practices to use the Physician Practice Interface during the term of the Hospital System's license agreement.

Additionally, the Hospital System has certified the following conditions about the Proposed Arrangement:

  • The Physician Practice Interface could only be used to order or communicate the results of patient tests and procedures.
  • The Affiliated Physician Practices cannot alter the Physician Practice Interface by changing its functions or by reselling, transferring or assigning the license to use the Physician Practice Interface to a third party.
  • The Hospital System will not provide the Affiliated Physician Practices with any other items or services in relation to the Proposed Arrangement.

Many have shown interest in the Proposed Arrangement, including the Hospital System's medical staffs and several private, multi-specialty physician practices already affiliated with the Hospital System.

CMS Analysis

Under section 1877 of the Act, a physician may not refer a Medicare patient for certain designated health services ("DHS") to an entity, in this case the Hospital System, with which the physician, or the physician's immediate family member, has a financial relationship. However, there are several enumerated exceptions to this no-referral rule. If the definition of a compensation arrangement is met by the provision of the Physician Practice Interface, then the Proposed Arrangement would need to meet such an exception, or the Affiliated Physician Practices would be prohibited from referring Medicare patients to the Hospital System for DHS.

In section 1877(h)(1)(A) of the Act, a compensation arrangement is defined as "any arrangement involving any remuneration between a physician (or an immediate family member of such physician) and an entity other than an arrangement involving only remuneration described in paragraph (C)." Section 1877(h)(1)(C) identifies certain types of remuneration that are not deemed to create a compensation arrangement, including the "provision of items, devices, or supplies that are used solely ... to order or communicate the results of tests or procedures..."

In this case, the Hospital System would provide the Affiliated Physician Practices with the Physician Practice Interface, a device with the limited purpose of allowing the Affiliated Physician Practices to order and communicate the results of tests and procedures. Relying on the exception to the definition of compensation arrangements described above, CMS concluded that there is no compensation arrangement between the Hospital System and the Affiliated Physician Practices based on the installation and use of the Physician Practice Interface.

Notably, the CMS analysis went to great lengths to emphasize that the provision of the Physician Practice Interface is not considered a compensation arrangement due to the fact that the use of the Physician Practice Interface is limited to allowing the Affiliated Physician Practices to order and communicate results of tests and procedures, and because the Affiliated Physician Practices cannot perform any alternate function with the software, nor may they transfer its use to an unauthorized third party.

Conclusion

Please note that, as is the case with all CMS advisory opinions, this opinion may not be relied upon by individuals or entities other than the requesting parties. Nonetheless, this advisory opinion could be instrumental in aiding hospitals' constant efforts to improve patient care. Undeniably, the future trend will be toward electronically exchanging patient information to improve communication between health care workers, which will ultimately improve patient care.

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