Publications: IRS Clarifies Tax Treatment of Hospital-Subsidized Electronic Health Records 05/01/2007, updated 06/25/2007

The IRS's Director of the Exempt Organizations Division issued guidance on the tax implications of financial assistance donated by tax-exempt hospitals to physicians with staff privileges for the acquisition of software to support electronic health records (EHRs). In its May 11, 2007 memorandum, the IRS clarified that it will not treat subsidies for EHR software and technical support services provided by a hospital to its physicians as an impermissible private benefit or inurement by the hospital in violation of section 501(c)(3) of the Tax Code, so long as the following conditions are met:

• The benefits provided to physicians are within the scope of the Department of Health and Human Services' (HHS) federal Anti-Kickback Statute and Stark Law EHR regulations issued August 8, 2006.
• The hospital and participating physicians agree to comply with the HHS EHR regulations on a continuing basis.
• The hospital may access all electronic medical records created by the physicians using the subsidized items and services (to the extent permitted by law).
• The hospital makes EHR items and services available to all of its medical staff physicians.
• Finally, the hospital provides the same level of subsidy to each of all its medical staff physicians, or varies the level of subsidy according to the healthcare needs of the community.

On June 21, 2007, the IRS clarified portions of its EHR guidance by issuing a series of questions and answers on the topic. In particular, the IRS stated that the donor hospital and the recipient physician can agree on reasonable conditions on the hospital's access to the physician's electronic medical records, such as access only to records of hospital patients or restrictions placed on the hospital's access to non-medical information. The IRS also clarifies that it does not mandate that hospitals make the EHR software and services available to all medical staff physicians at the same time, but notes that hospitals must develop a plan for providing access that is related to meeting the healthcare needs of the community.

Among the key provisions of the HHS EHR regulations are the requirements that donations include only software, information technology and training services (not hardware); that donated software be interoperable and used "predominantly" to create, maintain, transmit or receive EHRs; and that recipients share at least 15 percent of the cost of the donated items and services.

The memorandum does not address the tax implications of the donations to the receiving physicians.

The IRS memorandum is available at: http://www.irs.gov/pub/irs-tege/ehrdirective.pdf

The EHR questions and answers are available at: http://www.irs.gov/pub/irs-tege/ehr_qa_062007.pdf