Quarles & Brady Health Law Alert

We've been hearing about e-prescribing for years--How it will reduce medication errors, how it will ensure better formulary compliance and drive prescriptions to more profitable generics, and how it will translate into better drug utilization review and allow pharmacists to provide better patient drug information. However, it has seemed like prescribing technology would never catch up with the 21st Century.

Well, get ready. Medicare has paved the way to allow pharmacists, physicians, and hospitals to receive (and give) free e-prescribing and electronic health information (e-records) software and hardware from health plans and other health care providers. The Centers for Medicare and Medicaid Services (CMS) published two final rules on August 8, 2006. These rules allow hospitals and certain other health care groups to donate e-prescribing and e-records technology to physicians, pharmacies, and other health care providers.² And, believe it or not, CMS has actually made it easier than a year ago when these exceptions were suggested under proposed rules.

In announcing the rules, HHS Secretary Michael Leavitt stated that, "Electronic health records help doctors provide higher quality patient care, improved efficiency and with less hassle. By removing barriers, these regulation changes will help physicians get these systems in place and working for patients faster."

The new rules apply to both e-prescribing and e-records technology. E-prescribing technology allows prescriptions to be electronically transmitted. E-records technology, shared among health care providers, offers benefits similar to those of e-prescribing in terms of reducing medical errors, coordinating care and improving efficiency.

So, why is CMS being so nice? Well, it wants e-records technology to finally move forward. Before the rules, federal health care laws made it illegal in many cases for hospitals and other health care providers to give free technology to someone who could refer business to them. Two laws prevented this: The federal Anti-Kickback (AKS) law,³ which is a criminal law that makes payments for referrals illegal; and the Stark law,⁴ which prohibits physicians to refer Medicare patients for certain designated health services--such as outpatient prescription drugs--if they have a financial relationship with the entity receiving the referral (e.g., the hospital where they might admit patients or a pharmacy where a prescription could be filled).

Under both the AKS and Stark laws, free technology would have been considered to be a form of compensation or a financial relationship (or as some might call it, a "bribe" or "kickback"). The new AKS safe harbors and Stark exceptions finally allow technology to be given away so that health care can widely adopt health technology.

Free Technology to Pharmacies: The E-Prescribing Safe Harbor and the Stark Law Exception
The new e-prescribing safe harbor ⁵ allows pharmacies to receive "free" hardware, software, and information technology and training from Part D prescription drug plan (PDP) sponsors and Medicare Advantage (MA) organizations. The rule applies only to these plans and does not allow pharmacy benefit managers to give pharmacies "free" goods.

However, as with everything handed down by Medicare, pharmacies are limited on what they can receive--the technology may only be used to receive e-prescribing information. In addition, several other requirements exist. Part D plans may not limit or restrict the pharmacy's use of or compatibility with other e-prescribing or e- records systems and may not restrict or limit the pharmacy's right or ability to use the technology. Further, pharmacies may not make the receipt of technology a condition of doing business with it and plans may not decide who receives the "free" goods based upon the prescription volume.

The Stark exception⁶ for e-prescribing is virtually identical to the safe harbor. However, this law only governs donations to physicians. For example, it allows a hospital to give technology to a physician who is a staff member or allows physicians to receive free e-prescribing technology from PDP sponsors and MA organizations. This is because the Stark law applies only to physician compensation arrangements. In addition, to meet the Stark law exception, one must be sure that the arrangement does not violate the AKS law or any federal state law regulation governing billing or claims submission.

Free E-Records Technology
A different AKS safe harbor⁷ and Stark exception⁸ apply to e-records technology.⁹ These rules require the donated e-records technology to contain e-prescribing capability--either through an e-prescribing component or the ability to interface with the recipient's e-prescribing system--that meets applicable standards under Medicare Part D. In addition, they don't allow e-records technology to be free--pharmacies must pay at least 15% of the cost.

The donor may be any entity or individual that provides services covered by a federal health care program and submits claims to a federal health care program. Recipients may be health plans, individuals, or entities engaged in the delivery of health care.

Covered technology includes software technology and training that is necessary and used predominantly to create, maintain, transmit, or receive e-records. In other words, the "core functionality" must be for records.

The software must be certified as interoperable when it is provided. As with the e-prescribing safe harbor, the donor may not limit or restrict the use, compatibility, or interoperability of the items or services with other e-prescribing or e-records systems.

Pharmacies may not condition doing business with the donor on the donation. And, the pharmacy's eligibility for (and the amount or nature of) the donation may not be determined by prescription volume (the final rule lays out seven acceptable methodologies for determining eligibility). In addition, the following requirements exist:

• The arrangement must be in a signed, written agreement that specifies all of the e-record items and services to be provided, the donor's costs, and the amount of the recipient's contribution.
• The donor must have no knowledge that the recipient has items or services equivalent to those provided by the donor.
• For items or services that are of the type that can be used for any patient without regard to pay or status, the donor may not restrict or limit the recipient's right to use the items or services for any patient.
• The items and services may not include staffing for the recipient and may not include items used primarily for personal business or business unrelated to the recipient's clinical practice.
• Before receipt of the items and services, the recipient may pay at least 15% of the donor's costs. The donor may not finance the recipient's payment or loan funds to the recipient.
• The donor may not shift the cost of the items or services to any federal health care program.
• The transfer of the items and services must occur on or before December 31, 2013.

The Next Steps
E-prescribing and e-records technology systems could eventually save an estimated $81 billion annually in health care costs.¹⁰ And, technology-enabled prevention and management of disease has the potential to save even more time and resources in the health care system. One of the President's goals on this front is for every American to have e-records by 2014. Hence, the e-records Stark exception and AKS safe harbor sunset on December 31, 2013.

These new rules are a useful step by the federal government toward national adoption and implementation of health information technology systems and e-records for each patient. Other steps will include developing standards for health information technology to ensure interoperability and the confidentiality of patients' e-records. HHS is currently facilitating these measures.

The new rules become effective October 6, 2006, so start planning now on how to structure a donation (or receipt) of technology. HHS sums it up well: "The implementation of electronic health information technology is a national priority that has the potential to improve our healthcare system."

REFERENCES
1. Laura Carpenter is a partner at the law firm of Quarles & Brady LLP where she practices health care law in the Phoenix, Arizona office. Laura can be reached at lcarpent@quarles.com.
2. 71 Fed. Reg. 45109-45171 (August 8, 2006).
3. 42 U.S.C. § 1320a-7b(b).
4. 42 U.S.C. § 1395nn.
5. 42 C.F.R. § 1001.952(x).
6. 42 C.F.R. § 411.357(v).
7. 42 C.F.R. § 1001.952(y).
8. 42 C.F.R. § 411.357(w).
9. As with the e-prescribing Stark Exception, the e-records exception is identical to the e-records safe harbor except that it is limited to physicians.
10. Hillestad et al. Can Electronic Medical Record Systems Transform Healthcare? Potential Health Benefits, Savings and Costs. Health Affairs. 2005;24:1103-1117.