Health Highlights

Removing Regulatory Barriers to Accelerate EHR Adoption

Authors: William Bernstein, Partner, Chairman, Healthcare Division, Manatt, Phelps & Phillips, LLP | Jonah Frohlich, Managing Director, Manatt Health Solutions | Anne Karl, Associate, Healthcare Industry, Manatt, Phelps & Phillips, LLP

Editor’s Note: How has health IT emerged in its first 10 years? How is it reshaping the medical and legal landscape? How are electronic health records (EHRs) transforming healthcare? Manatt Health answered those questions and more in our recent webinar for Bloomberg BNA, “The Evolution of Health IT and EHRs: Setting the Stage for Growth and Value.” The webinar detailed the emergence of health IT, focusing primarily on developments over the last decade that have accelerated the adoption and use of EHRs. The article below, focused on legal issues around EHR adoption, is the first in a series summarizing key segments of the presentation. Click here for a hard copy of the full presentation.

Recognizing the potential long-term value of EHRs for improving care and reducing costs, many hospitals considered offering physicians financial support to purchase EHR software and related health IT items and services. Because these items and services have value to physicians, however, they implicate a range of regulations restricting financial relationships between hospitals and physicians, including the Stark law, the anti-kickback statute, and rules governing tax-exempt organizations. The laws were presenting a major barrier to EHR adoption, since they prevented hospitals from offering financial support to providers. As a result, the government intervened to facilitate hospital support for physician EHR adoption.

The Stark Law

Section 1877 of the Social Security Act, commonly referred to as the Stark law, prohibits physicians from making referrals for designated health services (DHS) payable by Medicare to an entity with which the physician has a “financial relationship” unless that relationship fits within an exception. Entities are likewise prohibited from billing Medicare for DHS provided as a result of those referrals.

Stark law exceptions cover certain types of services, ownership, investment interests or compensation arrangements. Generally, EHRs and other health IT that hospitals provide to employed physicians and are used only in connection with their employment should not raise risks under the Stark law. Health IT is viewed as part of the infrastructure hospitals provide to enable employees to generate revenue. It is not treated as something of value given to a physician for his or her personal benefit.

When hospitals provide technology to physicians who are not employees, more complicated legal issues arise. The Stark law’s medical staff incidental benefits exception generally lets hospitals provide technology to physicians on its medical staff, if the technology is used solely for accessing hospital medical records to treat hospital patients. In contrast, technology that can be used by physicians in their private practices is not covered by the medical staff incidental benefits exception. The provision of these types of items must be structured to fit one of the following Stark law exceptions.

To support implementation of the Medicare Part D prescription drug program and promote e-prescribing, the Centers for Medicare and Medicaid Services (CMS) created an exception to Stark in 2006 that allows entities to offer physicians and hospitals hardware, software, or information technology and training services necessary to receive and transmit electronic prescription information. E-prescribing items and services may be provided:

  • By a hospital to the physicians on its medical staff,
  • By a group practice to the members of the group, or
  • By a Prescription Drug Plan or Medicare Advantage Plan to a prescribing physician.

Other key requirements include:

  • The donor may not limit or restrict the use or compatibility of the items or services with other e-prescribing or EHR systems.
  • For items or services that can be used for any patient without regard to payer status, the donor may not limit or restrict the physician’s right or ability to use the items or services for any patient.
  • The physician may not make the receipt of items or services a condition of doing business with the donor.
  • The physician’s eligibility for the items or services may not be determined in a manner that takes into account the volume or value of referrals or other business generated between the parties.
  • The arrangement is reflected in a written agreement signed by the parties that covers all of the e-prescribing items and services being provided, and specifies those items and services, as well as the donor’s cost.

In conjunction with creating the e-prescribing exception, CMS established Stark exceptions for donating EHR technology. While the EHR exception shares many of the same elements as the e-prescribing exception, there are important differences between the two.

The Stark law’s EHR exception covers “software or information technology and training services necessary and used predominantly to create, maintain, transmit, or receive electronic health records ....” The exception covers only EHR software and related services such as training, support and maintenance. Unlike the e-prescribing exception, it does not cover hardware. Other key requirements include:

  • The items and services must be provided by an entity that is a direct service provider.
  • The software must be deemed interoperable at the time it is provided to the physician.
  • The donor may not take any action to restrict or limit the use, compatibility or interoperability of the software with other electronic prescribing or EHRs.
  • Before receipt of the items or services, the physician must pay at least 15 percent of the donor’s cost of the items or services.
  • The arrangement may not violate the anti-kickback statute or any state or federal law or regulation governing billing or claims submission.

The Federal Anti-Kickback Statute

The federal anti-kickback statute prohibits any person from knowingly and willfully soliciting, receiving, offering or paying remuneration in return for:

  • The referral of a patient for the provision of items or services covered by a federal healthcare program, or
  • Purchasing, leasing, ordering or arranging for, or recommending the purchase, lease or ordering of, any item or service for which payment is made by a federal healthcare program. Federal healthcare programs include Medicare and Medicaid.

As under Stark, hospitals providing EHRs or other health IT to their employed physicians should not raise any anti-kickback concerns. There is an anti-kickback statute safe harbor covering any remuneration that an entity provides to an employee.

Providing nonhospital employees with EHRs or other health IT raises the same issues under the anti-kickback statute as under the Stark law. Therefore, the HHS Office of Inspector General (OIG) has created an exception to the federal anti-kickback statute that allows entities to offer physicians and hospitals hardware, software, or information technology training and services necessary to receive and transmit electronic prescription information. OIG also created exceptions for donations of EHR technology.

State Fraud and Abuse Laws

Many states have adopted their own fraud and abuse laws modeled on the Stark law or the anti-kickback statute. State self-referral laws typically apply to services billed to Medicaid and/or commercial insurers, extending the reach of the self-referral prohibition beyond Medicaid. Some state anti-kickback statutes similarly expand the scope of kickback restrictions to services covered by private third-party payers.

In certain states, fraud and abuse laws incorporate all Stark law exceptions or anti-kickback safe harbors. Other states have more stringent statutes for a narrower range of exemptions. In the absence of interpretive guidance, it is reasonable to apply the CMS rule to the state law.

Tax Exemption Issues

To provide tax-exempt hospitals with guidelines for offering EHR subsidies, the IRS released a memorandum in May 2007 titled Hospitals Providing Financial Assistance to Staff Physicians Involving Electronic Health Records. In the memorandum, the IRS determined that a tax-exempt hospital may provide financial assistance to its physicians related to EHR technology if the hospital meets the regulatory requirements in the Stark exceptions and anti-kickback statute safe harbor, as well as certain additional requirements. The added requirements include the following:

  • The hospital must enter into a health IT subsidy agreement with its staff physicians for the provision of health IT items and services at a discount.
  • The subsidy agreement must require both the hospital and participating physicians to comply with the Stark exceptions and anti-kickback statute safe harbor on an ongoing basis.
  • The hospital must be able to access all records created by physicians using the health IT.
  • The hospital must ensure that the subsidized EHR technology is available to all staff physicians.
  • The hospital must provide the same level of subsidy to all of its staff physicians.

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Manatt Health Wins 2014 Chambers USA Award for Excellence

At a ceremony on May 22 in New York, Chambers USA honored Manatt’s national healthcare practice with its 2014 Award for Excellence. The award recognizes outstanding law firms and lawyers across the United States, reflecting preeminence in key practice areas and notable achievements over the past 12 months, including exceptional work, impressive strategic growth and excellent client service. Manatt was chosen as this year’s winner from a field of five finalists.

The awards are based on research conducted by Chambers and Partners for the 2014 edition of “Chambers USA: America’s Leading Lawyers for Business.” Manatt’s Healthcare practice is currently nationally ranked in Chambers, with nine partners recognized as leading individuals and one as an “up and coming” attorney.

“The award is particularly meaningful to us, because it is based on the evaluations Chambers received from our clients,” says William Bernstein, partner and chairman of Manatt’s healthcare practice. “We are very grateful for this honor—and for the opportunities our clients give us every day to be part of their exciting work.”

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The System-Based Future of Academic Medical Centers: The Profound Implications of Rapid Consolidation

Authors: Thomas Enders, Senior Managing Director, Manatt Health Solutions | Alex Morin, Senior Analyst, Manatt Health Solutions

Editor’s Note: Partnering with the Association of American Medical Colleges (AAMC) Advisory Panel for Healthcare, Manatt Health has produced a new report, “Advancing the Academic Health System for the Future.” The report focuses on eight primary themes developed from interviews with 13 institutions that are representatives of emerging leaders in clinical care. It serves as a real-world tool for assessing where institutions are today—and how they can move to a sustainable model for the future in a transformed healthcare environment. In the second in our series based on the report, below is a summary of the first chapter on the rapidly consolidating hospital market and the emergence of the system model. To download a free copy of the full report, click here.

Consolidation among hospitals is creating larger integrated delivery systems, many of which also are pursuing vertical integration to become or partner with payers. From coast to coast, the pace of system formation is accelerating, encouraged by health reform initiatives, including Accountable Care Organization (ACO) development and other value-based models, such as episodic/bundled payment programs. The acceleration also is encouraged by increasingly challenging economics for providers, including Medicare and commercial reimbursement cuts, as well as the rapidly changing insurance marketplace. The implications of rapidly consolidating markets are profound, leaving Academic Medical Centers (AMCs) with four main options:

  • 1. Forming a true system of care, through a mix of owned assets and aligned partners in a local and/or regional market.
  • 2. Partnering with others in their region to form a collaborative network model.
  • 3. Merging into an existing system as the “academic brand” for the larger system.
  • 4. Shrinking into isolation.

Systems of Care

Assembling these new large systems of care is one step toward transformation. Making them operate efficiently to deliver optimal clinical services is another. Both steps require large financial investments, necessitating operating scale or new sources of capital. These substantial investments support the myriad of requirements for improving population health, including the development, acquisition and implementation of primary care services, clinical informatics, risk-bearing vehicles (such as HMOs and ACOs), population health management capabilities, health information exchanges, provider health plans, medical homes, community-based services, chronic disease management, hospital-to-home transition programs, remote monitoring and advanced information technologies.

Successful systems include integrated physician networks that can emulate the attributes of high-functioning group practices, including using evidence-based protocols, coordinating around the patient and sharing economic incentives. Success will require both clinical informatics and highly engaged clinical leadership.

These extensive requirements are leading some AMCs to forge partnerships with for-profit healthcare organizations. The combination of an AMC’s specialty services expertise and its partner’s access to capital can be exercised in a joint venture model for acquiring independent hospitals.

In addition to creating regional systems of care, some AMCs are expanding their scale by creating high-value centers of excellence that extend beyond their geographic region and attributed population. By expanding their core complex care services from local areas to regional, national and international markets, AMCs can optimize their local population approach to support the entire system.

Five Levels of Integration

The greatest challenge for any system of care is achieving the high degree of integration required to support effective systems-based collaboration and efficiency initiatives. Health systems need five levels of integration to succeed:

  • 1. Organizational integration, including governance, organizational alignment, brand experience, physician alignment and a shared academic mission.
  • 2. Financial integration, including aligned financial incentives, cost management, confidence in new payment models, population management and economies of scale.
  • 3. Clinical integration, including a continuum of services, access to services, care coordination, medical homes and innovative delivery models.
  • 4. Information integration, including a reporting infrastructure, electronic health records (EHRs), a patient portal, health information exchange and data warehousing/business intelligence.
  • 5. Community health engagement, including community health programs, linkage with Federally Qualified Health Centers (FQHCs), community health status and partnerships with payers.

Implications for AMC Leaders

AMC leaders who want to transform their institutions face significant challenges:

  • The innate conservatism and fragmented operating structure of AMCs often make them averse to the risk-taking necessary to succeed under alternative payment systems.
  • Chairs often are more focused on the success of their own departments than the success of the institution as a whole.
  • Educational inefficiencies are accepted as mission-necessary.
  • Faculty practices are hardwired for fee-for-service in terms of their structure, reward systems and specialty mix.
  • Business rigor is applied unevenly across the enterprise.
  • An inward-looking mentality may overemphasize resource control.

These challenges make preparing for a new paradigm as a healthcare system a serious—and often daunting—undertaking for AMCs. Leaders must become agents of change rather than protectors of the status quo. They must, therefore, rally all the constituents in their institutions around a far-reaching agenda for change. Effective AMC leaders are vigorously developing systems of care and pursuing integration.

In addition, AMC leaders are rebranding their institutions to communicate their system identity. Emory Healthcare, University of Iowa Healthcare, Penn Medicine, UAB Medicine, UCLA Health, VCU Health System, Yale-New Haven Health System and UNM Health System all connote systems of care rather than a hospital, physician group, campus or any defined location. The new brands signal a commitment to developing systems of care with an enhanced identity for the clinical enterprise and extended reach into the community and region.

As AMC leaders move toward a system identity, they must consider the following:

  • Rapid system formation is resulting in larger, more comprehensive and more complex academic health systems. The answer to “how big is big enough?” remains specific to each institution. Many leaders target 1 million to 1.5 million covered lives, in addition to the continued growth of specialty programs for broader regional, national and, in some cases, international audiences.
  • AMCs must determine how to be the locus for rapidly developing networks of physicians—employed and affiliated, faculty and nonfaculty—and other clinical and community partners. These networks are needed to sustain comprehensive systems of care that can take on population health responsibilities, compete with nonacademic systems in limited network models and maintain commitment to the academic mission.
  • Because of the extensive investments required to form and operate a leading system of care, access to capital is a determinant of success. It is likely that many institutions will need to partner with others to achieve the degree of scale and capital needed.

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You Are Invited to a New, Free Webinar from Manatt Health and PharmaVoice: “The Five Megatrends Shaping Pharma’s Next Decade: Managing Your Organization through a New Market Landscape”

Fee-for-service will take its last gasp. Medicaid ranks will swell to 91 million by 2023. Twenty percent of U.S. hospitals will merge in the next five to seven years. The number of Accountable Care Organizations (ACOs) ballooned from 41 in 2010 to 606 in 2013, demonstrating the “volume to value” revolution in U.S. medicine. These are just a few of the powerful forces converging to reinvent healthcare. But which of the trends making headlines will be the true game changers for pharma? What does your organization need to know—and do—to excel in the volatile years ahead?

Manatt Health makes sense of today’s tidal wave of change—and reveals the five megatrends pharma leaders need to watch and respond to—in a new, educational webinar: “The Five Megatrends Shaping Pharma’s Next Decade,” scheduled for July 17 from 1:00 – 2:00 pm ET. During the session, you will:

  • Discover the five megatrends that will transform the pharma landscape over the next 10 years.
  • Learn the facts, figures—and projected effects—of the five critical forces redefining your market.
  • Explore how the five megatrends will specifically impact life sciences companies.
  • Examine the decisions and actions you need to take to help your organization navigate the powerful changes in progress—and ahead.

In addition, because Manatt Health works with key healthcare stakeholders--including four of the top-five payers, 8 of the top-10 life sciences companies, over 20 states and many of the most influential foundations and associations--we bring you a unique, 360° view of each critical trend. You’ll see the coming changes through your customers’ eyes—and understand their concerns, their plans and their expectations for pharma.

With the number of hospital beds declining, new care models flourishing, physician shortages looming and value taking center stage, clearly you will be marketing into a radically different environment over the coming decade. Don’t miss this chance to home in on the five key megatrends for pharma…what they mean for your business…and how you can prepare to succeed in the new healthcare system.


Nancy McGee, DrPH, Managing Director, Manatt Health Solutions
Helen Pfister, Partner, Manatt, Phelps & Phillips, LLP
Ian Spatz, Senior Advisor, Manatt Health Solutions

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Addressing Patients’ Social Needs: An Emerging Business Case for Provider Investment

Authors: Deborah Bachrach, Partner, Healthcare Industry, Manatt, Phelps & Phillips, LLP | Helen Pfister, Partner, Healthcare Industry, Manatt, Phelps & Phillips, LLP | Kier Wallis, Manager, Manatt Health Solutions | Mindy Lipson, Senior Analyst, Manatt Health Solutions

Editor’s Note: With changes in the healthcare landscape catapulting social determinants of health from a topic for academics into an on-the-ground reality for providers, Manatt Health has produced a new report for The Commonwealth Fund, Skoll Foundation and Pershing Square Foundation, titled “Addressing Patients’ Social Needs: An Emerging Business Case for Provider Investment.” The report examines the economic rationale for investments in interventions that target patients’ social and clinical needs. It also describes the range of tools available for providers looking to address patients’ social needs and reviews the emerging evidence of their effectiveness in improving health and containing costs. With the confluence of sound economics and good policy, the report then looks forward, concluding that investments in social interventions are starting to make good business sense. Highlights are summarized below. Click here to download a free PDF of the full report.

Extensive research documents the impact of social factors—such as income, education, access to food and housing, and employment status—on the health and longevity of Americans. In fact, these nonmedical factors account for as much as 40% of health outcomes. Until recently, however, providers rarely addressed patients’ unmet social needs in clinical settings. Health policy, too, focused on medical rather than social needs. Payers also had little incentive to cover social interventions that promised long-term clinical and financial rewards when their low-income enrollees regularly churned on and off coverage.

Changes in the social landscape, however, are transforming social determinants of health from an academic topic to a practical reality for providers. With more low- and modest-income individuals gaining access to coverage through the Affordable Care Act (ACA); a growing focus on the “Triple Aim” of better care, better health and reduced cost; and the advent of value-based purchasing and other outcomes-based payment models, providers have a strong business case to invest in interventions that address patients’ social needs.

Impact of the Changing Healthcare Landscape

Several factors have coalesced to make 2014 an inflection point for the nation’s healthcare system. The convergence of these forces is potentially triggering a shift from an illness-focused system to a health-focused system:

  • The ACA is expanding coverage to millions more low- and modest-income individuals. For many, their social and economic circumstances will be a defining feature of their health.
  • Six years after the introduction of the “Triple Aim,” its goals of improved health, improved care and lower per capita costs of care have become the organizing framework for the healthcare system.
  • New public and private payment models are holding providers accountable for healthcare quality and costs, offering both an imperative and a financial opportunity for them to look beyond patients’ medical needs. Provider participation in contracts that include financial risk sharing for health outcomes more than doubled between 2011 and 2013. As a result, growing numbers of providers are realizing that investing in interventions addressing their patients’ social needs makes good business sense.

Impact of Social Needs on Patient Health and Costs

Compelling evidence has revealed the impact of unmet social needs on people’s health, as well as on healthcare costs:

  • More illness. Poor health is closely tied to inadequate housing, food insecurity, and unemployment or underemployment. Individuals with inadequate housing are more likely to experience lead poisoning, asthma and other respiratory conditions. Those with food insecurity face a higher risk of chronic conditions, such as hypertension and hyperlipidemia, as well as overall poor mental and physical health. Finally, those who lose their jobs are 83% more likely to develop a stress-related health condition, such as heart disease or stroke.
  • Shorter life expectancy. Better-educated adults have longer life expectancies. As of 2006, 25-year-olds with bachelor’s degrees or higher were expected to live eight to nine years longer than their peers without high school diplomas.
  • Increased healthcare spending. Unmet social needs are associated with higher rates of emergency room use, hospital admissions and readmissions. Several of the 10 conditions that accounted for the highest healthcare expenditures in 2011 are linked to unmet social needs, including heart disease, mental disorders, asthma, diabetes, hypertension and hyperlipidemia.

Economic Incentives for Addressing Patients’ Unmet Social Needs

The impact of social factors on patient health is playing out in new payment models that hold providers accountable for patient health and healthcare costs. These models give providers substantial economic incentives to incorporate interventions that target patients’ social needs into their care approach.

  • Capitated, global and bundled payments. Several payment approaches give providers a budget for managing covered services. Bundled payments cover a limited number of services for a limited time period or an episode of care. Capitation or global payments cover a comprehensive range of services for a fixed time period.
  • Penalties for readmissions. Medicare’s Hospital Readmission and Reduction Program, provided under the ACA, gives hospitals financial incentives to avoid readmissions. Under the program, the CMS reduces payments to hospitals with excess readmissions within 30 days of discharge for patients with at least one of three conditions: heart attack, heart failure and pneumonia. CMS already has penalized 2,225 hospitals for excess readmissions. Safety-net hospitals were hit hard, with 77% being penalized. However, Medicare hospital readmission rates have dropped by 10% since 2011.
  • Shared savings programs. Shared savings programs incentivize providers to reduce spending on a defined patient population by offering them a share of savings realized as a result of their efforts, if they meet quality metrics. In Medicare, there are more than 360 accountable care organizations (ACOs) participating in two shared savings programs—Medicare Shared Savings Program (MSSP) and the Pioneer ACO Program. Almost an equal number of ACOs have shared savings agreements with commercial payers. While the MSSP and Pioneer programs do not require ACOs to address patients’ social needs, anecdotal evidence suggests that many of the most successful ones do.
  • Enhanced reimbursement models. Models such as the patient-centered medical home (PCMH) require providers to address patients’ social needs as a prerequisite to payment. To achieve PCMH recognition, providers must meet standards focused on organizing care around patients by enhancing care coordination and supporting self-care through linking patients to social service agencies. As of April 2013, 43 states had adopted policies and programs to advance PCMHs.

Indirect Economic Benefits

When considering whether and how to invest in social interventions, providers need to take into account indirect, as well as direct, economic advantages.

  • Employee productivity. Some 40% of primary care physicians report that they are unable to spend enough time with patients. Yet many spend a substantial share of patient visits addressing social needs. Interventions that address social needs allow providers to allocate their time to patients’ physical needs. They also have been shown to boost office productivity.
  • Provider satisfaction. Eighty percent of physicians do not feel equipped to address patients’ social needs and therefore do not believe they are providing high-quality care. Physicians who believe they are offering high-quality care are more than twice as likely to report they are satisfied. Therefore, interventions that address social needs can improve the satisfaction of providers and other employees.
  • Patient satisfaction. Many new healthcare delivery and payment models hold providers accountable for patient satisfaction—and interventions that address patients’ social needs have been shown to improve that satisfaction.

Strategies to Address Patients’ Unmet Social Needs

Providers can tap into a growing number of tools and techniques to address the social needs of their patients. These interventions fall into two categories:

  • Broad interventions focus broadly on connecting low- and modest-income patients with social supports. Broad interventions typically depend on referrals from clinicians, who use a screening tool to identify patients’ social needs and connect them to appropriate services, usually within a clinical setting.
  • Targeted interventions target more medically complicated, high-cost patients through both clinical and social components. They integrate social supports into larger care management initiatives for people with chronic or debilitating conditions.

Paying for Social Interventions

Some providers are prepared to commit operating dollars to fund interventions connecting individuals to social supports while others are not. For those unwilling or unable to commit operating funds, “community benefit” spending by hospitals could be a source of funding.

To justify their tax-exempt status, nonprofit hospitals must provide a community benefit, usually equal to the value of their tax exemption. While the majority of community benefit dollars have gone toward care for underinsured and uninsured patients, expanded coverage under the ACA should enable providers to shift some funds toward programs targeting social needs.

The ACA also is triggering significant transformations in state-based systems for delivering and paying for healthcare, with social interventions often a key element of emerging models. Medicaid waivers are providing new funding opportunities through delivery system reform incentive payment (DSRIP) programs, which support state transformation plans.

Social impact bonds, which use private capital to address complex social needs, are another source of funding. If the efforts work, investors receive a portion of the savings.


Few working in healthcare doubt that social factors play a role in patients’ health. Until recently, however, that understanding did not translate into action. With the Triple Aim in place, coverage expanding and value-based reimbursement becoming standard, the healthcare system is poised for change. With this confluence of sound economics and good policy, investments in interventions that address patients’ social needs are starting to make good business sense.

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