New IRS directive on electronic health record subsidies raises many questions The Internal Revenue Service's (IRS') recent directive on electronic health record (EHR) subsidies continues to raise questions. During a teleconference sponsored by the American Health Lawyers Association, an IRS official clarified that, if in the course of a field examination, an IRS agent finds private benefit or inurement outside the context of an EHR, the agent could look into the benefits of the health information technology (HIT) as well. Participants in the teleconference also explored disclosure, cost-sharing, and other issues.
In May, the IRS released a directive explaining that it will not treat the benefits that a hospital provides to its medical staff physicians as impermissible private benefit or inurement in violation of Internal Revenue Code (Code) §501(c)(3) if the benefit falls within the range of HIT Items and Services allowed by HHS' EHR regulations, and the hospital operates in accordance with the conditions set forth in the IRS directive. Lois Lerner, IRS director, Exempt Organizations, indicated in May that "taxable hospitals are already doing this." She added that "tax-exempt hospitals were concerned that there may be a concern from our end with regard [to these benefits] and exemption."
EHR arrangements are not like writing a check to doctors, Linda Moroney, an attorney with Drinker Biddle Gardner Carton in Milwaukee, Wisconsin commented during the teleconference. According to Moroney, physicians using an EHR arrangement don't have anything to walk away with at the end of the day; just something they can access at the time the service is provided to the hospital. Therefore, there is no accretion to wealth under Code §61. Alternatively, EHR subsidies may qualify as a fringe benefit not taxable to participating physicians under Code §132, Moroney indicated.
While Moroney conceded that it is entirely possible that an EHR subsidy could qualify as an excess benefit transaction (EBT), an IRS official from the Exempt Organizations Technical Division clarified that if the parties meet the conditions described in the IRS directive, the IRS would not consider the subsidy or cost-sharing to be an EBT that would trigger excise taxes. If in the course of a field examination, however, an IRS agent finds private benefit or inurement outside the context of an EHR, the agent could look into the benefits of the HIT as well. The IRS official also clarified that an EHR arrangement would not be treated as an EBT simply because a physician utilizing the subsidy is on the hospital board or is otherwise considered to be a "disqualified person."
CCH Washington Bureau, Aug. 17, 2007.
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