Tax rules may stymie some hospital IT donations

Experts caution tax-exempt hospitals to seek IRS guidance before helping physicians with electronic medical records and e-prescribing technology.

By Katherine Vogt, AMNews staff. Nov. 13, 2006.

Some hospitals might not be able to take advantage of new federal rules that were supposed to pave the way for them to donate health care information technology to physicians. But according to Internal Revenue Service regulations, such donations could jeopardize the hospitals' tax exemptions.

The Office of the Inspector General of the Dept. of Health and Human Services issued new rules in August that were designed to protect arrangements in which hospitals donated software, hardware and other information technology for electronic medical records and e-prescribing to physicians. The rules created exemptions from federal Stark and anti-kickback regulations that govern such relationships.

However, concerns have been raised that tax-exempt hospitals may run afoul of Internal Revenue Service rules by making such donations. That's because IRS rules say that tax-exempt entities are only supposed to make donations that have a public benefit or help them further their charitable missions. It is unclear whether donations to physicians would be construed as having a private benefit instead.

The IRS said it is considering the issue, though no formal rulings or opinions have been issued. In a prepared statement, IRS spokesman Robert Marvin said: "Since this is a newly evolving area, we are reviewing all aspects to determine whether any private benefit is prohibited or incidental to the accomplishment of charitable purposes."

When the new rules were first published, hospitals were told they would have to approach the IRS to get clarification about the effect on their exemption, said Robert Belfort, co-chair of the health care practice at Manatt, Phelps & Phillips in New York. "That left a certain amount of uncertainty among hospitals in an area that is very undefined from the IRS perspective," he said.