IRS ruling opens door for hospitals to donate IT to physicians

Unanswered are questions about physician control of the data and systems and what doctors' tax responsibilities will be.

By Carolina Procter, AMNews staff. June 11, 2007.

A recent Internal Revenue Service ruling that allows nonprofit hospitals to donate health care information technology to physicians means that private practices can expect to start hearing from those hospitals, says the American Hospital Assn.

Hospitals had been itching to share their electronic medical record and electronic prescribing systems with physician offices, and now they can do so without losing their tax-exempt status. The Office of Inspector General of the Dept. of Health and Human Services in August 2006 created exemptions from federal, state and anti-kickback regulations for hospitals donating technology to doctors.

But before accepting an offer, physicians should first make sure that they can help choose the EMR or e-prescribing system they receive, and verify that their patients' privacy won't be compromised, observers say. Physicians also should be aware that the ruling, because it's new, has left some questions unanswered -- particularly whether they can keep the EMR if they sever ties with the hospital and whether they have to pay taxes on it.

The IRS previously had said tax-exempt hospitals could make donations that resulted in a public benefit, but it was unclear whether giving to private physicians qualified. On May 11, the IRS said it did.

"This was one of the regulatory barriers that stood in [a hospital's] way in terms of EHRs and [the hospital's] relationship with physicians," said Lawrence Hughes, the AHA's regulatory counsel.