Testimony of 
Lewis Morris, Chief Counsel to the Inspector General 
U.S. Department of Health and Human Services 
________________________________________________________________________ 
Good morning Madam Chairman and Members of the Subcommittee.  I am Lewis 
Morris, Chief Counsel at the U.S. Department of Health and Human Services Office of 
Inspector General (OIG).  I appreciate the opportunity to discuss OIGs proposed safe 
harbors under the Federal anti-kickback statute for certain arrangements involving 
electronic health records technology.   
 
The process of crafting these particular safe harbors requires OIG to balance the policy 
goal of advancing the use of health information technology with the objective of this 
important criminal statute:  the elimination of potential financial conflicts of interest in 
the Federal health care programs.  Working collaboratively with our government partners 
and considering the many constructive comments we received from industry 
stakeholders, we are in the process of developing rules that we believe will strike an 
appropriate balance.  
 
Let me begin by stressing that the Inspector General shares Secretary Leavitts 
commitment to the goal of fostering patient safety, quality of care, and efficiency in the 
delivery of health care through better and more widespread use of health information 
technology.  Fully interoperable electronic health records systems will ensure that all 
patients will reap the benefits of the technology no matter where they receive their care. 
The promotion of this technology, including electronic health records, is among Inspector 
General Levinsons top priorities.  In furtherance of this goal, OIG sought to lower 
perceived barriers to the adoption of health information technology by proposing anti-
kickback safe harbors that would promote the adoption of open, interconnected, 
interoperable electronic health records systems, while safeguarding against undue risks of 
fraud and abuse.  
 
Mindful that there are many possible approaches to such a safe harbor, we sought 
extensive public input on all aspects of our proposed rulemaking.  The proposed safe 
harbors were published in the Federal Register on October 11, 2005 (70 Fed. Reg. 
59015), and we received over 70 comments from hospitals, health systems, and other 
stakeholders.  The safe harbors, if finalized, would protect certain arrangements under 
which hospitals and other specified donors furnish physicians and other specified 
recipients with free or below-market value electronic health records software and related 
training services.   
 
My testimony begins with a summary of the Federal anti-kickback statute and a 
discussion of our longstanding concerns about arrangements involving the provision of 
free or reduced cost goods or services to potential referral sources.  I will then discuss the 
provisions of our proposed safe harbor.  I will not be addressing the proposed rulemaking 
developed by the Centers for Medicare & Medicaid Services (CMS) to create a 
comparable exception under section 1877 of the Social Security Act (the Act), commonly 
known as the Stark law.  However, I assure you that we worked closely with CMS to 
___________________________________________________________________________________________________________ _ 
House Committee on Ways and Means 
Subcommittee on Health 
Hearing:  April 6, 2006      Page 1      ensure as much consistency between the two proposed rulemakings as possible, given the 
differences in the underlying statutes.  It is our intent for the final rules to be similarly 
consistent.  I am not in a position to represent the views of the Department of Justice, 
which has separate law enforcement authority for the Federal anti-kickback statute. 
 
THE ANTI-KICKBACK STATUTE AND THE RISKS POSED 
 BY FREE GOODS AND SERVICES 
 
The Federal anti-kickback statute is one of several statutes that, broadly speaking, seek to 
eliminate potential financial conflicts of interest from the Federal health care programs so 
that health care decisionmaking is untainted by inappropriate financial influence.  Our 
Federal health care programs, including Medicare and Medicaid, rely on physicians and 
others to order or select only medically necessary items and services and to refer patients 
to providers, suppliers, and products based on the patients best medical interests.  
Financial incentives linked to referrals create risks of, among other problems, over-
utilization of items or services, increased costs to the Federal programs, corruption of 
medical decisionmaking, and unfair competition. 
 
The anti-kickback statute, section 1128B(b) of the Act, is a criminal statute that prohibits 
the knowing and willful offer, solicitation, payment, or receipt of remuneration to induce 
or reward the referral of any business payable by a Federal health care program.  Where 
remuneration is paid purposefully to induce or reward referrals of items or services 
payable by a Federal health care program, the anti-kickback statute is violated.  For 
purposes of the anti-kickback statute, remuneration includes the transfer of anything of 
value, directly or indirectly, overtly or covertly, in cash or in kind.  The statute has been 
interpreted to cover any arrangement where one purpose of the remuneration is to induce 
or reward referrals.  Parties that violate the statute may be subject to criminal, civil, or 
administrative penalties.  OIG has promulgated safe harbor regulations that define 
practices that are not subject to the anti-kickback statute because such practices would be 
unlikely to result in fraud or abuse.  However, safe harbor protection is afforded only to 
those arrangements that precisely meet all of the conditions set forth in the safe harbor.  
Compliance with a safe harbor is voluntary, and failure to fit squarely in a safe harbor 
does not mean an arrangement is per se unlawful.  Rather, the arrangement must be 
evaluated on a case-by-case basis under the anti-kickback statute. 
 
OIG enforces the anti-kickback statute in partnership with the Department of Justice.  
Unscrupulous parties pay kickbacks in a variety of ways, and these schemes evolve over 
time.  Often kickbacks are disguised as otherwise legitimate payments or are hidden in 
business arrangements that appear, on their face, to be appropriate.  In our experience, the 
provision of free or below-market goods or services to actual or potential referral sources 
(whether physicians or other individuals and entities) presents a heightened risk of fraud 
and abuse.  Simply put, the free or reduced price goods or services may be used as a 
vehicle to disguise an unlawful payment for referrals of Federal health care program 
business.  Because physicians are effectively the gatekeepers for a substantial amount of 
Federal health care dollars, the programs and their beneficiaries are placed in jeopardy 
when a physicians ability to perform this crucial role is potentially corrupted by the 
___________________________________________________________________________________________________________ _ 
House Committee on Ways and Means 
Subcommittee on Health 
Hearing:  April 6, 2006      Page 2      inappropriate influence of a kickback.  This risk grows as the value of the free goods and 
services increases. 
 
Recent kickback cases have involved referral payments in the form of free office space, 
free equipment, free office personnel, free drugs or other supplies, inflated or sham 
consulting contracts, and travel and entertainment to physicians by hospitals, 
pharmaceutical companies, and laboratories.  In our enforcement experience, 
arrangements that result in avoided overhead expenses (such as, free support staff, free 
rent or equipment, or reduced administrative expenses) can form the basis of a kickback.  
These arrangements provide a clear economic benefit to the recipient in the form of 
savings.  Unfortunately, the illegal use of free goods and services to reward referrals has 
a long history.  For example, we addressed the issue of free computers to potential 
referral sources in the preamble to the original final safe harbors published in 1991.  The 
preamble states: 
 
In some cases the computer can only be used as part of a particular service 
that is being provided, for example, printing out the results of laboratory 
tests. In this situation, it appears that the computer has no independent 
value apart from the service that is being provided and that the purpose of 
the free computer is not to induce an act prohibited by the statute. . . . In 
contrast, sometimes the computer that is given away is a regular personal 
computer, which the physician is free to use for a variety of purposes in 
addition to receiving test results.  In that situation the computer has a 
definite value to the physician, and, depending on the circumstances, may 
well constitute an illegal inducement.  56 Fed. Reg. 35952, 35978 (July 
29, 1991). 
 
We have provided similar guidance with respect to, for example, the provision of free 
phlebotomists and testing supplies by laboratories to physician offices.  Similarly, the 
provision of free or below-market electronic health records technology by a hospital to a 
physician in the position to refer Federal program business, depending on the 
circumstances, could violate the statute. 
 
THE MMA SAFE HARBOR 
 
In connection with the new Part D outpatient prescription drug program, in section 101 of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), 
Congress directed the issuance of a limited safe harbor under the anti-kickback statute for 
donations by specified donors to specified recipients of hardware, software, or 
information technology and training services necessary and used solely for the 
electronic prescribing of drugs.  The safe harbor parameters established by Congress 
evidence a careful balancing of the policy goal of promoting electronic prescribing with 
the need to prevent fraud and abuse.  We have proposed a safe harbor for electronic 
prescribing technology, as mandated by Congress. 
 
___________________________________________________________________________________________________________ _ 
House Committee on Ways and Means 
Subcommittee on Health 
Hearing:  April 6, 2006      Page 3      Hospital and other industry stakeholders, as well as government policymakers, expressed 
a concern that a safe harbor limited to electronic prescribing technology would be neither 
useful nor practical.  They asserted that advancing the goals of increased patient safety 
and quality and better efficiency in health care delivery would require corresponding safe 
harbor protection for free or below-market electronic health records technology.  These 
stakeholders expressed the view that without broader safe harbor protection for donations 
of electronic health records technology, hospitals and others would not provide free or 
very low cost electronic health records systems to physicians in their service areas. 
 
THE OIGS PROPOSED SAFE HARBOR FOR ELECTRONIC HEALTH 
RECORDS SOFTWARE AND RELATED TRAINING SERVICES 
 
In response to the call for broader safe harbor protection, OIG proposed two additional 
safe harbors for electronic health records arrangements and solicited comments on how to 
balance the goal of promoting the adoption of electronic health records with the 
objectives of the anti-fraud statutes.  As I have explained, the provision of free electronic 
health records technology poses all the usual risks associated with the provision of free 
goods and services to referral sources.  If one purpose of the provision of free or below-
market priced hardware, software or technical support is to induce or reward referrals of 
Federal health care program business, the anti-kickback statute is implicated.  Moreover, 
there is a risk that a donor will use offers of free technology to induce recipients to 
change loyalties from other providers or plans to the donor.  Notwithstanding the 
potential for abuse, in the interest of advancing the important public policy objective of 
widespread adoption of electronic health records, OIG proposed two safe harbors for 
arrangements involving electronic health records software and related training services:  
one to apply before the Secretary adopts interoperability standards and one to apply after.  
Dr. David Brailer is here today, and he is better able to discuss these standards in detail.  I 
am going to focus my remarks on the proposed post-interoperability safe harbor, 
because that proposal appears to be of greater interest and relevance to industry and 
government stakeholders. 
 
In developing the proposed safe harbor, OIG sought to propose conditions that would 
create a balance between protecting beneficial arrangements while safeguarding against 
the undue risk of fraud and abuse.  As described in more detail in the notice of proposed 
rulemaking, the proposed safe harbor would protect donations of electronic health records 
software and related training services, provided that the protected software includes an 
electronic prescribing component.  The proposed safe harbor would require that the 
software be essential to and used solely for the transmission, receipt, and maintenance of 
patients electronic health records and electronic prescription information.  We also 
solicited comments on whether additional software applications should be protected if 
electronic health records and electronic prescribing remain core functions.  We would not 
protect donations of technology that is used by a recipient solely to conduct personal 
business or business unrelated to the recipients medical practice, because there would be 
a high risk of abuse and no promotion of electronic health records adoption.   
 
___________________________________________________________________________________________________________ _ 
House Committee on Ways and Means 
Subcommittee on Health 
Hearing:  April 6, 2006      Page 4      The proposed safe harbor would protect the same donors and recipients that Congress 
included in the MMA safe harbor for electronic prescribing arrangements.  Accordingly, 
protected arrangements would be limited to:  (1) hospitals donating to members of their 
medical staffs, (2) group practices donating to members of the practice, and (3) 
prescription drug plan sponsors and Medicare Advantage organizations donating to 
network pharmacists and pharmacies and to prescribing health care professionals.  We 
believe these entities are the appropriate focus for safe harbor protection because they 
have a direct and primary patient care nexus, they play a central role in the health care 
delivery infrastructure, and they are well-positioned to promote widespread use of 
electronic health records technology that is open and interoperable.  Notwithstanding, we 
solicited public comment on whether other donors and recipients should be included in 
this safe harbor. 
 
To promote the objectives of an interoperable health records system, the proposed safe 
harbor would require that protected software be certified in accordance with product 
certification criteria for interoperability adopted by the Secretary.  We believe that 
donations of technology that meets uniform interoperability standards for electronic 
health records adopted by the Secretary, as well as product certification criteria to ensure 
that products meet those standards, will help preclude unscrupulous donors from using 
closed or isolated systems to tie recipients to particular providers or suppliers.  In light of 
the enhanced protection against some types of fraud and abuse that would be offered by 
certified, interoperable systems, we indicated that we are considering giving donors some 
additional flexibility in selecting recipients of the technology.  Specifically, we indicated 
that we are considering permitting donors to use selective criteria for choosing recipients, 
provided that neither the eligibility of a recipient, nor the amount or nature of the items or 
services provided, is determined in a manner that directly takes into account the volume 
or value of referrals or other business generated between the parties.  Examples of criteria 
that would be appropriate under this proposed condition might include a determination 
based on the total number of hours that the recipient practices medicine or the size of the 
recipients medical practice.  Consistent with our objective of minimizing the risk of 
abuse, donors could not select recipients based on the number or value of Medicare-
payable items or services referred to the donor.  We expect that this approach would 
allow donated electronic health records technology to be provided to recipients most 
likely to use it, without protecting problematic direct correlations with referrals.   
 
This approach to selective criteria, if adopted, would be a deliberate departure from other 
safe harbors that prohibit any determinations that take into account, directly or indirectly, 
potential referrals or other business generated between the parties.  This proposed 
approach responds to the unique policy considerations surrounding electronic health 
records systems and the Departments goal of encouraging their adoption.  Outside the 
context of electronic health records, as specifically addressed in the proposed rule, both 
direct and indirect correlations with Federal health care business remain highly 
problematic under the anti-kickback statute. 
 
Finally, to reduce the risk of fraud and abuse, we indicated that we are considering 
capping or other otherwise limiting the aggregate value of the donated technology.  In 
___________________________________________________________________________________________________________ _ 
House Committee on Ways and Means 
Subcommittee on Health 
Hearing:  April 6, 2006      Page 5      this regard, we solicited public comment on a range of possible options for structuring 
such a limit, as well as on the retail and nonretail costs of the technology.  We also 
indicated that we would require full transparency of arrangements through complete and 
appropriate documentation. 
 
CONCLUSION 
 
It is important that any safe harbor for electronic health records arrangements promote 
open, interconnected, interoperable electronic health records systems that help improve 
the quality of patient care and efficiency in the delivery of health care to patients, without 
protecting arrangements that serve to influence inappropriately clinical decisionmaking 
or tie physicians or other referral sources to particular providers or suppliers.  We were 
mindful as we drafted the proposed rulemaking that there are several possible approaches 
to this safe harbor and that we did not have full information on all relevant aspects of 
such arrangements.  For that reason we used the rulemaking solicitation as a platform to 
solicit public comments on virtually all aspects of the proposed rulemaking.  The health 
care stakeholders responded by providing substantive comments on a wide range of 
issues.  We are in the process of reviewing and considering those comments and 
evaluating options for the final rulemaking.  Ultimately, our goal is to achieve an 
appropriate balance between fostering the adoption of beneficial electronic health records 
systems and preventing fraud and abuse in the Federal health care programs. 
 
This concludes my prepared statement.  I would be pleased to answer any questions you 
or Members of the Subcommittee may have.   
 
___________________________________________________________________________________________________________ _ 
House Committee on Ways and Means 
Subcommittee on Health 
Hearing:  April 6, 2006      Page 6