Tuesday, 

October 11, 2005 

Part III 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Part 411 

Medicare Program; Physicians’ Referrals 

to Health Care Entities With Which They 

Have Financial Relationships; Exceptions 

for Certain Electronic Prescribing and 

Electronic Health Records Arrangements; 

Proposed Rule 

59182 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 411 

[CMS–1303–P] 

RIN 0938–AN69 

Medicare Program; Physicians’ 

Referrals to Health Care Entities With 

Which They Have Financial 

Relationships; Exceptions for Certain 

Electronic Prescribing and Electronic 

Health Records Arrangements 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: As required by section 101 of 

the Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA), this proposed rule would 

create an exception to the physician 

self-referral prohibition in section 1877 

of the Social Security Act (the Act) for 

certain arrangements in which a 

physician receives necessary nonmonetary remuneration that is used 

solely to receive and transmit electronic 

prescription drug information. In 

addition, using our separate legal 

authority under section 1877(b)(4) of the 

Act, we are proposing two separate 

regulatory exceptions for electronic 

health records software and directly 

related training services. These 

exceptions are consistent with the 

President’s goal of achieving 

widespread adoption of interoperable 

electronic health records for the purpose 

of improving the quality and efficiency 

of health care, while maintaining the 

levels of security and privacy that 

consumers expect. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on December 12, 2005. 

ADDRESSES: In commenting, please refer 

to file code CMS–1303–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

three ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/regulations/ 

ecomments. (Attachments should be in 

Microsoft Word, WordPerfect, or Excel; 

however, we prefer Microsoft Word.) 

2. By mail. You may mail written 

comments (one original and two copies) 

to the following address only: Centers 

for Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–1303–P, PO 

Box 8010, Baltimore, MD 21244–8010. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address only: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1303–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call (410) 786–9994 in advance to 

schedule your arrival with one of our 

staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by mailing 

your comments to the addresses 

provided at the end of the ‘‘Collection 

of Information Requirements’’ section in 

this document. For information on 

viewing public comments, see the 

beginning of the SUPPLEMENTARY

INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Linda Howard, (410) 786–5255. 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. You can assist us by 

referencing the file code [CMS–1303–P] 

and the specific ‘‘issue identifier’’ that 

precedes the section on which you 

choose to comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. CMS posts all electronic 

comments received before the close of 

the comment period on its public Web 

site as soon as possible after they have 

been received. Hard copy comments 

received timely will be available for 

public inspection as they are received, 

generally beginning approximately 3 

weeks after publication of a document, 

at the headquarters of the Centers for 

Medicare & Medicaid Services, 7500 

Security Boulevard, Baltimore, 

Maryland 21244, Monday through 

Friday of each week from 8:30 a.m. to 

4 p.m. To schedule an appointment to 

view public comments, phone 1–800– 

743–3951. 

Open Door Forum: We are planning to 

schedule an Open Door Forum early in 

the comment period to discuss the 

benefits and risks of donating electronic 

prescribing and electronic health 

records technology. Please note, 

however, that our planned Open Door 

Forum is in addition to, and not in lieu 

of, the public comment process 

discussed above. To be assured 

consideration, please forward your 

written comments by the close of the 

comment period. 

I. Background 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Background’’ at the beginning of your 

comment.] 

Section 1877 of the Act, also known 

as the physician self-referral law: (1) 

Prohibits a physician from making 

referrals for certain designated health 

services (DHS) payable by Medicare to 

an entity with which he or she (or an 

immediate family member) has a 

financial relationship (ownership 

interest or compensation arrangement), 

unless an exception applies; and (2) 

prohibits the entity from submitting 

claims to Medicare for those referred 

services, unless an exception applies. 

The statute establishes a number of 

exceptions and grants the Secretary the 

authority to create additional regulatory 

exceptions for financial relationships 

that do not pose a risk of program or 

patient abuse. When enacted in 1989, 

the physician self-referral law applied 

only to physician referrals for clinical 

laboratory services under Medicare 

when made to an entity with which the 

physician (or an immediate family 

member) had a financial relationship. In 

Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 59183 

1Revised § 424.22(d), relating to home health 

services, became effective on April 6, 2001 (see our 

Federal Register notice dated February 2, 2001 (66 

FR 8771)). In addition, the effective date of the final 

sentence of § 411.354(d)(1) relating to the definition 

of ‘‘set in advances’’ was delayed several times. The 

sentence never went into effect and was deleted in 

the Phase II regulation, effective July 26, 2004. 

1993 and 1994, the Congress expanded 

the prohibition to include ten additional 

DHS and added section 1903(s) of the 

Act, which extended aspects of the 

referral prohibition to the Medicaid 

program. 

Section 1877 of the Act, as it applies 

to referrals for eleven DHS, has been in 

effect and subject to enforcement since 

January 1, 1995. On August 14, 1995, we 

published a final rule with comment 

period in the Federal Register (60 FR 

41914) that incorporated into 

regulations the physician self-referral 

prohibition as it applied to clinical 

laboratory services. That final rule did 

not address the other DHS. On January 

9, 1998, we published a proposed rule 

in the Federal Register (63 FR 1659) to 

revise the regulations to cover the 

additional DHS and the Medicaid 

expansion. On January 4, 2001, we 

published the ‘‘Phase I’’ final rule with 

comment period in the Federal Register 

(66 FR 856). Phase I addressed the 

general prohibition on physician selfreferrals and the statutory exceptions 

applicable to both ownership and 

compensation arrangements, defined 

key terms, and created a number of new 

regulatory exceptions. With two 

exceptions, the regulations published in 

Phase I became effective on January 4, 

2002.1 On March 26, 2004, we 

published the ‘‘Phase II’’ interim final 

rule with comment period in the 

Federal Register (69 FR 16054), which 

became effective on July 26, 2004. Phase 

II addressed the statutory exceptions 

related to ownership and investment 

interests, the statutory exceptions for 

certain compensation arrangements, and 

the reporting requirements. Phase II also 

created some new regulatory exceptions 

and addressed public comments on 

Phase I. 

Section 101 of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173) added a new section 1860D 

to the Act establishing a prescription 

drug benefit in the Medicare program. 

As part of the new legislation, the 

Congress directed the Secretary in 

section 1860D–4(e)(4) of the Act to 

adopt standards for electronic 

prescribing in connection with the new 

prescription drug benefit with the 

objective of improving patient safety, 

quality of care, and efficiency in the 

delivery of care. (H.R. Conf. Rep. No. 

108–391, at 455, 456 (2003).) Section 

1860D–4(e)(6) of the Act directs the 

Secretary, in consultation with the 

Attorney General, to create an exception 

to the physician self-referral prohibition 

and a safe harbor under the antikickback statute (section 1128B(b) of the 

Act) to protect certain arrangements 

involving the provision of non-monetary 

remuneration (consisting of items and 

services in the form of hardware, 

software, or information technology and 

training services) that is necessary and 

used solely to receive and transmit 

electronic prescription drug information 

in accordance with electronic 

prescribing standards published by the 

Secretary under section 1860D–4(e)(4) 

of the Act. We note that, depending on 

the circumstances, provisions in the 

existing physician self-referral 

regulations may provide sufficient 

protection for the donation of these 

items and services to physicians. 

This proposed rule sets forth the 

terms and conditions of the MMAmandated physician self-referral 

exception for certain arrangements 

involving the donation of electronic 

prescribing technology. The MMAmandated anti-kickback statute safe 

harbor is being implemented in a 

separate rulemaking by the Office of 

Inspector General (OIG). We have 

attempted to ensure as much 

consistency as possible between our 

proposed electronic prescribing 

exception and the corresponding safe 

harbor proposed by OIG, given the 

differences in the respective underlying 

statutes. We intend the final rules to be 

similarly consistent. 

Section 1877(b)(4) of the Act 

authorizes the Secretary to create 

regulatory exceptions for financial 

relationships that he determines do not 

pose a risk of program or patient abuse. 

Using this authority, this proposed rule 

also sets forth terms and conditions for 

two separate physician self-referral 

exceptions for certain arrangements 

involving the donation of electronic 

health records software and directly 

related training services. Information 

technology, and electronic health 

records in particular, supports treatment 

choices for consumers and enables 

better and more cost-effective care, 

while maintaining the levels of security 

and privacy that consumers expect. We 

seek to encourage the adoption of such 

technology through this proposed 

rulemaking. We also intend to monitor 

the progress made toward fully 

interoperable electronic health records 

systems, as we believe that systems that 

are fully interoperable and certified can 

mitigate many of our concerns regarding 

the potential anti-competitive effects of 

stand-alone electronic health records 

systems. 

II. Provisions of the Proposed Rule 

As required by section 101 of the 

MMA, this proposed rule would add 

new paragraph (v) to § 411.357. New 

paragraph (v) would describe more 

specifically: (1) The items and services 

protected by the new electronic 

prescribing exception mandated under 

section 101 of the MMA; (2) the 

conditions under which offering these 

items and services to physicians would 

be protected; and (3) the DHS entities 

and referring physicians covered by the 

electronic prescribing exception. 

In addition, using our separate legal 

authority under section 1877(b)(4) of the 

Act, we are proposing two separate 

exceptions at § 411.357(w) and 

§ 411.357(x) for electronic health 

records software and training services 

that are not covered by the MMAmandated exception. New paragraphs 

(w) and (x) would describe more 

specifically: (1) The items and services 

protected by the new electronic health 

records exceptions; (2) the individuals 

and entities that may provide the 

protected items and services; and (3) the 

conditions under which the provision of 

items and services to physicians would 

be protected. 

The proposed exceptions at 

§ 411.357(v), § 411.357(w), and 

§ 411.357(x) would, if implemented, 

create independent grounds for 

protection under the physician selfreferral prohibition. For the 

convenience of the public, we are 

providing the following chart that lays 

out schematically the overall structure 

and approach of these proposed 

regulations, details of which are 

provided below in Sections II.A. and B. 

of this proposed rule. Readers are 

cautioned that the exceptions contain 

additional conditions and information 

not summarized here. 

59184 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

MMA-mandated electronic prescribing exception Pre-interoperability electronic 

health records exception 

Post-interoperability electronic 

health records exception 

Authority for Proposed Exception .. Section 101 of the Medicare Prescription Drug, Improvement, 

and Modernization Act of 2003.

Section 1877(b)(4) of the Social 

Security Act.

Section 1877(b)(4) of the Social 

Security Act. 

Covered Technology ...................... Proposed: 

• Items and services that are 

necessary and used solely to 

transmit and receive electronic 

prescription drug information.

• Includes hardware, software, 

internet connectvity, and training and support services.

Proposed: 

• Software used solely for the 

transmission, receipt or maintenance of electronic health 

records.

• Directly-related training services. 

• Software must include an electronic prescribing component.

Proposed: 

• Certified electronic health 

records software 

• Directly-related training services 

• Software must include an electronic prescribing component 

• Could include billing and scheduling software, provided that the 

core function of the software is 

electronic health records. 

Standards With Which Donated 

Technology Must Comply 

Proposed: 

• Foundation standards for electronic prescribing as adopted by 

the Secretary.

Proposed: 

• Electronic prescribing component must comply with foundation standards for electronic 

prescribing as adopted by the 

Secretary.

Proposed: 

• Product certification criteria 

adopted by the Secretary. 

• Electronic prescribing component must comply with foundation standards for electronic 

prescribing as adopted by the 

Secretary, to the extent these 

standards are not fully incorporated into the product certification criteria. 

Permissible Donors ........................ Proposed: 

• As required by statute, hospitals (to members of their medical staffs), group practices (to 

physician members), PDP 

sponsors and MA organizations 

(to Physicians).

Proposed: 

• Hospitals to members of their 

medical staffs.

• Group practices to physician 

members.

• PDP sponsors. 

• MA organizations. 

Proposed: 

• Hospitals to members of their 

medical staffs. 

• Group practices to physician 

members. 

• PDP sponsors. 

• MA organizations. 

Selection of Recipients .................. Proposed: 

• Donors may not take into account the volume or value of referrals from the recipient or 

other business between the 

parties.

Proposed: 

• Donors may not take into account the volume or value of referrals from the recipient or 

other business between the 

parties.

Proposed: 

• Donors may use criteria to select recipients that are not directly related to the volume or 

value of referrals or other business generated between the 

parties. 

Value of Protected Technology ..... Proposed: 

• No specific dollar amount proposed for a cap on the value of 

protected technology.

Proposed: 

• No specific dollar amount proposed for a cap on the value of 

protected items and services.

Proposed: 

• No specific dollar amount proposed for a cap on the value of 

protected items and services. 

• May be greater than the cap on 

preinteroperability donations. 

A. Exception for Certain Arrangements 

Involving Electronic Prescribing 

Technology: § 411.357(v) 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Electronic Prescribing 

Exception: § 411.357(v)’’ at the 

beginning of your comment.] 

The Congress, in mandating the 

creation of an electronic prescribing 

exception under the physician selfreferral law, recognized the value of 

electronic prescription programs as a 

vehicle to reduce medical errors and to 

improve efficiencies in the health care 

system. (H.R. Conf. Rep. No. 108–391, at 

456 (2003).) We believe that promoting 

the rapid adoption of electronic 

prescribing for Medicare Part D is 

beneficial to both health care providers 

and patients, and we have interpreted 

the mandate accordingly. 

1. Protected Non-Monetary 

Remuneration 

Section 1860D–4(e)(6) of the Act 

authorizes the creation of an exception 

only for the provision of items and 

services that are ‘‘necessary and used 

solely’’ to transmit and receive 

electronic prescription drug 

information. This proposed rule would 

clarify the items and services that would 

qualify for the new exception 

(‘‘qualifying electronic prescribing 

technology’’). 

a. ‘‘Necessary’’ Non-Monetary 

Remuneration 

First, consistent with the MMA 

mandate, the proposed exception would 

protect only items or services that are 

‘‘necessary’’ to conduct electronic 

prescription drug transactions. This 

might include, for example, hardware, 

software, broadband or wireless internet 

connectivity, training, information 

technology support services, and other 

items and services used in connection 

with the transmission or receipt of 

electronic prescribing information. The 

exception would not protect 

arrangements in which DHS entities 

provide items or services that are 

technically or functionally equivalent to 

items that the receiving physician 

already possesses or services that the 

physician has already obtained. For 

example, we believe the exception 

would allow a hospital to provide a 

physician with a hand-held device 

capable of transmitting electronic 

prescribing information, even though 

the physician may already have a 

desktop computer that could also be 

used to send the same information. By 

contrast, the provision of a second 

hand-held device would not qualify for 

the exception if the physician already 

Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 59185 

possesses a hand-held device that could 

run the new software. We do not 

interpret the term ‘‘necessary’’ to 

preclude upgrades of equipment or 

software that significantly enhance the 

functionality of the item or service. 

We believe that restricting the 

exception to ‘‘necessary’’ items and 

services is important to minimize the 

potential for abuse. However, we 

recognize that the donors of the items 

and services will not necessarily know 

which items and services the physician 

already possesses or has obtained. 

Accordingly, § 411.357(v)(7)(iv) would 

require the physician to certify that the 

items and services provided are not 

technically or functionally equivalent to 

those that the physician already 

possesses or has already obtained. The 

physician must update the certification 

prior to the furnishing of any necessary 

upgrades or items and services not 

reflected in the original certification. We 

are concerned that the certification 

process would be ineffective as a 

safeguard against fraud and abuse if it 

is a mere formality or if physicians 

simply execute a form certification 

provided by the DHS entity. The 

certification must be truthful, and we 

are proposing at § 411.357(v)(8) that the 

DHS entity must not have actual 

knowledge of, or act in reckless 

disregard or deliberate ignorance of, the 

fact that the physician possessed or had 

obtained items and services that were 

technically or functionally equivalent to 

those donated by the entity. We are 

soliciting comments about other ways to 

address this concern. 

We are also concerned that there may 

be a risk that physicians would 

intentionally divest themselves of 

functionally or technically equivalent 

technology that they already possess in 

order to shift costs to the DHS entity. 

We are soliciting public comments on 

how best to address this issue. 

b. ‘‘Used Solely’’

In addition to the ‘‘necessary’’

standard, section 1860D–4(e)(6) of the 

Act provides that the items and services 

must be ‘‘used solely’’ for the 

transmission or receipt of electronic 

prescribing information. We believe that 

the Congress included this requirement 

to safeguard against abusive 

arrangements in which the remunerative 

technology might constitute a payment 

for referrals because it might have 

additional value attributable to uses 

other than electronic prescribing. 

Accordingly, the proposed exception at 

§ 411.357(v) requires that the protected 

items and services be used solely to 

transmit or receive electronic 

prescribing information. 

We are concerned that DHS entities 

might provide free or reduced cost 

software that bundles valuable general 

office management, billing, scheduling, 

or other software with the electronic 

prescribing features. Such additional 

remuneration would not meet the ‘‘used 

solely’’ requirement and would not be 

protected by the proposed electronic 

prescribing exception. However, the 

physician would not be precluded from 

purchasing from the DHS entity for fair 

market value additional technology not 

protected by the proposed exception. 

We are mindful that hardware and 

connectivity services can be used for the 

receipt and transmission of a wide range 

of information services, including, but 

not limited to, electronic prescription 

information, and that many physicians 

may prefer to use a single, multifunctional device, especially a handheld, rather than multiple single-use 

devices. Similarly, many physicians 

may prefer to use a single connectivity 

service. Accordingly, we are proposing 

to use our authority under section 

1877(b)(4) of the Act to create an 

additional exception to protect the 

provision by DHS entities to physicians 

of hardware (including necessary 

operating system software) and 

connectivity services that are used for 

more than one function, so long as a 

substantial use of the item or service is 

to receive or transmit electronic 

prescription information. We propose to 

treat operating software as integral to 

the hardware and distinct from other 

software applications that are not 

necessary for the hardware to operate. 

Under this additional exception, 

protection would not extend to the 

provision of items or services that are 

only occasionally used for electronic 

prescribing. The additional exception 

would incorporate the definitions and 

conditions set forth in this proposed 

rulemaking and would also include 

conditions to address the additional risk 

of abuse posed by multi-functional 

items and services. 

We are soliciting public comment 

about the standards that should appear 

in an additional exception for multifunctional hardware (including 

necessary operating system software) or 

connectivity services. In particular, we 

are soliciting public comment on 

methodologies for quantifying or 

ensuring that a substantial use of 

hardware and connectivity services is 

for the receipt or transmission of 

electronic prescribing information. We 

have considered how to quantify 

‘‘substantial use’’ with respect to other 

provisions of the Act and its 

implementing regulations; here, we are 

specifically seeking comments regarding 

an appropriate definition of ‘‘substantial 

use’’ in the context of electronic 

prescribing technology and its use. We 

are also soliciting public comment on 

the nature and amount of any cap that 

we should impose on the value of the 

donated multi-functional hardware or 

connectivity services. 

2. Designated Health Services (DHS) 

Entities Protected by the Exception 

In addition to describing the kinds of 

electronic prescribing technology that 

can be protected, section 1860D–4(e)(6) 

of the Act limits the kinds of entities 

that may provide this assistance, and 

the persons to whom assistance can be 

provided. Specifically, the statutory 

provision protects the donation of 

qualifying electronic prescribing 

technology when the donation is made 

by hospitals to members of their 

medical staffs, by group practices to 

their physician members, and by 

prescription drug plan (PDP) sponsors 

and Medicare advantage (MA) 

organizations to pharmacies, 

pharmacists, and physicians and other 

prescribing health care professionals. 

The proposed regulation text largely 

mirrors the statutory language except 

where the statute refers to persons or 

entities other than physicians (that is, 

pharmacies, pharmacists, and nonphysician prescribing health care 

professionals). We are proposing to limit 

the exception at § 411.357(v) to 

remuneration provided to physicians, 

because section 1877 of the Act is not 

implicated when remuneration is 

provided to non-physician prescribing 

health care professionals or to 

pharmacists and pharmacies that are not 

otherwise affiliated with a referring 

physician. To the extent that a hospital 

has a financial relationship with these 

parties, no exception is necessary. 

However, arrangements that do not 

implicate section 1877 of the Act can 

still violate the anti-kickback statute. 

Proposed § 411.357(v)(1)(i) would 

protect donations of qualifying 

electronic prescribing technology 

provided by a hospital to physicians on 

its medical staff. We intend to protect 

donations only to physicians who 

routinely furnish services at the 

hospital. We do not intend for this 

exception to protect remuneration used 

to induce physicians who already 

practice at other hospitals to join the 

medical staff of a different hospital. We 

are soliciting comments on this issue. 

Proposed § 411.357(v)(1)(ii) would 

protect donations of qualifying 

electronic prescribing technology 

provided by a group practice to its 

physician members. For purposes of the 

new exception, we propose to apply the 

59186 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

existing regulatory definitions of the 

terms ‘‘group practice’’ and ‘‘member of 

a group practice’’ (see § 411.352 and 

§ 411.351, respectively). Further, the 

inclusion of paragraph 

§ 411.357(v)(1)(ii) does not imply that 

the provision of the items and services 

by a group to its members necessarily 

requires a new exception, because the 

in-office ancillary services exception or 

the employment exception would apply 

in most circumstances, where needed. 

We believe the Congress included these 

relationships in section 1860D–4(e)(6) of 

the Act simply to encourage group 

practices to adopt electronic prescribing 

technology. We are soliciting comments 

regarding whether and how a group 

practice may appropriately furnish 

qualifying electronic prescribing 

technology to a ‘‘physician in the group 

practice,’’ as defined at § 411.351. 

Proposed § 411.357(v)(1)(iii) would 

protect donations of qualifying 

electronic prescribing technology 

provided by a PDP sponsor or MA 

organization to prescribing physicians. 

We note that, in certain circumstances, 

donations of qualifying electronic 

prescribing technology may qualify for 

protection under the existing exception 

at § 411.355(c). In addition, although 

section 1860D–4(e)(6) of the Act also 

applies to the provision of qualifying 

electronic prescribing technology by 

PDP sponsors and MA organizations to 

pharmacies, pharmacists, and nonphysician prescribing health care 

professionals in the plans’ networks, 

these financial relationships do not 

implicate section 1877 of the Act. 

We are soliciting comments on 

whether we should use our authority 

under section 1877(b)(4) of the Act to 

protect qualifying electronic prescribing 

technology provided to physicians by 

other DHS entities. Most other DHS 

services do not appear to involve 

substantial utilization of prescription 

drugs. We are interested in comments 

addressing the types of DHS entities that 

should be included, the degree of need 

for the protection, and the safeguards 

that should be imposed to protect 

against program or patient abuse. 

3. Additional Limitations on the 

Provision of Electronic Prescribing 

Technology 

a. Promoting Compatibility and 

Interoperability 

Section 1860D–4(e)(6) of the Act is 

integral to the electronic prescribing 

program established by section 101 of 

the MMA. Section 1860D–4(e)(6) of the 

Act provides that, in order to qualify for 

the physician self-referral exception, the 

qualifying electronic prescription 

technology must be used to receive and 

transmit electronic prescription 

information in accordance with 

standards to be established by the 

Secretary for Part D electronic 

prescription drug programs. Consistent 

with section 1860D–4(e)(6) of the Act, 

proposed § 411.357(v)(2) would require 

that the items and services be provided 

as part of, or be used to access, an 

electronic prescription drug program 

that complies with the standards 

established by the Secretary for these 

programs. We are soliciting comments 

on whether the exception should permit 

qualifying electronic prescribing 

technology to be used for the 

transmission of prescription information 

regarding items and services that are not 

drugs (for example, supplies or 

laboratory tests). 

Interoperable systems have the 

technical capacity to transmit and 

receive information from other devices 

and applications in a secure and 

intelligible manner. We believe that 

interoperability can serve as an 

important safeguard against fraud and 

abuse, because a requirement that 

protected technology be fully 

interoperable would mitigate the risk 

that an entity could offer free or reduced 

price technology to a referring physician 

as a means of maintaining or increasing 

that physician’s referrals to the entity. 

With interoperable electronic 

prescribing technology, the physician 

would be free to transmit prescriptions 

to any appropriate pharmacy. 

At this time, there are no regulatory 

standards to ensure that electronic 

prescription information products are 

interoperable with other products. 

However, we note that interoperability 

may be required in the future under 

final regulations regarding the standards 

for the Part D electronic prescription 

drug program. To the extent that either 

the hardware or software can be 

interoperable, we propose at 

§ 411.357(v)(3) to prohibit donors or 

their agents from taking any actions to 

disable or limit that interoperability or 

otherwise impose barriers to 

compatibility. We believe this condition 

is necessary to limit the ability of a 

donor, such as a hospital, to use the 

provision of items or services to tie the 

physicians to the facility. 

We are considering defining the term 

‘‘interoperable’’ to mean the ability of 

different information systems, software 

applications, and networks to 

communicate and exchange information 

in an accurate, secure, effective, useful, 

and consistent manner. (See generally 

44 U.S.C. § 3601(6) (pertaining to the 

management and promotion of 

electronic government services).) We are 

soliciting public comment about this 

approach, our definition of the term 

‘‘interoperable,’’ alternative means of 

ensuring the maximum level of 

interoperability, and the types of 

software currently available for 

electronic prescribing. 

b. Value of Protected Technology 

We are considering whether to limit 

the aggregate fair market value of all 

items and services provided to a 

physician from a single donor. We 

believe a monetary limit is appropriate 

and reasonable to minimize the 

potential for fraud and abuse. We are 

soliciting public comment on the 

amount of a cap that would adequately 

protect the program against abuse, the 

methodology used to determine the cap 

(for example, fixed dollar amount, 

percentage of the value of the donated 

technology, or another methodology), 

whether the same cap would be 

adequate if there were protection for the 

donation of multi-functional hardware 

and connectivity services, whether the 

cap should be reduced over time, and 

whether the cap places a disadvantage 

on smaller entities that do not have the 

financial resources of larger chains or 

organizations. 

We are also interested in comments 

on the retail and nonretail costs of 

obtaining electronic prescribing 

technology and the degree to which 

physicians may already possess items or 

services that could be used for 

electronic prescribing. We have received 

varying estimates of the costs of 

implementing electronic prescribing 

through the comment process for our EPrescribing and the Prescription Drug 

Program proposed rule published on 

February 4, 2005 in the Federal Register 

(70 FR 6256). We also have explored the 

available literature on the costs of 

implementing electronic prescribing. 

(See section IV of this preamble.) We 

caution that the cost of implementing an 

electronic prescribing program will not 

correlate necessarily to the amount of 

any cap if one is established. Moreover, 

we do not expect that donors will wish 

necessarily to donate the total amount 

that the technology costs or, depending 

on the size of a cap, the total amount 

ultimately protected in the final rule. 

Although we are interested in obtaining 

detailed information about the costs of 

the full range of technology so as to be 

fully informed on this matter, we do not 

expect that the final regulations will 

protect all possible costs. 

c. Other Conditions 

We seek to minimize the potential for 

abuse and to ensure that the protected 

technology furthers the congressional 

Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 59187 

purpose of promoting electronic 

prescribing as a means of improving the 

quality of care for all patients. We 

believe that any protected items and 

services must, to the extent possible, be 

usable by physicians for electronic 

prescribing for all patients to ensure that 

uninsured and non-Medicare patients 

receive the same benefits that the 

technology may engender, including 

reduction of errors and improvements in 

care. Some donated technology (such as 

software for tracking prescriptions or 

formularies of a particular MA 

organization’s patients) may not be 

applicable to all patients. However, 

other technology (for example, handheld devices and software that transmit 

prescriptions to pharmacies) is 

potentially usable for all patients, and 

physicians should not be restricted from 

using such technology for all patients. 

Accordingly, proposed § 411.357(v)(4) 

would require that, where possible, 

physicians must be able to use the 

protected technology for all patients 

without regard to payor status. 

Proposed § 411.357(v)(5) would 

provide that neither the physician nor 

the physician’s practice (including 

employees and staff members) may 

make the donation of qualifying 

electronic prescribing technology items 

or services a condition of doing business 

with the entity. 

Proposed § 411.357(v)(6) and (v)(7) 

would incorporate conditions that are 

consistent with the conditions in the 

other regulatory exceptions under the 

physician self-referral prohibition. 

Paragraph (v)(6) would provide that the 

eligibility of a physician to receive items 

and services from a DHS entity, and the 

amount and nature of the items and 

services received, may not be 

determined in a manner that takes into 

account the volume or value of the 

physician’s referrals to the DHS entity 

or other business generated between the 

physician and the DHS entity. This does 

not preclude selection criteria that are 

based upon the total number of 

prescriptions written by a physician, but 

the proposed regulation would prohibit 

criteria based upon the volume or value 

of prescriptions written by the 

physician that are dispensed or paid by 

the donor, as well as any criteria based 

on any other business generated 

between the parties. We are interested 

in comments with respect to other 

potential criteria for selecting medical 

staff recipients of donated technology. 

Also, the exception would not protect 

arrangements that seek to induce a 

physician to change loyalties from other 

providers or plans to the donor (for 

example, a hospital using an electronic 

prescribing technology arrangement to 

induce a physician who is on the 

medical staff of another hospital to join 

the donor hospital’s medical staff for a 

purpose of referring patients to the 

donor hospital). Proposed 

§ 411.357(v)(7) would require the 

arrangement to be in writing, to be 

signed by the parties, to identify with 

specificity the items or services being 

provided and the value of those items 

and services, and to include the 

certification described in section II.A.1 

of this proposed rule. To permit 

effective oversight of protected 

arrangements, the written agreement 

must cover all of the qualifying 

electronic prescribing technology to be 

furnished to the physician by the DHS 

entity. For example, if a hospital 

provides a piece of hardware under one 

arrangement and then subsequently 

provides a software program, the 

agreement regarding the software would 

have to include a description of the 

previously donated hardware (including 

its nature and value). In addition, the 

written agreement must include a 

certification by the physician that the 

items and services are not technically or 

functionally equivalent to any items or 

services that he or she already possesses 

or has already obtained. 

Proposed § 411.357(v)(8) would 

provide that the DHS entity must not 

have actual knowledge of, or act in 

reckless disregard or deliberate 

ignorance of, the fact that the physician 

possessed or had obtained items and 

services that were technically or 

functionally equivalent to those donated 

by the entity. In other words, the DHS 

entity would not be subject to sanctions 

under section 1877(g) of the Act if it did 

not know or have reason to suspect that 

the physician certification required 

under § 411.357(v)(7)(iv) was false. 

B. Exceptions for Certain Arrangements 

Involving Electronic Health Records 

Items and Services: § 411.357(w) and 

§ 411.357(x) 

The implementation of electronic 

health information technology is a 

compelling national priority to improve 

our healthcare system. Interoperable 

electronic health information 

technology would allow patient 

information to be portable and to move 

with consumers from one point of care 

to another. This would require an 

infrastructure that can help clinicians 

gain access to critical health information 

when treatment decisions are being 

made, while keeping that information 

confidential and secure. We believe that 

the promise of a secure and seamless 

information exchange that reduces 

medical errors, improves the quality of 

patient care, and improves efficiency 

will be realized only when we have a 

standardized system that is open, 

adaptable, interoperable, and 

predictable. 

We believe that interoperable 

electronic health records technology, 

once implemented, has the potential to 

increase health care quality and 

improve efficiency, which are outcomes 

consistent with our goals in exploring 

Pay-for-Performance options. We 

believe it is important to promote these 

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 hinder marketplace 

competition, serve as marketing 

platforms, or are mechanisms to 

influence inappropriately clinical 

decision-making. 

Accordingly, in addition to the 

electronic prescribing exception, we are 

proposing to use our legal authority 

under section 1877(b)(4) of the Act to 

promulgate two new exceptions, at 

§ 411.357(w) and § 411.357(x), to protect 

non-abusive arrangements involving the 

provision of software and directly 

related training services that are 

necessary and used to receive, transmit, 

and maintain the electronic health 

records of the entity’s or physician’s 

patients. The first exception would 

apply to donations made before the 

Secretary’s adoption of product 

certification criteria, including criteria 

for the interoperability, functionality, 

and privacy and security of electronic 

health records technology (these criteria 

are referred to herein as ‘‘product 

certification criteria’’), and would 

provide limited protection. For 

purposes of this rulemaking, we will 

refer to this exception as the ‘‘preinteroperability’’ exception. The second 

exception would apply to donations 

made after product certification criteria 

are adopted by the Secretary. For 

purposes of this rulemaking, we will 

refer to this exception as the ‘‘postinteroperability’’ exception. In 

recognition of the reduction in the risk 

of fraud and abuse that may result from 

interoperable systems, the postinteroperability exception would offer 

broader protection than the preinteroperability exception. 

We are concerned about the risk of 

program abuse that may be posed by a 

DHS entity’s provision of valuable 

technology to physicians. We believe 

that this risk increases as the value of 

the technology to the physician 

increases. The provision of electronic 

health records technology to physicians 

poses greater risk of abuse than the 

provision of limited electronic 

59188 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

prescribing technology, because 

electronic health records technology is 

inherently more valuable to physicians 

in terms of actual cost, avoided 

overhead, and administrative expenses 

of an office practice. However, in light 

of the potential patient benefits of 

electronic health records, we have 

attempted to construct exceptions that 

include several criteria designed to 

ensure that the exceptions do not pose 

a risk of program or patient abuse. We 

will continue to evaluate the risks posed 

by the donation to physicians of 

electronic health records technology 

and may refine or add additional 

safeguards to the final rule to ensure 

that the exceptions do not pose a risk of 

program or patient abuse. We are 

requesting comments on whether 

hardware, connectivity and related 

items and services should also be 

protected under either or both these 

exceptions, and, if so, under what 

conditions. 

1. Pre-Interoperability Exception 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Pre-Interoperability Electronic Health 

Records Exception: § 411.357(w)’’ at the 

beginning of your comment.] 

We wish to recognize the innovative 

early adopters of electronic health 

records technology and establish an 

exception to protect donations of such 

technology made before the Secretary 

has adopted product certification 

criteria for electronic health records. 

However, as noted above in section 

II.A.3 with respect to electronic 

prescribing, it is important that 

protected electronic health records 

software be interoperable to the extent 

technologically feasible and that neither 

donors nor their agents take any actions 

to disable or limit interoperability or 

otherwise impose barriers to 

compatibility. Unlike electronic 

prescribing, at this time, there are no 

proposed Federal regulatory standards 

for electronic health records, nor are 

there any product certification criteria 

with which electronic health records 

software can comply. Nonetheless, 

while product certification criteria are 

being developed, we are proposing the 

narrow pre-interoperability exception 

described below to protect certain 

donations of electronic health records 

technology in an effort to stimulate and 

promote the expansion of technology in 

the health care industry. 

a. Covered Technology 

We are proposing to protect only 

electronic health records software, that 

is, software that is essential to and used 

solely for the transmission, receipt, or 

maintenance of patients’ electronic 

health records. To be protected by this 

exception, the donated electronic health 

records software must have an 

electronic prescribing component. The 

required electronic prescribing 

component must consist of software that 

is used to receive and transmit 

electronically prescription drug 

information in accordance with 

electronic prescribing standards 

published by the Secretary under 

section 1860D–4(e)(4) of the Act. We are 

soliciting comments on whether the 

exception should permit the electronic 

prescribing component of electronic 

health record software to be used for the 

transmission of prescription information 

regarding items and services that are not 

drugs (for example, supplies or 

laboratory tests). Additionally, we are 

soliciting comments with respect to 

whether we should also or instead 

require that electronic health records 

software include a computerized 

provider order entry (CPOE) component. 

We are proposing at § 411.357(w)(8) not 

to protect the provision of other types of 

technology, including, for example, 

hardware, connectivity services, billing 

or scheduling software, or software that 

might be used by a physician to conduct 

personal business or business unrelated 

to the physician’s medical practice. 

Although the proposed exception would 

protect necessary training services in 

connection with the software, the 

exception would not protect the 

provision of staff to physicians or their 

offices. 

We are mindful that there may be 

particular constituencies, such as rural 

area providers, that lack sufficient 

hardware or connectivity services to 

implement effective electronic health 

records systems. We are soliciting 

comments addressing these special 

circumstances. 

In order to protect further against 

abuse, we are considering including in 

the final regulations a definition of 

‘‘electronic health records’’ for purposes 

of the exception. We are soliciting 

comments on how we should draft this 

definition. In particular, we are 

interested in public comments that 

address the types of software that 

should be protected; the retail and 

nonretail cost of this software; the ways 

in which this software is currently 

marketed (for example, individual 

applications versus bundled software 

packages); methods for defining the 

scope of protected software; and 

safeguards that might be imposed (either 

in the definition or separately) to ensure 

that the exception does not pose a risk 

of program or patient abuse. Finally, we 

are soliciting public comment on 

whether and, if so, how to protect the 

provision of other kinds of electronic 

health information technology. 

We are proposing to interpret 

‘‘necessary’’ in the new exception 

consistent with our interpretation of the 

term in section II.A.1 of this proposed 

rule and to include a comparable 

provision at § 411.357(w)(5)(iv) to 

ensure that the exception does not 

protect the provision of items or 

services that are technically and 

functionally equivalent to items and 

services the physician currently 

possesses or has obtained. As with 

electronic prescribing technology, we 

are concerned that there may be a risk 

that physicians would intentionally 

divest themselves of functionally or 

technically equivalent technology that 

they already possess to shift costs to 

donors and we are soliciting public 

comment on whether and how to 

address this situation. 

b. Standards With Which Donated 

Technology Must Comply 

The pre-interoperability exception 

would require at § 411.357(w)(9) that 

any protected software must include an 

electronic prescribing component that 

complies with standards established by 

the Secretary for the Part D electronic 

prescription drug program. Moreover, as 

with the electronic prescribing 

exception discussed above, we would 

require at § 411.357(w)(2) that neither 

donor entities nor their agents take any 

actions to disable or limit 

interoperability of any component of the 

software or otherwise impose barriers to 

compatibility. We are also considering 

requiring protected software to comply 

with relevant Public Health Information 

Network preparedness standards, such 

as those related to BioSense. We are 

soliciting comments on these and other 

appropriate standards. 

We are interested in comments 

addressing whether this preinteroperability exception may have the 

unintended effect of impeding the 

beneficial spread of interoperable 

electronic health records systems by 

promoting closed or isolated systems or 

systems that effectively tie physicians to 

particular providers or suppliers. For 

example, a hospital that donates 

expensive technology to a physician 

may exercise control over that physician 

sufficient to preclude or discourage 

other systems or health plans from 

having access to the physician for their 

own networks. 

c. Permissible Donors 

Proposed § 411.357(w) would protect 

the same categories of donors and 

physicians as the proposed exception 

Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 59189 

for electronic prescribing items and 

services at § 411.357(v). We believe that 

donors should be limited to hospitals, 

group practices, PDP sponsors, and MA 

organizations because they have a direct 

and primary patient care relationship 

and therefore have a central role in the 

health care delivery infrastructure that 

justifies protection for the furnishing of 

electronic health records technology 

that would not be appropriate for other 

types of providers and suppliers, 

including providers and suppliers of 

ancillary services. Moreover, hospitals, 

group practices, PDP sponsors, and MA 

organizations are potentially in a better 

position to promote widespread use of 

electronic health records technology 

that has the greatest degree of openness 

and interoperability. We do not believe 

that providers and suppliers of ancillary 

services, such as laboratories, are wellpositioned to advance the goal of 

widespread use of interoperable 

electronic health records for patients, 

nor would they have the same interest 

in doing so. Nevertheless, we are 

interested in comments regarding 

whether other categories of donors 

should be included and why. We are 

also interested in comments with 

respect to whether different or 

alternative conditions should apply to 

any category of donor. In addition, we 

note that some donations of electronic 

health records software and related 

training services may fit within existing 

exceptions, including those at § 411.352 

(for group practices) and § 411.355(c) 

(for certain prepaid health plans). 

d. Selection of Recipients 

We are proposing at § 411.357(w)(4) a 

condition, consistent with other 

regulatory exceptions, that the eligibility 

of a recipient to receive items and 

services from a donor, and the amount 

and nature of the items and services 

received, may not be determined in a 

manner that takes into account the 

volume or value of the recipient’s 

referrals to the donor or other business 

generated between the parties. We are 

interested in comments with respect to 

potential criteria for selecting physician 

recipients of donated electronic health 

records software and related training 

services. 

e. Value of Protected Technology 

We believe it would be appropriate to 

limit the aggregate value of the 

protected software and directly related 

training services that a DHS entity could 

provide to a physician under the 

exception. The cap under the proposed 

pre-interoperability exception would be 

directly related to any cap adopted in 

connection with the electronic 

prescribing exception discussed in 

section II.A.3. of this proposed rule. We 

believe this approach is consistent with 

the purpose of the physician self-referral 

prohibition and would also minimize 

any competitive disadvantage for 

smaller entities that do not have the 

financial resources or potential volume 

of technology business of larger chains 

or organizations. 

We are interested in comments 

regarding the appropriate amount and 

methodology of a limiting cap. In 

addition to an aggregate dollar cap, we 

are considering two alternative 

approaches: (1) A cap that would be set 

at a percentage of the value of the 

donated technology to the physician 

(thus requiring the physician to share 

the costs); or (2) a cap set at the lower 

of a fixed dollar amount or a percentage 

of the value of the technology to the 

physician. We are soliciting public 

comment about this approach, including 

comments on how a cap under this 

exception would relate to a cap under 

the exception proposed at § 411.357(v) 

and how the value of technology 

provided under the final exceptions 

would be aggregated. We are concerned 

that DHS entities may abuse the 

proposed exceptions for electronic 

prescribing items and services and 

electronic health records software and 

training services by selectively relying 

on both exceptions to maximize the 

value of technology provided to 

physicians as a means of disguising 

payments for referrals. We believe 

conditions should be included in the 

final regulation to prevent this abuse 

and are considering requiring an overall 

cap on value, as well as documentation 

requirements that integrate all 

technology provided under the final 

exceptions. We are interested in public 

comments that address the retail and 

nonretail costs (that is, the costs of 

purchasing from manufacturers, 

distributors, or other nonretail sources) 

of obtaining electronic health records 

software and training services necessary 

to promote the widespread adoption of 

electronic health records. We are also 

interested in comments that address the 

degree to which physicians may already 

possess items or services that could be 

used for electronic health records. In 

addition, we are soliciting comments on 

whether and, if so, how to take into 

account physician access to any 

software that is publicly available either 

free or at a reduced price. 

f. Other Conditions 

To ensure further that this new 

exception does not pose a risk of 

program or patient abuse and for the 

reasons discussed in section II.A.3 of 

this proposed rule, we are incorporating 

in § 411.357(w) certain other conditions 

described above in connection with 

§ 11.357(v). These include a restriction 

at § 411.357(w)(3) on conditioning 

business on the receipt of electronic 

health records technology, a restriction 

at § 411.357(w)(4) on the provision of 

items and services related to the volume 

or value of referrals, a documentation 

requirement at § 411.357(w)(5), and an 

all-payors requirement at 

§ 411.357(w)(7). Proposed 

§ 411.357(w)(10) would require that the 

arrangement not violate the antikickback statute (section 1128B(b) of the 

Act) or any Federal or State law or 

regulation governing billing or claims 

submission. Because the provision of 

valuable items and services to a referral 

source can be used to induce or reward 

referrals, compliance with the antikickback statute is required to ensure 

that the protected arrangements do not 

pose a risk of abuse. This condition is 

consistent with the other regulatory 

exceptions to the physician self-referral 

law and was discussed in the interim 

final rule published on March 26, 2004 

in the Federal Register (69 FR 16108). 

We believe that requiring compliance 

with the anti-kickback statute is 

particularly important because of the 

high dollar value of electronic health 

records technology. 

g. Sunset Provision 

We are also proposing a provision at 

§ 411.357(w)(11) that would sunset the 

pre-interoperability exception 

applicable to electronic health records 

software and training services at the 

time that the post-interoperability 

exception at § 411.357(x) (see discussion 

in section II.B.2 of this proposed rule) 

becomes effective. 

2. Post-Interoperability Electronic 

Health Records Exception 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Post-Interoperability Electronic Health 

Records Exception: § 411.357(x)’’ at the 

beginning of your comment.] 

We realize that variable (that is, nonstandardized) adoption of electronic 

health records systems could discourage 

market forces and competition from 

improving healthcare. Interoperability 

could mitigate many of our concerns 

regarding the potential anti-competitive 

effects of stand-alone electronic health 

records. We recognize that stand-alone 

electronic health records systems, even 

if widely adopted, may not deliver the 

error reductions, cost savings or 

marketplace changes necessary to meet 

the Secretary’s goals, and could even 

shift the market toward more 

59190 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

fragmentation. We believe that only 

open, interconnected, interoperable 

electronic health records systems will 

allow for the free flow of information 

necessary to realize the full potential 

benefits of this technology. 

We anticipate that a process to 

identify product certification criteria, 

including uniform industry standards 

for interoperability, functionality, and 

privacy and security, may be completed 

in the next year. The health information 

technology contractors and the 

American Health Information 

Community (AHIC) will be considering 

processes to set standards and to certify 

and inspect electronic health records 

technology; these processes and 

standards will be recommended to the 

Secretary for recognition and adoption. 

A certified product will meet all of the 

criteria adopted by the Secretary, 

including criteria for interoperability, 

functionality, and privacy and security, 

through the process recognized by the 

Secretary. The post-interoperability 

exception will protect only the donation 

of certified electronic health records 

technology. We are soliciting comments 

on how these processes under 

development might impact the scope of 

a final exception for electronic health 

records. 

Once the Secretary adopts product 

certification criteria for interoperable 

electronic health records technology, we 

intend to finalize the exception 

described below, which offers broader 

protection specific to the donation of 

certified electronic health records 

systems. We discuss below an expanded 

exception for the donation of electronic 

health records software that is certified 

in accordance with the product 

certification criteria and process 

adopted by the Secretary. 

a. Covered Technology 

We are proposing to expand the scope 

of covered software, potentially 

including other kinds of software, 

provided that the core functions of the 

donated software are electronic 

prescribing and electronic health 

records. It is our intent that electronic 

prescribing and electronic health 

records be the core functions of the 

protected donated technology, but we 

also want to ensure that integrated 

packages that could positively impact 

patient care are not excluded from the 

post-interoperability exception. We 

intend to protect systems that improve 

patient care rather than systems 

comprised solely or primarily of 

technology that is incidental to the core 

functions of electronic prescribing and 

electronic health records. Although the 

proposed exception would protect 

necessary training services in 

connection with the software, we 

specify at § 411.357(x)(8) that the 

exception would not protect the 

provision of staff to physicians or their 

offices or the provision of items or 

services used by a physician solely to 

conduct personal business or business 

unrelated to the physician’s medical 

practice. We are soliciting public 

comments on what types of software 

should be protected under the postinteroperability exception and methods 

for ensuring that electronic prescribing 

and electronic health records are the 

core functions of the donated 

technology. As with the preinteroperability exception, we propose 

at § 411.357(x)(9) that the technology 

protected under this exception must 

include an electronic prescribing 

component, and we are soliciting 

comments with respect to whether we 

should also or instead require that 

electronic health records software 

include a CPOE component. 

b. Standards With Which Donated 

Technology Must Comply 

We are proposing in § 411.357(x)(2) 

that the donated electronic health 

records software must be certified in 

accordance with the product 

certification criteria adopted by the 

Secretary. In addition, we propose at 

§ 411.357(x)(9) that the electronic 

prescribing component must comply 

with electronic prescribing standards 

established by the Secretary under the 

Part D program, to the extent those 

standards are not incorporated into the 

product certification criteria adopted by 

the Secretary. Accordingly, no 

protection would be available under the 

post-interoperability exception until 

product certification criteria are 

adopted. 

c. Permissible Donors 

In new § 411.357(x)(1), we are 

proposing to protect the same categories 

of donors protected under the preinteroperability exception as discussed 

in section II.B.1 of this proposed rule. 

We are also considering whether to 

protect additional categories of donors 

and whether different or alternative 

conditions should apply to any category 

of permissible donor. We are interested 

in comments addressing the types of 

individuals and entities that should be 

protected, the degree of need for 

protection, and the safeguards that 

should be imposed to protect against 

fraud and abuse. 

d. Selection of Recipients 

Because certified, interoperable 

systems would offer enhanced 

protection against some types of fraud 

and abuse, we are proposing to permit 

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, is determined in a manner that 

directly takes into account the volume 

or value of the referrals or other 

business generated between the parties. 

Proposed § 411.357(x)(4) would 

enumerate several selection criteria that 

would be deemed not to be directly 

related to volume or value of referrals or 

other business generated between the 

parties. For example, selection criteria 

that are based upon the total number of 

prescriptions written by a physician 

would not be precluded, but the 

proposed regulation would prohibit 

criteria based upon the number or value 

of prescriptions written by the 

physician and dispensed or paid by the 

DHS entity, as well as criteria based on 

any other business generated between 

the parties. Also, the exception would 

not protect arrangements that seek to 

induce a physician to change loyalties 

from other providers or plans to the 

DHS entity. 

We expect that this approach will 

ensure that donated technology can be 

targeted at physicians who use it the 

most, in order to promote a public 

policy favoring adoption of the 

technology, while discouraging 

problematic direct correlations with 

Medicare referrals (for example, a 

hospital offering a physician 10 new 

computers for every 500 referrals of 

Medicare payable procedures). We 

caution, however, that outside of the 

context of electronic health records, as 

specifically addressed in this proposed 

rule, and except as permitted in 

§ 411.352(i) (special rules for 

productivity bonuses and profit shares 

distributed to group practice 

physicians), both direct and indirect 

correlations between the provision of 

goods or services and the volume or 

value of referrals or other business 

generated between the parties are 

prohibited. We are interested in public 

comments about this approach, 

including whether there may be 

unintended consequences that would 

inhibit the adoption of interoperable 

technology or lead to abusive 

arrangements and, if so, whether more 

or less restrictive conditions would be 

preferable. We are also soliciting public 

comments on other possible criteria that 

would be an acceptable basis for 

selecting recipients of the donated 

technology. 

Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 59191 

e. Value of Protected Technology 

We are considering whether a larger 

cap on the value of the donated software 

would be appropriate. In the discussion 

of the pre-interoperability exception at 

section II.B.1 of this preamble, we noted 

various alternatives we are considering 

in connection with a limiting cap and 

outlined issues about which we are 

soliciting comments. We are considering 

similar issues, and are interested in 

similar comments, in connection with 

the appropriate amount of a cap for 

interoperable, certified technology 

donated under the post-interoperability 

exception. 

We are interested in comments 

regarding the appropriate amount and 

methodology of a limiting cap. In 

addition to an aggregate dollar cap, we 

are considering two alternative 

approaches: (1) A cap that would be set 

at a percentage of the value of the 

donated technology to the physician 

(thus requiring the physician to share 

the costs); or (2) a cap set at the lower 

of a fixed dollar amount or a percentage 

of the value of the technology to the 

physician. We are soliciting public 

comment about this approach, including 

comments on how a cap under this 

exception would relate to a cap under 

the exceptions proposed at § 411.357(v) 

and § 411.357(w) and how the value of 

technology provided under the final 

exceptions would be aggregated. We are 

interested in public comments that 

address the retail and nonretail costs 

(that is, the costs of purchasing from 

manufacturers, distributors, or other 

nonretail sources) of obtaining 

electronic health records software and 

training services necessary to promote 

the widespread adoption of certified 

electronic health records systems. We 

are also interested in comments that 

address the degree to which physicians 

may already possess items or services 

that could be used for electronic health 

records. In addition, we are soliciting 

comments on whether and, if so, how to 

take into account physicians’ access to 

any software that is publicly available 

either free or at a reduced price. 

f. Other Conditions 

Similar to the proposed electronic 

prescribing and pre-interoperability 

exceptions, the proposed postinteroperability exception would 

incorporate additional conditions as 

discussed in section II.A.3 above. These 

include a restriction at § 411.357(x)(3) 

on conditioning business on the receipt 

of electronic health records technology, 

a documentation requirement at 

§ 411.357(x)(5), a requirement at 

§ 411.357(x)(6) that the DHS entity not 

have actual knowledge or act in reckless 

disregard or deliberate ignorance of the 

fact that the physician possesses or has 

obtained duplicative items or services, 

an all-payors requirement at 

§ 411.357(x)(7), and a requirement at 

§ 411.357(x)(10) that the arrangement 

not violate the anti-kickback statute 

(section 1128B(b) of the Act) or any 

Federal or State law or regulation 

governing billing or claims submission. 

III. Collection of Information 

Requirements 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Collection of Information 

Requirements’’ at the beginning of your 

comment.] 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to evaluate fairly 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the exceptions 

that are being proposed by this 

document. The electronic prescribing 

exception and the electronic health 

records exceptions would include an 

information collection requirement; that 

is, there would be a written, signed 

agreement for the provision to a 

physician of qualifying electronic 

technology. 

The exception at § 411.357(v) would 

apply to the donation of non-monetary 

remuneration (consisting of items and 

services in the form of hardware, 

software, or information technology and 

training services) necessary and used 

solely to receive and transmit electronic 

prescription information. The 

exceptions at § 411.357(w) and 

§ 411.357(x) would apply to nonmonetary remuneration consisting of 

items and services (in the form of 

electronic health records software and 

directly related training services) that is 

necessary to receive, transmit, and 

maintain electronic health records. 

These exceptions are limited to 

donations made by hospitals to 

physicians who are members of their 

medical staffs, by group practices to 

their physician members, and by PDP 

sponsors and MA organizations to 

physicians in their networks. Each of 

these arrangements must be in a writing 

that is signed by the parties and that 

identifies the items or services being 

provided and their value. In addition, 

the written arrangement must include a 

certification by the physician that the 

items and services to be provided are 

not technically or functionally 

equivalent to any items or services he or 

she already possesses or has already 

obtained. 

The burden associated with the 

written agreement requirement is the 

time and effort necessary for 

documentation of the agreement 

between the parties, including 

signatures of the parties, and the signed 

certification by physicians. 

We do not know how many hospitals, 

PDP sponsors, or MA organizations 

would use the exceptions that apply to 

qualifying electronic prescribing 

technology and electronic health 

records software and training services. 

However, as explained in section II.A.2 

of this proposed rule, we expect that 

few group practices would use either 

exception because existing exceptions 

would likely apply to permit a group 

practice to provide its physician 

members with qualifying electronic 

prescribing items and services and 

electronic health records software and 

training services. Thus, few group 

practices would be affected by this 

exception and any related paperwork 

burdens. 

In addition, because the donation of 

qualifying electronic prescribing 

technology and electronic health 

records software and training services is 

voluntary, we believe that some 

hospitals, PDP sponsors, and MA 

organizations will not avail themselves 

of this exception and will therefore not 

experience any paperwork burden. 

Finally, we believe that, for those 

entities that choose to donate qualifying 

electronic prescribing technology or 

electronic health records software and 

training services to physicians, the 

paperwork burden will be limited by the 

terms of each exception. Each exception 

requires the donated items and services 

to be necessary and not duplicative of 

items and services the physician already 

possesses or has obtained. 

We expect that every hospital, PDP 

sponsor, and MA organization that 

would choose to furnish qualifying 

59192 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

electronic prescribing technology or 

electronic health records software and 

training services to physicians would 

likely use a model agreement that lists 

or describes the electronic items and 

services to be donated. We expect that 

State or national organizations 

representing lawyers, physicians, group 

practices, hospitals, PDP sponsors, and 

MA organizations would create model 

agreements for their members. However, 

we also expect that attorneys for large 

providers (for example, academic 

medical centers) would create model 

agreements. We estimate that an entity 

that creates a model agreement would 

have to spend approximately 3 hours to 

draft two model agreements (one for 

each exception). We estimate that it 

would take a donor hospital 20 minutes 

to both tailor each model agreement for 

each physician and to sign each 

agreement. We estimate that each 

physician would also spend 20 minutes 

reading and signing each agreement and 

completing the necessary certification. 

We recognize that a physician and an 

entity would have to understand the 

differences between the items and 

services that an entity is offering and the 

items and services that the physician 

already possesses or has obtained. 

As of April 2003, there were 586,411 

physicians who provided Part B 

physician services to beneficiaries and 

(as of December 31, 2003) 6,057 

hospitals that participated in Medicare. 

As of January 1, 2006, we expect that 

there would be at least two PDP 

sponsors serving each State and at least 

270 MA plans. We assume that each 

physician is on the medical staff of two 

hospitals and would treat patients who 

are members of one PDP and two MA 

plans. 

We do not believe that physicians 

would be willing now to participate in 

more than one type of electronic system 

because of the time necessary to learn to 

use each system efficiently. Because 

items and services must be necessary 

and used solely for electronic 

prescribing or electronic health records, 

we estimate that, on average, physicians 

would receive items and services from 

only one entity. (We recognize that two 

or more entities could each provide 

necessary items and services to a 

physician under an exception, but we 

do not expect that to occur in the near 

future.) 

We are unable to estimate how many 

entities would provide these items or 

services to physicians annually. 

However, because the Federal 

government has established a goal of 

having most Americans’ health 

information in electronic form by 2014, 

we estimate that one-ninth of all entities 

would begin the process of developing 

or using electronic prescribing and 

electronic health records each year. 

Taking all of this into account, we 

expect that no more than 150 State or 

national organizations or lawyers for 

large hospital systems, PDP sponsors, or 

MA organizations would draft 

agreements for the 6,057 hospitals, 100 

PDP sponsors, and 270 MA 

organizations. Because we estimate it 

would take 3 hours to prepare a model 

agreement, there may be at least two 

model agreements, and that 150 

organizations would each prepare these 

agreements, it could take a maximum of 

900 hours to prepare all model 

agreements (2 types of model 

agreements × 150 model agreements × 3 

hours to prepare = 900 hours). 

To calculate the maximum number of 

hours that reasonably would be required 

to complete the agreements, we assume 

that 10 percent of the 586,411 

physicians would sign an agreement for 

electronic items and services. Therefore, 

we estimate that annually the donating 

entities may spend 19,547 hours in 

completing and signing the agreements 

(20 minutes × [.10 × 586,411 physicians] 

= 19,547 hours). In addition, we 

estimate that the cumulative burden on 

physicians would also be 19,547 hours. 

An additional burden associated with 

the requirements for both exceptions 

would be that of maintaining 

documentation, and, if necessary, 

making it available to the Secretary 

upon request. We believe that the 

information we are requiring entities to 

maintain is information that they would 

already maintain in the ordinary course 

of business. Thus, any information the 

Secretary would need would already 

have been collected and maintained by 

the entities. Moreover, making 

information available to the Secretary 

should rarely be necessary, as the 

information is not collected routinely by 

the Secretary. Rather, the information 

would likely be collected only during 

the conduct of an administrative action, 

investigation, or audit involving a 

Federal governmental agency regarding 

specific individuals or entities. The 

paperwork burden associated with these 

types of reviews is exempt from the PRA 

under 5 CFR 1320.4(a). 

If you comment on these information 

collection and record keeping 

requirements, please mail copies 

directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic 

Operations and Regulatory Affairs, 

Regulations Development Group, 

Attn: Jim Wickliffe, CMS–1303–P, 

Room C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–

1850; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 

20503, Attn: CMS Desk Officer, Fax 

(202) 395–6974. 

IV. Regulatory Impact Statement 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘Regulatory Impact Statement’’ at the 

beginning of your comment.] 

A. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995, Pub. L. 

104–4), the Congressional Review Act (5 

U.S.C. 804(2)), and Executive Order 

13132. 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibilities of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, when regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for final rules 

with economically significant effects 

(that is, a final rule that would have an 

annual effect on the economy of $100 

million or more in any one year, or 

would adversely affect in a material way 

the economy, a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local, or tribal governments or 

communities). Because we believe that 

the economic impact of this proposed 

rule would not exceed $100 million 

annually, we have not prepared an RIA. 

However, we have analyzed alternatives 

and assessed benefits and costs in order 

to provide a basis for informed 

responses that will help us make final 

decisions. 

This proposed rule would create new 

exceptions to the physician self-referral 

prohibition to allow certain entities to 

provide technology-related items and 

services to physicians for purposes of 

conducting electronic prescribing and 

maintaining electronic health records. 

The exceptions would protect donations 

of qualifying electronic prescribing 

technology and electronic health 

records software and directly related 

Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 59193 

training services made by a hospital to 

a physician member of its medical staff, 

a group practice to a physician member, 

and a PDP sponsor or MA organization 

to a prescribing physician, provided that 

certain conditions are satisfied. The 

exceptions should facilitate the 

adoption of electronic prescribing and 

electronic health records technology by 

filling a gap rather than creating the 

primary means by which physicians 

will adopt these technologies. In other 

words, we do not believe that donor 

entities will fund all of the health 

information technology used by 

physicians. 

The proposed rule on electronic 

prescribing standards, which was 

published on February 4, 2005 (70 FR 

6256), takes into consideration the 

expected cost for the hardware, 

software, training and information 

technology needed by prescribing 

practitioners, including physicians. In 

the preamble to that rule, we presented 

a Regulatory Impact Analysis covering 

the expected effects of electronic 

prescribing and the specific standards 

proposed. Our analysis showed the 

possibility of substantial and 

economically significant positive health 

effects on consumers and net positive 

economic effects on affected entities, 

such as physicians, pharmacies, and 

health plans. Our analysis focused on 

the likelihood that PDP sponsors and 

MA organizations would find it in their 

interest to pay some or all of the costs 

of qualifying electronic prescribing 

technology or electronic health records 

software and training services to 

encourage physician adoption. 

This proposed rule would remove a 

potential obstacle to the provision of 

qualifying electronic prescribing 

technology and electronic health 

records software and directly related 

training services (for purposes of this 

Regulatory Impact Statement, herein 

referred to as ‘‘qualifying health 

information technology’’) by certain 

entities. Although this proposed rule 

applies to donations of qualified health 

information technology donations by 

hospitals, group practices, PDP 

sponsors, and MA organizations, we 

expect that many donor entities may not 

need to use these proposed exceptions, 

given the existing exceptions at 

§ 411.352 and § 411.355(c). 

Of particular importance, managed 

care services furnished by prepaid 

health plans or their contractors may 

fall within a previously codified 

exception (see § 411.355(c)). We believe 

that prepaid plans have substantial 

economic incentives to encourage the 

adoption of health information 

technology by contracting physicians, 

incentives that are larger than those for 

most other entities. We are interested in 

public comments on whether this 

existing exception is sufficiently broad 

to accommodate non-abusive 

arrangements and to foster the adoption 

of health information technology. 

Regardless of whether donations 

would be allowed under existing 

exceptions or those that are included in 

this proposed rule, we encourage 

commenters to provide information on 

the costs that would likely be incurred 

by entities that would choose to furnish 

qualifying health information 

technology to physicians, as well as 

other related costs that would likely be 

incurred by both donors and physicians, 

such as costs incurred for changes in 

office procedures. 

Our analysis under Executive Order 

12866 of the expenditures that entities 

may choose to make under this 

proposed rule is restricted by potential 

effects of outside factors, such as 

technological progress and other market 

forces, future certification standards, 

and companion proposed anti-kickback 

statute safe harbors. Furthermore, both 

the costs and potential savings of 

electronic prescribing, electronic health 

records, computerized physician order 

entry, and billing and scheduling 

software vary to the extent to which 

each element operates as a stand-alone 

system or as part of an integrated 

system. We welcome comments that 

will help identify both the independent 

and synergistic effects of these variables. 

As discussed in the February 4, 2005 

E-Prescribing proposed rule at 70 FR 

6268 through 6273, we expect that 

donors may experience net savings with 

electronic prescribing in place and 

patients would experience significant 

positive health effects. We have not 

repeated that analysis in this proposed 

rule. 

There are numerous studies reporting 

that electronic health records in the 

ambulatory setting can result in a 

substantial improvement in clinical 

process. The effects of electronic health 

records include: (1) Reducing 

unnecessary or duplicative lab and 

radiology test ordering by 9 to 14 

percent (Bates, D., et al., ‘‘A randomized 

trial of a computer-based intervention to 

reduce utilization of redundant 

laboratory tests,’’ Am. J. Med. 106(2), 

144–50 (1999)); (Tierney, W., et al., 

‘‘The effect on test ordering of informing 

physicians of the charges for outpatient 

diagnostic tests,’’ N. Engl. J. Med. 

322(21): 1499–504 (1990)); (Tierney, W., 

et al., ‘‘Computerized display of past 

test results. Effect on outpatient 

testing,’’ Ann. Intern. Med. 107(4): 569–

74 (1987)); (2) lowering ancillary test 

charges by up to 8 percent (Tierney, W., 

et al., ‘‘Computer predictions of 

abnormal test results. Effects on 

outpatient testing,’’ JAMA 259: 1194–8 

(1988)); (3) reducing hospital 

admissions due to adverse drug events 

(ADEs), costing an average of $17,000 

each, by 2 to 3 percent (Jha, A., et al., 

‘‘Identifying hospital admissions due to 

adverse drug events using a computerbased monitor,’’ Pharmacoepidemiology 

and Drug Safety 10(2), 113–19 (2001)); 

and (4) reducing excess medication 

usage by 11 percent (Wang, S., et al., ‘‘A 

cost-benefit analysis of electronic 

medical records in primary care,’’ Am. 

J. Med. 114(5): 397–403 (2003)); (Teich, 

J., et al., ‘‘Effects of computerized 

physician order entry on prescribing 

practices,’’ Arch. Intern. Med. 160(18): 

2741–7 (2000)). There is also evidence 

that electronic health records can 

reduce administrative inefficiency and 

paper handling. (Khoury, A., ‘‘Support 

of quality and business goals by an 

ambulatory automated medical record 

system in Kaiser Permanente of Ohio,’’

Eff. Clin.Pract. 1(2): 73–82 (1998)). Most 

recently, a large study evaluating the 

impact of electronic health records on 

resource utilization in two States found 

that physician visits decreased by 9 

percent 2 years after implementation. 

These studies show a consistent 

pattern of clinical utilization reductions 

that have been reported to arise from 

electronic health records use in 

ambulatory settings. Although financial 

estimates were not performed in these 

studies, these utilization reductions 

could yield savings that accrue to 

Medicare because of its use of volumebased payments for ambulatory and 

inpatient care. Other studies have 

estimated that electronic health records 

in the ambulatory setting would save 

$78 billion to $112 billion annually, 

across all payors. This estimate includes 

up to $34 billion in annual savings from 

ambulatory computerized provider 

order entry (Johnston, D., et al., ‘‘The 

Value of Computerized Provider Order 

Entry in Ambulatory Settings,’’ Center 

for IT Leadership, Wellesley, MA 

(2003)) and up to $78 billion annually 

from interoperability of electronic 

health records (Walker, J., et al., ‘‘The 

Value of Health Care Information 

Exchange and Interoperability,’’ Health 

Affairs, http://www.healthaffairs.org 

(online exclusive) (2005)). 

At the same time, the costs of 

electronic health records and other 

health information technology are very 

substantial. For example, one estimate 

of HIPAA compliance costs alone 

indicated that hospitals would need to 

spend $14 billion and health plans more 

than $5 billion. (Duncan, M., ‘‘August 

59194 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

2002 HIPAA Panel Results: Expected 

Costs/Benefits,’’ Gartner (2002)). The 

range of cost estimates for electronic 

health records alone is wide. At one 

extreme, there are software systems 

under development that may be offered 

to physician settings free or at the cost 

of perhaps several thousand dollars, 

while others may cost $20,000 to 

$30,000. Extrapolated to the universe of 

health plans, hospitals, and physicians, 

total investment costs are likely to reach 

the billions of dollars. 

It is unclear how rapidly adoption is 

now occurring. A recent study indicates 

‘‘practices are encountering greaterthan-expected barriers to adopting an 

[electronic health records] system, but 

the adoption rate continues to rise.’’

(Gans, D., et al., ‘‘Medical Groups’

Adoption of Electronic Health Records 

and Information Systems,’’ Health 

Affairs, September/October 2005). This 

study dealt only with group practices, 

and found greater difficulties in smaller 

groups. We can infer similar 

implementation difficulties for 

individual physician practices. For 

example, this study found the average 

initial cost of implementing an 

electronic health records system to be 

$33,000 per physician, with 

maintenance costs of $1,500 per 

physician per month, numbers which 

‘‘would translate into about a 10 percent 

reduction in take-home pay each year 

for most primary care practices’’ if 

amortized over 5 years. (See Gans, D.). 

Another recent study reviews a broader 

range of providers and is equally 

pessimistic, arguing that the economic 

incentives of most stakeholders do not 

support health information technology 

investments. According to that article, 

‘‘The greater marvel is that any 

physician, at his or her personal 

expense, would install a system that 

* * * saves money for every health care 

stakeholder except the adopting 

physician.’’ (Kleinke, J.D., ‘‘Dot-Gov: 

Market Failure and the Creation of a 

National Health Information Technology 

System,’’ Health Affairs, September/ 

October 2005). This study is also more 

pessimistic than most about the 

business case for managed care plans to 

make health information technology 

investments, arguing that investments 

benefit not only the investing firm but 

also its competitors. Many other studies, 

discussed below, are more optimistic 

about economic returns to physicians. 

However, the disparate results illustrate 

the uncertainty that prevents us from 

making confident quantitative estimates 

of rates of adoption. 

We assume that health information 

technology costs and benefits will be 

realized eventually. Even without 

government intervention, there is a 

lively market today, and as consensus 

standards evolve, that market will grow. 

The question as to the regulatory impact 

of the proposed rule is: Taking into 

account available policy instruments 

(notably the development of 

interoperability standards), to what 

extent would the use of these proposed 

physician self-referral exceptions 

accelerate adoption of electronic 

prescribing and electronic health 

records? 

We do not have good baseline 

information. There are numerous 

estimates for the adoption of electronic 

prescribing by health plans, hospitals, 

physicians, and (for prescribing of drugs 

only) pharmacies. However, these 

estimates are clouded by uncertainty. 

For example, some studies count 

facsimile transmission of prescriptions 

as electronic prescribing. The majority 

of physician offices now use computers, 

and have high-speed Internet access, but 

less than one in five uses electronic 

health records. (Goldsmith, J., et al., 

‘‘Federal Health Information Policy: A 

Case of Arrested Development,’’ Health 

Affairs, July/August 2003 (citing 17 

percent adoption)). The Gans study 

found that about 12 percent of medical 

group practices have a fully 

implemented electronic health records 

system, and another 13 percent are in 

the process of implementation. For 

smaller group practices these 

percentages fall to 10 and 10, 

respectively. (See Gans, D., supra). 

As discussed below, we estimate that 

2 percent of physicians and 2 percent of 

all hospitals, group practices, MA 

organizations and PDP sponsors would 

be affected by these proposed 

exceptions each year. That is, only one 

in five of the potential donors of 

qualifying health information 

technology will utilize these exceptions. 

As explained in the February 4, 2005 EPrescribing proposed rule (70 FR 6256), 

we believe that between 5 and 18 

percent of prescribers, including 

physicians, are currently participating 

in some electronic prescribing. In 

addition, we explained that we believe 

that the proportion of prescribers using 

electronic prescribing would increase by 

about 10 percent annually over the next 

5 years (70 FR 6256). We believe it is 

likely that about one in five of those 

prescribers would receive assistance 

under these proposed exceptions and 

another one in five would receive 

assistance under the exceptions already 

in place that apply to managed care 

plans and group practices. 

These estimates depend primarily on 

the decisions of MA organizations and 

PDP sponsors as to whether to provide 

assistance to physicians for electronic 

prescribing and electronic health 

records and the decisions of group 

practices to implement these systems. 

We welcome information about the 

intentions of MA organizations and PDP 

sponsors to make donations of 

qualifying health information 

technology to physicians and the 

willingness of group practices to 

implement these systems. 

Even if we were able to determine 

more precisely the number of 

physicians who are currently engaged 

in, and the number of physicians who 

will engage in, electronic prescribing, 

we cannot estimate with certainty the 

number of those physicians who would 

receive donated items and services. 

Some entities may be unwilling or 

unable to donate items or services, and 

some physicians already have the 

requisite items and services. In addition, 

we cannot estimate with certainty the 

cost of the qualifying health information 

technology that a physician would need 

from a donor. Part of this uncertainty is 

due to varying needs for the technology. 

For example, we expect that for face-toface encounters with patients in 

hospital inpatient and outpatient 

departments, physicians would 

primarily use a hand-held device, for 

example, a personal digital assistant 

(PDA). Alternatively, physicians might 

find it easier to use one of the hospital’s 

computers that increasingly are 

becoming located near patient rooms 

and throughout outpatient departments. 

Although we do not know the cost of 

the electronic prescribing technology or 

of the electronic health records software 

that ultimately may be donated under 

these proposed exceptions, we describe 

below several studies of the costs and 

benefits of equipping doctors with such 

technology and software. The speed of 

adoption will depend on the extent to 

which prescribers realize net benefits 

(discussed extensively in our proposed 

rule on E-Prescribing) and on the extent 

to which our proposed exceptions 

(when made final) incrementally affect 

the costs and savings of the technology. 

One study of data on the costs 

associated with an internally developed 

electronic medical record system for 

several internal medicine clinics at an 

integrated delivery system indicated 

that software development and 

maintenance would cost about $1,600 

per provider per year. (See Wang, 

supra.) Use of commercially available 

software may cost twice as much. 

Financial benefits of electronic health 

records include not having to ‘‘pull’’

patient charts whenever a patient is to 

be seen and reduced transcription costs. 

In addition, electronic clinical decision 

Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 59195 

2Center for Information Technology (CITL, a 

research organization chartered in 2002) http:// 

www.citl.org, Wellesley, MA (781–416–9200) 2003 

report: ‘‘The Value of Computerized Provider Order 

Entry in Ambulatory Care.’’

support has been shown to reduce ADEs 

and redundant radiology and clinical 

laboratory tests, and up-to-date 

information about alternative drugs 

reduces the use of expensive 

medications. Finally, when a medical 

record has complete and accurate 

information about services provided, 

billing errors are reduced, including 

failure to bill for a furnished service. 

The 5-year cost-benefit analysis of the 

internally developed electronic medical 

records system discussed above 

indicated savings per practitioner. (See 

Wang, supra.) 

In another article, Dr. Kenneth Adler 

reported on his 86-physician, multispecialty group practice’s adoption of an 

electronic health records system 

beginning in 2003. (Adler, K., ‘‘Why It’s 

Time to Purchase an Electronic Health 

Record System,’’ American Academy of 

Family Practitioners, November/ 

December 2004.) This group practice 

found that its electronic health records 

system improved communication, 

access to data, and documentation, 

which led to better clinical and service 

quality. This electronic health records 

system also saved the group practice 

money, and Dr. Adler expects that other 

group practices that adopt electronic 

health records systems will save money 

in addition to the other benefits listed 

above. 

In a third study, the Central Utah 

Multi-Specialty Clinic, a 59-physician, 

nine-location group practice installed an 

electronic medical records system in 

April 2002. (Barlow, S., et al., ‘‘The 

Economic Effect of Implementing an 

EMR in an Outpatient Clinical Setting,’’

J. of Healthcare Information 

Management, 18(1): 46–51 (2004).) 

During its first year of operation, the 

group practice experienced direct 

reductions in spending and increases in 

revenue of more than $952,000 

compared with the prior year, and 

anticipates savings of more than $8.2 

million over the first 5 years of 

implementation. Once again, the savings 

are expected to result from reduced 

transcription costs, a reduced number of 

paper charts and related maintenance 

(including storage), and more 

appropriate coding because of 

appropriate documentation. (This study 

did not include information about the 

start-up costs of the electronic medical 

record system or the annual continuing 

costs. Therefore, caution should be used 

in drawing conclusions on any cost 

savings based on the results of this 

study.) 

Finally, we note that the Center for 

Information Technology Leadership 

(CITL), in its 2003 report, ‘‘The Value of 

Computerized Provider Order Entry in 

Ambulatory Settings’’ 2 found that the 

average first year total cost of a basic 

electronic prescribing software system 

was approximately $3,000 per 

physician. This estimate was based on 

a survey of commercially available 

software. 

We believe that donations allowed by 

this proposed rule would create no net 

costs to the economy. This rule would 

permit cost-shifting, allowing hospitals, 

PDP sponsors, and MA organizations to 

bear financial burdens that otherwise 

would have been borne by physicians 

and their patients. We anticipate that 

electronic prescribing and electronic 

health records technology ultimately 

should save donor entities and 

physicians the costs and other burdens 

associated with incorrect drug 

prescribing or dispensing, and result in 

reductions in the costs of medical 

transcribing and other paperwork. 

Similarly, obtaining accurate health 

records on a timely basis should benefit 

patients, physicians, hospitals, MA 

organizations, and PDP sponsors. The 

February 4, 2005 proposed rule on EPrescribing standards (70 FR 6256) cites 

an estimate from the CITL that 

nationwide adoption of electronic 

prescribing would eliminate nearly 2.1 

million ADEs per year. In turn, this 

reduction of ADEs would prevent nearly 

1.3 million provider visits, more than 

190,000 hospitalizations, and more than 

136,000 life-threatening ADEs (70 FR 

6268). We hope to see a significant 

reduction in ADEs each year as 

nationwide adoption occurs. 

We estimate that 10 percent of the 

586,411 physicians who provide 

services to Medicare beneficiaries 

would adopt electronic prescribing 

technology and electronic health 

records software and software training 

each year. We believe it is likely that 

health plans or hospitals would donate 

software or other items or services to no 

more than 20 percent of these 

physicians (or to fewer than 12,000 

physicians) under our proposed 

exceptions and perhaps another 20 

percent of these physicians (again fewer 

than 12,000 physicians) would receive 

donations under the existing exceptions 

that apply to managed care services and 

to group practices. We estimate that, at 

most, each physician would receive a 

total of $3,000 worth of donated items 

and services under the proposed 

exceptions. Therefore, assuming that 2 

percent of physicians (one-fifth of all 

adopting physicians) would receive 

$3,000 worth of donated items and 

services in each of the two categories 

(electronic prescribing and electronic 

health records), annual donations 

approximate $36 million. 

We expect that many physicians 

already own hand-held devices and will 

have begun to computerize their own 

medical practices. We also expect that 

hospitals, MA organizations, and PDP 

sponsors would see immediate financial 

and patient care benefits from the 

expanded use of electronic prescribing 

and electronic health records. We are 

particularly interested in comments 

concerning our estimated costs to 

hospitals for donating these items and 

services and the expected savings from 

reductions in medical transcription, 

redundant diagnostic testing, ADEs, and 

readmissions to hospitals. We anticipate 

that these savings will be greater than 

the costs incurred by entities using 

these exceptions, but we cannot 

quantify the savings at this time. 

We note that an unexpected benefit 

recently occurred. The Atlantic 

Information Service reported in AIS EHealth on September 15, 2005 that 

patients from the Veterans 

Administration (VA) Hospital in New 

Orleans had been evacuated to other VA 

hospitals throughout the United States 

because of the effects of Hurricane 

Katrina. (See (www.aishealth.com/ 

EHealthBusiness/091505.html)). 

Because the VA system makes extensive 

use of electronic prescribing and 

electronic health records, complete 

patient medical information was quickly 

made available to VA clinicians 

throughout the country. 

The estimates above are highly 

sensitive to assumptions. The permitted 

value of donated items and services 

under the proposed exceptions might be 

half as much or twice as much as 

discussed above. The rate of adoption 

might be higher or lower than estimated. 

The proportion of physicians receiving 

remuneration could be lower or higher 

than estimated, depending on the 

willingness of hospitals, group 

practices, MA organizations, and PDP 

sponsors to subsidize investment in 

health information technology. We 

welcome comments on these variables 

and independent estimates as to the 

likely rates of adoption and 

subsidization. 

At this time, there are mixed signals 

about the potential of electronic 

prescribing and electronic health 

records to reduce costs. For example, 

many estimates are based in part on the 

reduction of medical errors. However, 

one study has also shown that medical 

errors, and potentially costs, can 

increase if software is poorly designed 

59196 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

or implemented (Koppel, et al., 2005). 

Therefore, achieving reliable cost 

savings requires a more substantial 

transformation of care delivery that goes 

beyond simple use of any one kind of 

health information technology. 

This rule likely would have an effect 

on the actual rate of adoption of 

electronic prescribing and electronic 

health records technology. Potential 

donors may be unlikely to provide 

assistance unless they believe it would 

accelerate the adoption of the 

technology. To the extent adoption is 

advanced, the costs and benefits of these 

technologies will be realized sooner. 

However, we are unable to provide any 

quantitative estimate of the likely effect 

of these proposed exceptions, taken 

alone, in the larger panorama of all 

health information technology 

investment decisions, market evolution, 

standards adoption, and use of existing 

physician self-referral exceptions. We 

welcome comment on whether 

information exists that would allow 

such estimates, and what they might be. 

Finally, we believe it unlikely that 

annual effects would exceed $100 

million in the 5-year timeframe that we 

generally use in our economic impact 

projections. If our estimate of the 

independent and direct effects of these 

new exceptions is accurate, and if the 

resulting acceleration in adoption is 

relatively small, this proposed rule 

would not be a major rule. However, we 

have completed all the elements of a 

Regulatory Impact Analysis because the 

uncertainty is so great. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess the anticipated 

costs and benefits of Federal mandates 

before issuing any rule that may result 

in the mandated expenditure by State, 

local, or tribal governments, in the 

aggregate, or by the private sector, of 

$100 million in 1995 dollars (a 

threshold adjusted annually for inflation 

and now approximately $120 million). 

This proposed rule would impose no 

mandates. Any actions taken under this 

rule would be voluntary. Furthermore, 

such actions are likely to result in cost 

savings, not net expenditures, and any 

expenditures would be undertaken by 

government-owned hospitals in their 

business capacity, without any 

necessary impact on State, local, or 

tribal governments, or their expenditure 

budgets, as such. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

For the reasons given above, this 

proposed rule, if finalized, would not 

have a substantial effect on State or 

local governments. 

B. Impact on Small Businesses 

The RFA requires agencies to analyze 

options for regulatory relief for small 

entities when a proposed rule may 

create a significant impact on a 

substantial number of small entities. For 

purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small governmental 

jurisdictions. Most hospitals and 

physicians are considered small entities, 

either by nonprofit status or by having 

revenues of less than $6 million a year. 

Almost all physicians in private practice 

(or all the practices of which they are 

members) are small entities because 

their annual revenues do not meet the 

Small Business Administration’s $8.5 

million threshold for small physician 

practices. Individuals and States are not 

included in the definition of a small 

entity, and this proposed rule would not 

have a financial impact on small 

governmental entities. 

We have determined that this 

proposed rule would not have a 

significant impact on small entities 

because it does not increase regulatory 

burden or otherwise meet the RFA 

standard of ‘‘significant impact.’’ While 

the aggregate impacts would be 

substantial, it is unlikely that near term 

effects on individual practitioners 

would be substantial as a proportion of 

revenues (for example, a $3,000 

remuneration compared to typical 

practice revenues in the hundreds of 

thousands of dollars). We expect our 

proposed new exceptions ultimately to 

be highly beneficial to physicians, 

hospitals, and pharmacies (most in each 

category are small entities), as well as to 

affected entities and persons who are 

not ‘‘small entities’’ as defined in the 

RFA—PDP sponsors, MA organizations, 

and our beneficiaries. We welcome 

comment on these conclusions. 

Nothing in this proposed rule meets 

any of the other thresholds requiring indepth analysis. Although it affects a 

substantial number of small rural 

hospitals, there is no significant 

economic effect on small rural hospitals 

(more than 3 to 5 percent of total costs/ 

revenues), it imposes no unfunded 

mandates or costs on either private or 

public entities, and it neither preempts 

State law nor otherwise has Federalism 

implications. 

C. Conclusion 

We have concluded that this proposed 

rule would not have a significant 

economic effect. Although the proposed 

exceptions may shift costs from 

physicians and patients to permissible 

donor entities and may lead to faster 

adoption of health information 

technology with substantial benefits, it 

is unclear whether, and we believe 

unlikely that, these effects would reach 

the threshold of $100 million annually 

in the near term, even though the longterm cumulative costs and benefits are 

likely to be many times this threshold. 

This rule would remove a potential 

obstacle to certain entities providing 

qualifying electronic prescribing 

technology and electronic health 

records software and directly related 

training services to physicians. The rule 

would permit cost shifting, allowing 

hospitals, MA organizations and PDP 

sponsors to bear financial burdens that 

otherwise would have been borne by 

physicians and their patients. We 

believe that this rule will provide 

substantial positive health effects on 

consumers and net positive economic 

effects on affected entities, including 

physicians, hospitals, and MA 

organizations. 

We are not preparing analyses for 

either the RFA or section 1102(b) of the 

Act because we have determined that 

this rule would not have a significant 

economic impact on a substantial 

number of small entities or a significant 

impact on the operations of a substantial 

number of small rural hospitals. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects in 42 CFR Part 411 

Kidney diseases, Medicare, Physician 

referral, Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services would amend 42 CFR 

chapter IV as set forth below: 

PART 411—[AMENDED] 

1. The authority for part 411 is 

amended to read as follows: 

Authority: Secs. 1102, 1871, and 1877(b)(4) 

and (5) of the Social Security Act (42 U.S.C. 

1302, and 1395hh, and 1395nn(b)(4) and (5)). 

Subpart J—Financial Relationships 

Between Physicians and Entities 

Furnishing Designated Health Services 

2. Section 411.357 is amended by 

adding paragraphs (v), (w), and (x) to 

read as follows: 

Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 59197 

§ 411.357 Exceptions to the referral 

prohibition related to compensation 

exceptions. 

* * * * * 

(v) Electronic prescribing items and 

services. Non-monetary remuneration 

(consisting of items and services in the 

form of hardware, software, or 

information technology and training 

services) necessary and used solely to 

receive and transmit electronic 

prescription information, if all of the 

following conditions are met: 

(1) The items and services are 

provided by a—

(i) Hospital to physicians who are 

members of its medical staff; 

(ii) Group practice (as defined at 

§ 411.352) to physicians who are 

members of the group practice (as 

defined at § 411.351); or 

(iii) PDP sponsor or MA organization 

to prescribing physicians. 

(2) The items and services are donated 

as part of, or are used to access, an 

electronic prescription drug program 

that meets the applicable standards 

under Medicare Part D at the time the 

items and services are furnished. 

(3) The entity (or any person on the 

entity’s behalf) must not take any 

actions to limit or restrict unnecessarily 

the use or compatibility of the items or 

services with other electronic 

prescription information items or 

services or electronic health information 

systems. 

(4) For items or services that are of the 

type that can be used for any patient 

without regard to payor status, the 

donor may not restrict, or take any 

action to limit, the physician’s right or 

ability to use the items or services for 

any patient. 

(5) Neither the physician nor the 

physician’s practice (including 

employees and staff members) makes 

the receipt of items or services a 

condition of doing business with the 

donor. 

(6) Neither the eligibility of a 

physician for the items or services, nor 

the amount or nature of the items and 

services, is determined in a manner that 

takes into account the volume or value 

of referrals or other business generated 

between the parties. 

(7) The arrangement is set forth in a 

written agreement that—

(i) Is signed by the parties; 

(ii) Specifies the items or services 

being provided and the value of those 

items and services; 

(iii) Covers all of the electronic 

prescribing items or services to be 

furnished by the entity; and 

(iv) Contains a certification by the 

physician that the items and services are 

not technically or functionally 

equivalent to items and services he or 

she already possesses or has obtained. 

(8) The entity did not have actual 

knowledge of, and did not act in 

reckless disregard or deliberate 

ignorance of, the fact that the physician 

possessed or had obtained items and 

services that were technically or 

functionally equivalent to those donated 

by the entity. 

(w) Electronic health records items 

and services that are not certified. Nonmonetary remuneration (consisting of 

items and services in the form of 

software or directly related training 

services) necessary and used solely to 

receive, transmit, and maintain 

electronic health records, if all of the 

following conditions are met: 

(1) The items and services are 

provided by a—

(i) Hospital to physicians who are 

members of its medical staff; 

(ii) Group practice (as defined at 

§ 411.352) to physicians who are 

members of the group practice (as 

defined at § 411.351); or 

(iii) PDP sponsor or MA organization 

to prescribing physicians. 

(2) The entity (or any person on the 

entity’s behalf) must not take any 

actions to limit or restrict unnecessarily 

the use or compatibility of the items or 

services with other electronic health 

records items or services or electronic 

health information systems. 

(3) Neither the physician nor the 

physician’s practice (including 

employees and staff members) makes 

the receipt of items or services, nor the 

amount or nature of the items or 

services, a condition of doing business 

with the donor. 

(4) Neither the eligibility of a 

physician, nor the amount or nature of 

the items and services, is determined in 

a manner that takes into account the 

volume or value of referrals or other 

business generated between the parties. 

(5) The arrangement is set forth in a 

written agreement that—

(i) Is signed by the parties; 

(ii) Specifies the items or services 

being provided and the value of those 

items and services; 

(iii) Covers all of the electronic health 

records items and services to be 

furnished by the entity to the physician; 

and 

(iv) Contains a certification by the 

physician that the items and services are 

not technically or functionally 

equivalent to items and services he or 

she already possesses or has obtained. 

(6) The entity did not have actual 

knowledge of, and did not act in 

reckless disregard or deliberate 

ignorance of, the fact that the physician 

possessed or had obtained items and 

services that were technically or 

functionally equivalent to those donated 

by the donor. 

(7) For items or services that are of the 

type that can be used for any patient 

without regard to payor status, the 

donor may not restrict or take any action 

to limit the physician’s right or ability 

to use the items or services for any 

patient. 

(8) The items and services do not 

include any billing, scheduling, or other 

similar general office management or 

administration software or services, nor 

do the services include staffing of 

physician offices. 

(9) The electronic health records 

technology contains electronic 

prescribing capability that complies 

with the electronic prescription drug 

program standards under Medicare Part 

D at the time the items and services are 

furnished. 

(10) The arrangement does not violate 

the anti-kickback statute (section 

1128B(b) of the Act) or any Federal or 

State law or regulation governing billing 

or claims submission. 

(11) The donation was made before 

the effective date of paragraph (x) of this 

section. 

(x) Certified electronic health records 

items and services. Non-monetary 

remuneration (consisting of items and 

services in the form of software or 

directly related training services) 

necessary to receive, transmit, and 

maintain electronic health records, if all 

of the following conditions are met: 

(1) The items and services are 

provided by a—

(i) Hospital to physicians who are 

members of its medical staff; 

(ii) Group practice (as defined at 

§ 411.352) to physicians who are 

members of the group practice (as 

defined at § 411.351); or 

(iii) PDP sponsor or MA organization 

to prescribing physicians. 

(2) The technology is certified in 

accordance with criteria adopted by the 

Secretary that are in effect at the time of 

the donation. 

(3) Neither the physician nor the 

physician’s practice (including 

employees and staff members) makes 

the receipt of items or services, nor the 

amount or nature of the items or 

services, a condition of doing business 

with the donor. 

(4) Neither the eligibility of a 

physician for the items or services, nor 

the amount or nature of the items and 

services, is determined in a manner that 

is directly related to the volume or value 

of referrals or other business generated 

between the parties. For the purposes of 

this paragraph, the determination is 

deemed not to be directly related to the 

59198 Federal Register / Vol. 70, No. 195 / Tuesday, October 11, 2005 / Proposed Rules 

volume or value of referrals or other 

business generated between the parties 

if any one of the following conditions is 

met: 

(i) The determination is based on the 

total number of prescriptions written by 

the recipient; 

(ii) The determination is based on the 

size of the recipient’s medical practice 

(for example, total patients, total patient 

encounters, or relative value units); 

(iii) The determination is based on the 

total number of hours that the recipient 

practices medicine; 

(iv) The determination is based on the 

recipient’s overall use of automated 

technology in his or her medical 

practice (without specific reference to 

the use of technology in connection 

with referrals made to the donor); 

(v) The determination is based on 

whether the physician is a member of 

the hospital’s medical staff, if the donor 

is a hospital; or 

(vi) The determination is made in any 

reasonable and verifiable manner that is 

not directly related to the volume or 

value of referrals or other business 

generated between the parties. 

(5) The arrangement is set forth in a 

written agreement that—

(i) Is signed by the parties; 

(ii) Specifies the items or services 

being provided and the value of those 

items and services; 

(iii) Covers all of the electronic health 

records items and services to be 

furnished by the entity to the physician; 

and 

(iv) Contains a certification by the 

physician that the items and services are 

not technically or functionally 

equivalent to items and services he or 

she already possesses or has obtained. 

(6) The entity did not have actual 

knowledge of, and did not act in 

reckless disregard or deliberate 

ignorance of, the fact that the physician 

possessed or had obtained items and 

services that were technically or 

functionally equivalent to those donated 

by the donor. 

(7) For items or services that are of the 

type that can be used for any patient 

without regard to payor status, the 

donor may not restrict or take any action 

to limit the physician’s right or ability 

to use the items or services for any 

patient. 

(8) The items and services do not 

include staffing of physician offices and 

are not used solely to conduct personal 

business or business unrelated to the 

physician’s medical practice. 

(9) The electronic health records 

technology contains electronic 

prescribing capability that complies 

with the electronic prescription drug 

program standards under Medicare Part 

D at the time the items and services are 

furnished. 

(10) The arrangement does not violate 

the anti-kickback statute (section 

1128B(b) of the Act), or any Federal or 

State law or regulation governing billing 

or claims submission. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: March 18, 2005. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: August 12, 2005. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. 05–20322 Filed 10–5–05; 10:49 am] 

BILLING CODE 4120–01–P