DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Part 411 

[CMS-1454-F] 

RIN 0938-AR70 

Medicare Program; Physicians’ Referrals to Health Care Entities With Which They 

Have Financial Relationships: Exception for Certain Electronic Health Records 

Arrangements 

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule revises the exception to the physician self-referral law that 

permits certain arrangements involving the donation of electronic health records items 

and services. Specifically, this final rule extends the expiration date of the exception to 

December 31, 2021, excludes laboratory companies from the types of entities that may 

donate electronic health records items and services, updates the provision under which 

electronic health records software is deemed interoperable, removes the electronic 

prescribing capability requirement, and clarifies the requirement prohibiting any action 

that limits or restricts the use, compatibility, or interoperability of donated items or 

services. 

DATES: With the exception of the amendment to § 411.357(w)(13), this regulation is 

effective on [Insert date 90 days after the date of publication in the Federal Register]. 

The amendment to § 411.357(w)(13) is effective on December 31, 2013. 

 
 2 

FOR FURTHER INFORMATION CONTACT: 

Lisa Ohrin, (410) 786-8852. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

A. Purpose of the Regulatory Action

 Section 1877 of the Social Security Act (the Act), codified at 42 U.S.C. 1395nn, 

also known as the physician self-referral statute: (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 the requirements of an 

exception are satisfied; and (2) prohibits the entity from submitting claims to Medicare 

for those referred services, unless the requirements of an exception are satisfied. 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. Since the original enactment of the statute in 1989, we have 

published a series of final rules interpreting the statute and promulgating numerous 

exceptions. 

 In accordance with our statutory authority, we published an exception to the 

physician self-referral law to protect certain arrangements involving the provision of 

interoperable electronic health records software or information technology and training 

services. The final rule for this exception was published on August 8, 2006 

(71 FR 45140) (hereinafter referred to as the August 2006 final rule) and is scheduled to 
 3 

expire on December 31, 2013 (see 42 CFR 411.357(w)(13)). In the April 10, 2013 

Federal Register (78 FR 21308), we published a proposed rule that would update certain 

aspects of the electronic health records exception and extend the expiration date of the 

exception. The purpose of this final rule is to address the public comments received on 

the proposed rule and to finalize certain aspects of the proposed rule. 

B. Summary of the Final Rule 

This final rule amends the current exception in several ways. First, this final rule 

extends the expiration date of the exception to December 31, 2021. Second, it excludes 

laboratory companies from the types of entities that may donate electronic health records 

items and services. Third, this rule updates the provision under which electronic health 

records software is deemed interoperable. Fourth, this rule clarifies the requirement at 

§ 411.357(w)(3) prohibiting any action that limits or restricts the use, compatibility, or 

interoperability of donated items or services. Finally, it removes from the exception the 

requirement related to electronic prescribing capability. 

C. Costs and Benefits

This final rule modifies an existing exception to the physician self-referral law. 

The exception permits certain entities to provide to physicians certain software and 

information technology and training and services necessary and used predominantly to 

create, maintain, transmit, or receive electronic health records. The modifications to the 

exception do not impose new requirements on any party. This is not a major rule, as 

defined at 5 U.S.C. 804(2). It is also not economically significant, because it will not 

have a significant effect on program expenditures and there are no additional substantive 
 4 

costs to implement the resulting provisions. We expect the exception, as modified by this 

final rule, to continue to facilitate the adoption of electronic health records technology. 

II. Background

A. Physician Self-Referral Statute and Exceptions

 Section 1877 of the Act, codified at 42 U.S.C. 1395nn, also known as the 

physician self-referral statute: (1) prohibits a physician from making referrals for certain 

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 the requirements of an exception are satisfied; and (2) prohibits the entity from 

submitting claims to Medicare for those referred services, unless the requirements of an 

exception are satisfied. The statute at 42 U.S.C. 1395nn(b)(4) 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. 

Since the original enactment of the statute in 1989, we have published a series of final 

rules interpreting the statute and promulgating numerous exceptions. 

B. The Electronic Health Records Items and Services Exception

On August 8, 2006 (71 FR 45140), we published a final rule that, among other 

things, finalized at § 411.357(w) an exception to the physician self-referral law for 

protecting certain arrangements involving interoperable electronic health records 

software or information technology and training services (the “electronic health records 

exception”). Also in the August 8, 2006 Federal Register (71 FR 45110), the 

Department of Health and Human Services' (HHS) Office of Inspector General (OIG) 
 5 

published similar final regulations at § 1001.952 that, among other things, adopted a safe 

harbor under the Federal anti-kickback statute (section 1128B(b) of the Act, codified at 

42 U.S.C. 1320a-7b(b)) for certain arrangements involving interoperable electronic 

health records software or information technology and training services. As set forth at 

§ 411.357(w)(13) and § 1001.952(y)(13), the physician self-referral law electronic health 

records exception and the Federal anti-kickback electronic health records safe harbor, 

respectively, are scheduled to expire on December 31, 2013. 

On April 10, 2013 (78 FR 21308), we published a proposed rule that would set 

forth certain proposed changes to the electronic health records exception. First, we 

proposed to update the provision under which electronic health records software is 

deemed interoperable. Second, we proposed to remove from the exception the 

requirement related to electronic prescribing capability. Third, we proposed to extend the 

expiration date of the exception. In addition to these proposals, we solicited public 

comment on other possible amendments to the exception, including our proposal to limit 

the types of entities that may donate electronic health records items and services under 

the exception and to add or modify conditions to limit the risk of data and referral lockin. Elsewhere in the same issue of the Federal Register (78 FR 21314), OIG proposed 

almost identical changes to the Federal anti-kickback statute safe harbor. Within the 

limitations imposed by the differences in the respective underlying statutes, we attempted 

to ensure as much consistency as possible between our proposed modifications to the 

exception at § 411.357(w) and OIG’s proposed modifications to the safe harbor. We 

noted in the proposed rule that, due to the close nexus between our proposed rule and the 
 6 

OIG’s proposed rule, we might consider comments submitted in response to OIG’s 

proposal in finalizing this rule. 

This final rule adopts some of the proposed changes to the electronic health 

records exception to the physician self-referral law. First, this final rule extends the 

expiration date of the exception to December 31, 2021. Second, it excludes laboratory 

companies from the types of entities that may donate electronic health records items and 

services under the exception. Third, this rule updates the provision under which 

electronic health records software is deemed interoperable. Fourth, this rule clarifies the 

requirement at § 411.357(w)(3) prohibiting any action that limits or restricts the use, 

compatibility, or interoperability of donated items or services. Finally, it removes from 

the exception the requirement related to electronic prescribing capability. 

Elsewhere in this issue of the Federal Register, the OIG is finalizing almost 

identical changes to the electronic health records safe harbor1 under the Federal 

anti-kickback statute. We attempted to ensure as much consistency as possible between 

our changes to the physician self-referral law exception and OIG’s safe harbor changes. 

We have considered and responded to the timely comments we received as well as those 

received by OIG. Similarly, OIG considered comments submitted in response to our 

proposed rule in crafting its final rule. For purposes of this final rule, we treat comments 

that were made with respect to the Federal anti-kickback statute as if they had been made 

with respect to the physician self-referral law, except where they relate to differences in 

the underlying statutes.

 

1 42 CFR 1001.952(y). 
 7 

III. Provisions of the Proposed Regulations and Analysis of and Responses to Public 

Comments 

 We received approximately 110 timely items of correspondence for the proposed 

rule. We summarize and respond to comments later in this section of the final rule. For 

ease of reference, we divided the comments and responses into the following categories: 

the deeming provision; the electronic prescribing provision; the “sunset” provision; and 

additional proposals and considerations. 

A. The Deeming Provision 

Our current electronic health records exception requires at § 411.357(w)(2) that 

the donated software must be “interoperable” (as defined at § 411.351) at the time it is 

provided to the physician. This provision further provides that software is deemed to be 

interoperable if a certifying body recognized by the Secretary has certified the software 

no more than 12 months prior to the date it is provided to the physician. We proposed 

two modifications to § 411.357(w)(2), which is known as the “deeming provision.” Both 

modifications to the deeming provision were proposed to reflect recent developments in 

the Office of the National Coordinator for Health Information Technology’s (ONC) 

certification program. 

The first proposed modification would reflect ONC’s responsibility for 

authorizing certifying bodies. The second would modify the timeframe during which 

donated software must be certified. Currently, to comply with the deeming provision, the 

exception requires donated software to be certified no more than 12 months prior to the 

date of donation. 
 8 

After the issuance of the August 2006 final rule, ONC developed a regulatory 

process for adopting certification criteria and standards which is anticipated to result in a 

cyclical rulemaking process. (For more information, see ONC’s September 4, 2012 final 

rule entitled ‘‘Health Information Technology: Standards, Implementation Specifications, 

and Certification Criteria for Electronic Health Record Technology, 2014 Edition; 

Revisions to the Permanent Certification Program for Health Information Technology’’ 

(77 FR 54163).) Our proposal would have modified the deeming provision to track 

ONC’s anticipated regulatory cycle. As a result, software would be eligible for deeming 

if, on the date it is provided to the physician, it has been certified to any edition of the 

electronic health record certification criteria that is identified in the then-applicable 

definition of Certified EHR Technology in 45 CFR part 170. By way of example, for 

2013, the applicable definition of Certified EHR Technology includes both the 2011 and 

the 2014 editions of the electronic health record certification criteria. Therefore, in 2013, 

software certified to meet either the 2011 edition or the 2014 edition would have satisfied 

the requirement of the exception as we proposed to modify it. Additionally, we solicited 

comments on whether removing the current 12-month certification requirement would 

impact donations and whether we should retain the 12-month certification period as an 

additional means of determining eligibility under the deeming provision. 

 After consideration of the public comments received, we are finalizing the 

proposed revisions to § 411.357(w)(2) with one clarification to our proposed regulatory 

text to ensure that the deeming provision closely tracks ONC’s certification program. 

We are revising § 411.357(w)(2) to state that software is deemed to be interoperable if, 
 9 

on the date that it is provided to the physician, it has been certified by a certifying body 

authorized by the National Coordinator for Health Information Technology to an edition 

of the electronic health record certification criteria identified in the then-applicable 45 

CFR part 170. As we stated in the August 2006 final rule (71 FR 45156), we understand 

“that the ability of software to be interoperable is evolving as technology develops. In 

assessing whether software is interoperable, we believe the appropriate inquiry is whether 

the software is as interoperable as feasible given the prevailing state of technology at the 

time the items or services are provided to the physician recipient.” We believe that our 

final rule with respect to this requirement is consistent with that understanding and our 

objective of ensuring that software is certified to the current required standard of 

interoperability when it is donated. 

Comment: All of the commenters that addressed this issue in their comments 

supported the proposed modification that would amend the exception to recognize ONC 

as the agency responsible for authorizing certifying bodies on behalf of the Secretary, 

with one commenter requesting that we clarify that software need not be certified to 

ONC’s standards to be eligible for donation. 

Response: We appreciate the commenters’ support for this modification. With 

respect to the request for clarification, the commenter is correct that § 411.357(w)(2) 

does not require software to be certified to ONC’s standards in order to be eligible for 

donation. As we discussed in the August 2006 final rule (71 FR 45156), the deeming 

provision offers one way for parties to be certain that the interoperability requirement of 

§ 411.357(w)(2) is met at the time of donation. Even if donated software is not deemed 
 10 

to be interoperable, the arrangement would satisfy the interoperability requirement of the 

exception if the software meets the definition of “interoperable” at § 411.351. 

Comment: One commenter expressed concerns about linking the interoperability 

requirement of the exception to ONC’s certification criteria and standards because they 

do not, in the commenter’s assessment, reflect contemporary views of interoperability. 

The commenter suggested that we instead implement a broad definition of 

interoperability adopted by the International Organization for Standardization or, 

alternatively, that we adopt interoperability functional definitions developed by the 

American National Standards Institute. 

Response: Although we are mindful that other non-governmental organizations 

may be developing their own standards to encourage the adoption of interoperable 

electronic health records technology, ONC’s certification criteria and standards are the 

core policies the Department is utilizing to accelerate and advance interoperability and 

health information exchange. On March 7, 2013, ONC and CMS jointly published a 

Request for Information (78 FR 14793) to solicit public feedback on a set of possible 

policies “that would encourage providers to routinely exchange health information 

through interoperable systems in support of care coordination across health care 

settings.” The process by which ONC considers the implementation of new certification 

criteria and standards is a public, transparent effort that allows the Department’s 

electronic health records technology experts to consider appropriately the comments 

submitted in light of the goal “to accelerate the existing progress and enhance a market 

environment that will accelerate [health information exchange] across providers . . . .” 
 11 

(78 FR 14795). 

We believe that it is reasonable and appropriate to link the deeming provision to 

ONC’s certification criteria and standards because of ONC’s expertise and its public 

process for considering and implementing its criteria and standards. ONC is the agency 

within the Department with expertise in determining the relevant criteria and standards to 

ensure that software is as interoperable as feasible given the prevailing state of 

technology. ONC expects to revise and expand such criteria and standards incrementally 

over time to support greater interoperability of electronic health records technology. (See 

the September 4, 2012 final rule (77 FR 54269).) Additionally, we believe that utilizing 

ONC’s certification criteria and standards, which are implemented through a public 

process, affords the best opportunity for interested parties to comment on, understand, 

and ultimately implement those criteria and standards. Therefore, we are not adopting 

the commenter’s suggestion. 

 Comment: One commenter stated that many electronic health records systems 

lack the capabilities to function within a patient-centered medical home. The commenter 

suggested that we finalize policies that further strengthen the use of core electronic health 

records features. 

Response: We are not adopting the commenter’s suggestion. As discussed, ONC 

is the agency within the Department with expertise in determining the relevant criteria 

and standards for electronic health records technology, including those related to the use 

of core features. The public process through which ONC’s certification criteria and 

standards are implemented affords the best opportunity for interested parties to comment 
 12 

on, understand, and ultimately implement those criteria and standards. 

Comment: Of the commenters that addressed the deeming provision, most 

supported our proposal to modify the timeframe within which donated software must 

have been certified to track more closely the current ONC certification program. 

Commenters asserted that aligning the exception’s certification timeframe with ONC’s 

certification program will provide donors and physician recipients more certainty about 

the deemed status of donated software because the software must be certified to meet 

only one set of standards on the same certification cycle to comply with both ONC’s 

certification criteria and the deeming provision of the exception. One commenter 

supported the modification, but suggested that the 12-month certification timeframe also 

be retained or, alternatively, that we allow software to be deemed to be interoperable if it 

has been certified to any edition of ONC’s electronic health record certification criteria. 

Response: We agree that aligning the exception’s certification timeframe with 

ONC’s certification program provides more certainty to donors and physician recipients. 

 We believe that the modification we are making to the requirement at § 411.357(w)(2) 

will support the dual goals of the deeming provision: (1) to ensure that donated software 

is as interoperable as feasible given the prevailing state of technology at the time it is 

provided to the physician recipient; and (2) to provide donors and physician recipients a 

means to have certainty that donated software satisfies the interoperability requirement of 

the exception. 

We are not persuaded to adopt the commenter’s suggestion to retain the 12-month 

certification timeframe, as this would not ensure that software is certified to the current 
 13 

required standard of interoperability. In the course of evaluating the commenter’s 

suggestion, however, we realized that our proposed regulatory text may be too narrow to 

satisfy the dual goals of the deeming provision. Under our proposed regulatory text, 

software would be deemed interoperable if it was certified to an edition2 of certification 

criteria referenced in the then-applicable definition of “Certified EHR Technology” at 45 

CFR 170.102. That definition applies only to the Medicare and Medicaid Electronic 

Health Record Incentive Programs (the EHR Incentive Programs). See generally, 42 

CFR part 495. However, ONC also has the authority to adopt into its regulations in 45 

CFR part 170 certification criteria for health information technology, including electronic 

health records, that may not be referenced in the definition of “Certified EHR 

Technology” because they are not related to the EHR Incentive Programs. If we finalize 

the proposed regulatory text, software certified to criteria in editions not included in the 

definition “Certified EHR Technology” would not be eligible for deeming under the 

exception. Further, we have recently learned that ONC intends to retire outdated editions 

of certification criteria by removing them from the regulatory text in 45 CFR part 170. 

Accordingly, software certified to an edition identified in the regulations in effect on the 

date of the donation would be certified to a then-applicable edition, regardless of whether 

the particular edition was also referenced in the then-applicable definition of Certified 

EHR Technology. Thus, we are finalizing revisions to § 411.357(w)(2) to track more 

closely ONC’s certification program in the deeming provision. We are finalizing a 

modification to our regulatory text to provide that software is deemed to be interoperable 

 

2 ONC has recently begun characterizing sets of adopted certification criteria as “editions.” 
 14 

if, on the date it is provided to the physician recipient, it has been certified by a certifying 

body authorized by the National Coordinator for Health Information Technology to an 

edition of the electronic health record certification criteria identified in the thenapplicable version of 45 CFR part 170. We believe that this is consistent with our intent, 

as articulated in the proposed rule, to modify the deeming provision by removing the 

12-month timeframe and substituting a provision that more closely tracks ONC’s 

certification program. Further, we believe that the regulatory text, as modified, will 

support the goals of the deeming provision described previously. 

Comment: One commenter suggested that, for deeming purposes, we should 

require that software be certified to the latest edition of electronic health record 

certification criteria rather than any edition then applicable. This commenter also 

suggested that the electronic directory of service (e-DOS) standard should be a 

certification requirement for donated software, and asserted that both recommendations 

would help ensure electronic health records software is interoperable. 

Response: We decline to adopt the commenter’s suggested requirements for the 

exception at § 411.357(w). We believe that requiring donated software to be certified to 

editions that are adopted and not yet retired by ONC through its certification program 

ensures that the software is certified to interoperability standards updated regularly by the 

agency of the Department with the relevant expertise. Further, adding requirements to 

the ONC certification criteria and standards is outside the scope of this rulemaking. 

Therefore, we are not implementing the commenter’s suggestions. 
 15 

B. The Electronic Prescribing Provision

 At § 411.357(w)(11), our current electronic health records exception specifies that 

the donated software must “contain [] electronic prescribing capability, either through an 

electronic prescribing component or the ability to interface with the physician’s existing 

electronic prescribing system that meets the applicable standards under Medicare Part D 

at the time the items and services are provided.” In the preamble to the August 2006 

final rule (71 FR 45153), we stated that we included “this requirement, in part, because of 

the critical importance of electronic prescribing in producing the overall benefits of 

health information technology, as evidenced by section 101 of the [Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173].” We 

also noted that it was “our understanding that most electronic health records systems 

already include an electronic prescribing component” (71 FR 45153). 

We continue to believe in the critical importance of electronic prescribing. 

However, in light of developments since the August 2006 final rule, we proposed to 

delete from the exception the requirement at § 411.357(w)(11). Based on our review of 

the public comments and for the reasons stated in the proposed rule, we are finalizing our 

proposal to eliminate the requirement that electronic health records software contain 

electronic prescribing capability in order to qualify for protection under the exception at 

§ 411.357(w). 

Comment: Two commenters disagreed that it is no longer necessary to require 

the inclusion of electronic prescribing capability in donated electronic health records 

software. One of the commenters stated that it was encouraged by the growth in the 
 16 

number of physicians using electronic prescribing between 2008 and 2012, but believed 

that the requirement should remain for patient safety reasons because electronic 

prescribing is critical to lowering the incidences of preventable medication errors. 

Response: Like the commenters, and as we stated in the proposed rule 

(78 FR 21311), we believe in the importance of electronic prescribing. However, we are 

persuaded that other existing policy drivers, many of which did not exist in August 2006 

when the exception was promulgated, sufficiently support the adoption of electronic 

prescribing capabilities. We do not want to undermine important public policy goals by 

requiring redundant and sometimes expensive software capabilities that may not 

contribute to the interoperability of a given system. As we discussed in the proposed 

rule, electronic prescribing technology will remain eligible for donation under the 

electronic health records exception or under the electronic prescribing exception at 

§ 411.357(v). We do not believe that removing this requirement would increase the risk 

of fraud or abuse posed by donations made pursuant to the exception. 

Comment: Many commenters supported our proposal to eliminate the 

requirement that donated software must include electronic prescribing capability at the 

time it is provided to the physician recipient, agreeing that developments since the 

promulgation of the exception make it unnecessary to retain this requirement. One of the 

commenters asserted that the goal of the requirement for the inclusion of electronic 

prescribing technology in donated electronic health records software—that is, increasing 

the use of electronic prescribing—had been achieved through the electronic prescribing 

incentive program authorized by the Medicare Improvements for Patients and Providers 
 17 

Act of 2008. 

Response: We appreciate the commenters’ support and, for the reasons explained 

in more detail previously in this final rule, we are eliminating the requirement at 

§ 411.357(w)(11) that donated electronic health records software must contain electronic 

prescribing capability, either through an electronic prescribing component or the ability 

to interface with the physician’s existing electronic prescribing system that meets the 

applicable standards under Medicare Part D at the time the items and services are 

provided. 

C. The “Sunset” Provision

 Protected donations under the current electronic health records exception must be 

made on or prior to December 31, 2013. In adopting this requirement of the electronic 

health records exception, we acknowledged in the August 2006 final rule (71 FR 45162), 

“that the need for donations of electronic health records technology should diminish 

substantially over time as the use of such technology becomes a standard and expected 

part of medical practice.” 

 As we discussed in the proposed rule, although the industry has made great 

progress in the adoption and meaningful use of electronic health records technology, the 

use of such technology has not yet been adopted nationwide. Continued use and further 

adoption of electronic health records technology remains an important goal of the 

Department. We continue to believe that, as progress on this goal is achieved, the need 

for an exception for donations of electronic health records items and services should 

continue to diminish over time. Accordingly, we proposed to extend the expiration date 
 18 

of the exception to December 31, 2016, selecting this date for the reasons described in 

the proposed rule (78 FR 21311). We also specifically sought comment on whether we 

should, as an alternative, select a later expiration date and what that date should be. For 

example, we stated that we were considering an expiration date of December 31, 2021 

(78 FR 21311). In response to comments, we are extending the expiration date of the 

exception to December 31, 2021. 

 Comment: Numerous commenters urged us to make permanent the exception at 

§ 411.357(w). According to these commenters, a permanent exception could: (1) provide 

certainty with respect to the cost of electronic health records technology for physicians; 

(2) encourage adoption by physicians who are new entrants into medical practice or have 

postponed adoption based on financial concerns regarding the ongoing costs of 

maintaining and supporting an electronic health records system; (3) encourage adoption 

by providers and suppliers that are not eligible for incentive payments through the 

Medicare and Medicaid programs; and (4) preserve the gains already made in the 

adoption of interoperable electronic health records technology, especially where hospitals 

have invested in health information technology infrastructure through protected 

donations of such technology. According to some commenters, although the exception 

was implemented to encourage the adoption of health information technology, it is now a 

necessity for the creation of new health care delivery and payment models. Some 

commenters also stated their support for a permanent exception because the adoption of 

electronic health records technology has been slower than expected, and allowing the 

exception to expire in 2016 would adversely affect the rate of adoption. Some of these 
 19 

commenters requested that, if CMS is not inclined to make the exception permanent, we 

extend the availability of the exception through the latest date noted in the proposed 

rule—December 31, 2021. 

Response: We agree with the commenters that the continued availability of the 

exception at § 411.357(w) plays a part in achieving the Department’s goal of promoting 

electronic health records technology adoption. However, we do not believe that making 

the exception permanent is required or appropriate at this time. The permanent 

availability of the exception could serve as a disincentive to adopting interoperable 

electronic health records technology in the near-term. Moreover, as described in the 

proposed rule (78 FR 21312) and elsewhere in this final rule, we are concerned about 

inappropriate donations of electronic health records items and services that lock in data 

and referrals between a donor and physician recipient, among other risks. A permanent 

exception might exacerbate these risks over the longer term without significantly 

improving adoption rates. However, in light of other modifications we are making in this 

final rule to mitigate such ongoing risks, including removing laboratory companies as 

protected donors of electronic health records items and services, we are persuaded to 

permit use of the exception for more than the additional 3-year period that we proposed. 

The adoption of interoperable electronic health records technology still remains a 

challenge for some providers and suppliers despite progress in its implementation and 

meaningful use since the August 2006 promulgation of the exception at § 411.357(w). 

(See ONC’s Report to Congress on Health IT Adoption (June 2013) at 

http://www.healthit.gov/sites/default/files/rtc_adoption_of_healthit_and_relatedefforts.pd
 20 

f and the U.S. Department of Health and Human Services Assistant Secretary for 

Planning and Evaluation’s EHR Payment Incentives for Providers Ineligible for Payment 

Incentives and Other Funding Study (June 2013) at 

http://aspe.hhs.gov/daltcp/reports/2013/ehrpi.shtml.) Although we believe that the 

protection afforded by the exception encourages the adoption of such technology, its 

permanence is not essential to the achievement of widespread adoption. It is only one of 

a number of ways that physicians are incented to adopt electronic health records 

technology, including the incentives offered by the EHR Incentive Programs and the 

movement in the health care industry toward the electronic exchange of patient health 

information as a means to improve patient care quality and outcomes. 

Balancing our desire to encourage further adoption of interoperable electronic 

health records technology against our concerns about potential disincentives to adoption 

and the misuse of the exception to lock in referral streams, we are establishing a 

December 31, 2021 expiration date for the exception. We believe that this expiration 

date will support earlier adoption of electronic health records technology, provide a 

timeframe that aligns with the financial incentives for electronic health records adoption 

currently offered by the Federal government, and safeguard against foreseeable future 

fraud risks, while still providing adequate time for donors and physician recipients to 

maximize the financial incentives currently offered by the Federal government. 

Comment: Two commenters agreed that the availability of the exception at 

§ 411.357(w) should be extended, but not beyond December 31, 2016. One of these 

commenters asserted that a relatively short extension of the sunset date for the exception 
 21 

would allow a wider range of people to obtain access to health information technology 

services while not diminishing the incentive for providers to acquire, implement and 

standardize the necessary electronic health records systems. Another commenter 

supported our proposal to extend the availability of the exception through 

December 31, 2016, and encouraged us to consider an additional extension as that date 

approaches. One commenter suggested that we extend the availability of the exception 

for at least 6 years, although a shorter or longer time period could be established after 

review of adoption rates across the range of providers that may or may not be eligible for 

meaningful use incentives under the EHR Incentive Programs. Other commenters 

supported our alternative proposal to extend the availability of the exception through 

December 31, 2021, which corresponds to the statutory end of the Medicaid incentive 

program. These commenters noted that more remains to be done to promote electronic 

health records technology adoption, and suggested that maintaining the exception 

through this date will help maximize the incentives for eligible physicians to adopt 

electronic health records technology and thereby increase use of electronic health 

records. Two other commenters suggested tying the expiration of the exception to the 

corresponding date for assessing “penalties” under the Medicare EHR Incentive Program 

in order to align appropriately Federal regulation of electronic health records technology 

adoption and use. 

Response: We share the commenter’s concerns regarding diminishing incentives 

for providers to acquire, implement and standardize the necessary electronic health 

records systems. However, after consideration of all of the comments on this issue, we 
 22 

believe that an extension of the exception would advance the Department’s goals 

regarding the adoption of interoperable electronic health records technology and 

improvements in patient care, while providing an incentive for providers to adopt 

electronic health records technology in the near-term. Therefore, we are extending the 

availability of the exception at § 411.357(w) through December 31, 2021, which 

corresponds to the end of incentive payments under the Medicaid EHR Incentive 

Program. 

We note that the two commenters that suggested tying the expiration of the 

exception to the corresponding date for assessing penalties under the Medicare EHR 

Incentive Program appear to misunderstand the duration of the downward payment 

adjustments under this program, which will continue until an eligible participant adopts 

and meaningfully uses appropriate electronic health records technology. (For additional 

information, see the July 28, 2010 (75 FR 44448) final rule entitled “Medicare and 

Medicaid Programs; Electronic Health Record Incentive Program.”) The practical effect 

of the commenters’ suggestion would be to extend permanently the exception at 

§ 411.357(w). For the reasons stated elsewhere in this final rule, we do not believe that 

making the exception permanent is required or appropriate at this time, and we are not 

adopting the commenters’ suggestion. 

Comment: A few commenters expressed general support for extending the 

availability of the exception, but did not specify whether the extension should be for 3 

years, 8 years, or some other length of time. Commenters noted that failure to extend the 

availability of the exception would negatively impact the adoption of electronic health 
 23 

records technology, as well as its continued use. 

Response: As described previously, we are finalizing our alternative proposal to 

extend the exception through December 31, 2021. 

Comment: A number of commenters urged us to let the exception at 

§ 411.357(w) expire on December 31, 2013. Some of the commenters asserted that the 

exception permits the exact behavior the law was intended to stop, namely, referrals tied 

to financial relationships between physicians and entities furnishing DHS, in this case, 

entities that donate electronic health records items and services. Other commenters 

asserted that the exception permits “legalized extortion” or provides “legal sanction to 

trample the competition.” Another commenter asserted that the inclusion of “non-market 

factors” (that is, the influence of donors, rather than end users) in the decision to adopt 

electronic health records technology may result in lower quality products or services 

and/or higher costs, often with an adverse impact on technology adoption and innovation. 

 Still others asserted that, given the financial incentives that the government itself has 

provided, it is no longer necessary to spur the adoption of electronic health records 

technology through the underwriting of the cost of electronic health records technology 

by outside entities. 

Response: Although we appreciate the commenters’ concerns, we continue to 

believe that the exception serves to advance the adoption and use of interoperable 

electronic health records. However, we caution that a compensation arrangement 

involving the donation of electronic health records technology runs afoul of the physician 

self-referral law unless it satisfies each requirement of the exception at § 411.357(w). 
 24 

Arrangements that disguise the “purchase” or lock-in of referrals and donations that are 

solicited by the physician recipient in exchange for referrals would fail to satisfy the 

requirements of the exception. We disagree with the commenters that asserted that 

encouragement for the “underwriting” of electronic health records technology by 

organizations other than the government is no longer necessary, particularly in light of 

the developments in integrated patient care delivery and payment models. 

Comment: Numerous commenters suggested that the exception at § 411.357(w) 

should sunset as scheduled on December 31, 2013, but only with respect to laboratories 

and pathology practices, “ancillary service providers,” entities not listed in section 101 of 

the MMA (authorizing an exception for certain donations of electronic prescribing items 

and services), or entities that are not part of an accountable care organization or not 

integrated in a meaningful manner. 

Response: We consider these comments to be related to “protected donors” and 

address them in section III.D.1. of this final rule. 

D. Additional Proposals and Considerations 

1. Protected Donors 

As we discussed in the proposed rule, despite our goal of expediting the adoption 

of electronic health records technology, we have concerns about the potential for abuse of 

the exception by certain types of providers and suppliers (including suppliers of ancillary 

services that do not have a direct and primary patient care relationship and a central role 

in the health care delivery infrastructure). The OIG indicated that it has concerns related 

to the potential for laboratories and other ancillary service providers to abuse its safe 
 25 

harbor, as it has received comments suggesting that abusive donations are being made 

under the electronic health records safe harbor. In order to address these concerns, we 

proposed to limit the scope of protected donors under the electronic health records 

exception. 

In the proposed rule, we stated that we were considering revising the exception to 

cover only the MMA-mandated donors we originally proposed when the exception was 

first established: hospitals, group practices, prescription drug plan sponsors, and 

Medicare Advantage (MA) organizations. We stated that we were also considering 

whether other individuals or entities with front-line patient care responsibilities across 

health care settings, such as safety net providers, should be included, and, if so, which 

ones. Alternatively, we stated that we were considering retaining the current broad scope 

of protected donors, but excluding specific types of donors—suppliers of ancillary 

services associated with a high risk of fraud and abuse—because donations by such 

suppliers may be more likely to be motivated by a purpose of securing future business 

than by a purpose of better coordinating care for beneficiaries across health care settings. 

 In particular, we discussed excluding laboratory companies from the scope of 

permissible donors, as their donations have been the subject of complaints. We also 

discussed excluding other high-risk categories of potential donors, such as durable 

medical equipment (DME) suppliers and independent home health agencies. We sought 

comment on the alternatives under consideration, including comments (with supporting 

reasons) regarding particular types of providers or suppliers that should or should not be 

permitted to utilize the exception given its goals. 
 26 

Many commenters raised concerns about donations of electronic health records 

items and services by laboratory companies and strongly urged us to adopt our proposal 

to eliminate protection for such donations, either by excluding laboratory companies 

from the scope of protected donors (if we extend the availability of the exception), or by 

letting the exception sunset altogether. (For more detailed discussion of comments 

concerning the sunset provision, see section III.C. of this final rule.) Other commenters 

raised similar concerns, but did not suggest a particular approach to address them.

We carefully considered the comments that we received on this proposal and, 

based on the concerns articulated by commenters and the wide-ranging support from the 

entire spectrum of the laboratory industry (from small, pathologist-owned laboratory 

companies to a national laboratory trade association that represents the industry’s largest 

laboratory companies), we are finalizing our proposal to exclude laboratory companies 

from the types of entities that may donate electronic health records items and services 

under the exception. We believe this decision is consistent with and furthers our 

continued goal of promoting the adoption of interoperable electronic health records 

technology that benefits patient care while reducing the likelihood that the exception will 

be misused by donors to secure referrals. We also believe that our decision will address 

situations identified by some of the commenters involving physician recipients 

conditioning referrals for laboratory services on the receipt of, or redirecting referrals for 

laboratory services following, donations from laboratory companies. 

Comment: Many commenters raised concerns that, notwithstanding a clear 

prohibition in the exception, laboratory companies are, explicitly or implicitly, 
 27 

conditioning donations of electronic health records items and services on the receipt of 

referrals from the physician recipients of those donations or establishing referral quotas 

and threatening to require the physician recipient to repay the cost of the donated items or 

services if the quotas are not reached. Some commenters suggested that such quid pro 

quo donations, and donations by laboratory companies generally, are having a negative 

effect on competition within the laboratory services industry (including increased prices 

for laboratory services) and impacting patient care, as referral decisions are being made 

based on whether a laboratory company donated electronic health records items or 

services, not whether that company offers the best quality services or turnaround time. A 

few commenters also raised concerns that laboratory companies are targeting potential 

physician recipients based on the volume or value of their anticipated referrals. 

Response: The current requirement at § 411.357(w)(6) prohibits determining the 

eligibility of a physician recipient or the amount or nature of the items or services to be 

donated in a manner that directly takes into account the volume or value of referrals or 

other business generated between the parties. Accordingly, the quid pro quo

arrangements and targeted donations described by the commenters would not satisfy this 

requirement of the exception. Such arrangements are not consistent with the purpose of 

the exception and can result in the precise types of harm the physician self-referral law is 

designed to prevent, such as financial self-interest that may affect a physician’s medical 

decision making. We urge those with information about such arrangements to contact the 

OIG’s fraud hotline at 1-800-HHS-TIPS or visit 

https://forms.oig.hhs.gov/hotlineoperations/ to learn of other ways to report fraud. 
 28 

We appreciate the commenters’ support for our proposal to remove donations by 

laboratory companies from the protection of the exception. We believe that our decision 

to exclude laboratory companies from the scope of protected donors is the best way to 

encourage and facilitate the adoption of interoperable electronic health records 

technology without risk of program or patient abuse. 

Comment: Several commenters raised concerns about laboratory company 

arrangements with electronic health records technology vendors. The commenters 

described agreements involving laboratory companies and vendors that result in the 

vendors charging other laboratory companies high fees to interface with the donated 

technology or prohibiting other laboratory companies from purchasing the technology for 

donation to their own clients. One of the commenters also raised a concern that volume 

discount arrangements between laboratory companies and vendors of electronic health 

records technology are resulting in donations of electronic health records items and 

services that may not best suit the needs of the physician recipient. The commenter 

asserted that donor laboratory companies are pushing a particular vendor’s specific 

electronic health records system onto physician recipients because of the donor’s close 

relationship with the vendor. 

Response: Excluding potential competitors of the donor from interfacing with 

donated items or services, as described by the commenters, can result in data and referral 

lock-in. We discuss the issue of lock-in elsewhere in this final rule in more detail. We 

believe that our determination to exclude laboratory companies from the scope of 

protected donors will help address the data and referral lock-in risks posed by 
 29 

arrangements such as those described by the commenters. We also believe that the 

changes to § 411.357(w)(1) that we are finalizing regarding the types of entities that may 

donate electronic health records items and services will help address the commenter’s 

concern about the negative impact of relationships between laboratory companies and 

vendors on the selection of electronic health records technology by physicians. We 

stated in the August 2006 final rule that, although physician recipients remain free to 

choose any electronic health records technology that suits their needs, we do not require 

donors to facilitate that choice for purposes of the exception. However, as we also stated 

in the August 2006 final rule (71 FR 45157), our regulations require donors to offer 

interoperable products and donors must not impede the interoperability of any electronic 

health records software they decide to offer. Any agreement between a donor and a 

vendor that precludes or limits the ability of competitors to interface with the donated 

electronic health records software would raise significant questions regarding whether the 

donation meets the requirement at § 411.357(w)(3). 

Comment: Many commenters noted that several states—including Missouri, New 

Jersey, New York, Pennsylvania, Tennessee, Washington, and West Virginia—have 

prohibited or restricted donations of electronic health records technology by laboratory 

companies to address fraud and abuse concerns. Some of the commenters urged us to 

effectuate a similar prohibition or restriction by removing laboratory companies as 

potential donors under the exception. One of these commenters asserted that laboratory 

companies licensed in states that strictly prohibit them from donating to referring 

physicians all or part of the costs of electronic health records technology are put at a 
 30 

considerable disadvantage in the marketplace because of “the need for [electronic health 

records technology] subsidies to compete for business.” 

Response: We believe that our determination to exclude laboratory companies 

from the types of entities that may donate electronic health records items and services 

under the exception will address the fraud and abuse concerns referenced by the 

commenters. With respect to the commenter’s concern about being disadvantaged, we 

note that our decision to prohibit laboratory companies from utilizing the exception 

applies equally to all laboratory companies, regardless of their location. 

Comment: Several commenters, including a national laboratory trade association 

that represents the industry’s largest laboratory companies, took exception to what they 

perceived as an allegation that laboratory companies are solely responsible for 

problematic donations of electronic health records items and services. Some of these 

commenters asserted that electronic health records technology vendors are encouraging 

physicians to seek or demand donations from laboratory companies, and that physicians 

are threatening to withhold referrals or send laboratory business elsewhere if donations 

are not made. According to one commenter, because physicians are not paying for a 

significant portion of the cost of these items and services, electronic health records 

technology vendors are able to charge high prices and the size of donations (in dollars) 

has increased exponentially in recent years. The commenter also suggested that vendors 

may be manipulating pricing to maximize the amount a laboratory company pays for 

donated items and services while minimizing or eliminating any physician responsibility. 

 Another commenter raised a related concern that electronic health records technology 
 31 

vendors have increased the costs of their products because they know that laboratories 

are paying for them. Generally, commenters raising concerns about the conduct of 

electronic health records technology vendors and physicians recommended that we 

remove laboratory companies from the universe of permissible donors under the 

exception. 

One commenter asserted that physicians are no longer choosing electronic health 

records technology based on which system is most appropriate, but rather based on which 

will produce the largest donation of items and services. Another commenter asserted that 

many physicians will change laboratory companies and seek a new donation once an 

existing donor laboratory company ceases to subsidize the physicians’ electronic health 

records technology costs. This commenter stated that such conversions to different 

electronic health records technology are not only inefficient, but undermine the spirit of 

the regulatory requirement that physicians do not possess the same or equivalent items or 

services as those being donated. 

Response: Our proposed modification related to the universe of donors 

potentially covered under the exception; thus, the focus of our discussion in the proposed 

rule was on donor conduct. Some of the comments we describe in this final rule also 

raise concerns about the conduct of physician recipients. In response, we are clarifying 

that we do not believe that problematic donations involving laboratory companies are 

solely the result of questionable conduct by laboratory companies. We believe that our 

decision to exclude laboratory companies from the universe of protected donors is the 

best way to reduce the risk of misuse of the exception at this time and addresses the 
 32 

concerns identified by the commenters. 

We note that § 411.357(w)(5) prohibits the physician recipient and the physician 

recipient’s practice from making the receipt, amount or nature of the donated items or 

services a condition of doing business with the donor. This provision recognizes the 

program integrity risk posed by a potential physician recipient who demands a donation 

in exchange for referrals. This type of quid pro quo arrangement is no less troubling than 

quid pro quo arrangements that originate with the donor and would not satisfy the 

requirements of the exception. Whether a quid pro quo donation is for an initial 

installation of a donated item or service or a conversion to a different donated item or 

service would not change our analysis. Additionally, we caution those engaging in 

conversion arrangements to be mindful of the limitations in the exception at § 

411.357(w)(8) concerning the donation of equivalent items or services. 

Comment: Several commenters suggested that laboratory companies should be 

prohibited from donating electronic health records items and services to physicians or 

that physicians should pay for their own electronic health records technology. Other 

commenters asserted that laboratory companies do not share an essential interest in their 

referring clients having electronic health records technology. Still other commenters 

stated simply that laboratory companies represent a high risk of fraud and abuse. 

Response: Based on the complaints previously received by OIG, which are 

described in more detail in the proposed rule, and the information provided by the 

commenters regarding some of the arrangements between laboratory companies and 

physician recipients of donated electronic health records items and services, we agree 
 33 

that donations of electronic health records items and services by laboratory companies 

present a high risk of fraud and abuse. Exceptions promulgated using our authority under 

section 1877(b)(4) of the Act may provide protection from the physician self-referral 

law’s prohibitions only for those financial relationships that pose no risk of program or 

patient abuse. We do not believe that continuing to permit laboratory companies to make 

protected donations under the exception at § 411.357(w) would meet this standard. 

Therefore, we are modifying the requirements of the exception to eliminate laboratory 

companies from the types of entities that may provide donations under the exception. We 

do not agree with the commenters that laboratory companies necessarily do not have an 

essential interest in their referring clients having electronic health records technology. It 

is the behavior of laboratory companies and physician recipients of donations from 

laboratory companies of which we are aware that drives our determination to finalize our 

proposal to eliminate laboratory companies from the types of entities that may provide 

donations under the exception. 

Comment: A few commenters noted that, rather than electronic health records, 

laboratory companies typically use a laboratory information system (LIS), anatomic 

pathologist information system, and/or blood banking system to store and share patients’ 

laboratory results, and that these systems should not be confused with an electronic 

health record that includes a patient’s full medical record comprised of information from 

many medical specialties, including pathology. One of these commenters asserted that 

laboratories already bear the cost of establishing LIS interfaces that they provide to 

physicians in order to exchange laboratory services data electronically, and that clinical 
 34 

and anatomic laboratories could continue to do so legally even if they were no longer 

protected donors under the exception. One commenter lamented the costs associated 

with interfaces, other commenters requested that CMS clarify its position on the donation 

of interfaces by laboratory companies, and one commenter asserted that interfaces were 

not analogous to facsimile machines, which we have stated in the past may be provided 

to physicians under certain circumstances. 

Response: We appreciate the general information provided by the commenters 

regarding the various types of technology that laboratory companies generally use or do 

not use. The more relevant technology in the laboratory setting is the interface that 

exchanges data electronically between the laboratory and its referral sources. These 

comments provide us an opportunity to discuss more fully our position on the donation of 

interfaces by laboratory companies. 

Our decision to exclude laboratory companies from the universe of protected 

donors under the exception does not affect our interpretation of the physician self-referral 

law as it relates to whether the provision of an item or service qualifies as “remuneration” 

that establishes a compensation arrangement that implicates the law’s referral and billing 

prohibitions. In section 1877(h)(1)(A) of the Act, “compensation arrangement” is 

defined as “any arrangement involving any remuneration” between a physician (or an 

immediate family member of such physician) and an entity furnishing DHS. Section 

1877(h)(1)(B) of the Act defines “remuneration” to include “any remuneration, directly 

or indirectly, in cash or in kind.” However, under section 1877(h)(1)(C) of the Act, 

“remuneration” does not include “the provision of items, devices, or supplies that are 
 35 

used solely to: (i) collect, transport, process, or store specimens for the entity providing 

the item, device, or supply; or (ii) order or communicate the results of tests or procedures 

for such entity.” Therefore, the provision of such items, devices or supplies does not 

result in a compensation arrangement that implicates the physician self-referral law’s 

referral and billing prohibitions. We discussed this further in CMS Advisory Opinion 

2008-01, which can be found at http://www.cms.gov/Medicare/Fraud-andAbuse/PhysicianSelfReferral/Downloads/CMS-AO-2008-01.pdf. Accordingly, the 

provision of certain interfaces, such as those described by the commenters, need not 

satisfy the requirements of § 411.357(w). 

We disagree with the commenter that asserted that interfaces are not sufficiently 

analogous to facsimile machines. We believe that a limited-use interface (as described 

previously) is the contemporary analog to the limited-use computer or facsimile 

described in the example from the 1998 proposed rule preamble (63 FR 1693 and 1694 

(January 9, 1998)). Moreover, the mode of technology is not restricted by the language 

of section 1877(h)(1)(c) of the Act nor is its cost, which is, in any event, outside the 

scope of this rulemaking. 

Comment: Several commenters inquired whether our proposal to prohibit use of 

the exception for donations of electronic health records items and services by laboratory 

companies would apply to suppliers of both anatomic and clinical pathology services, 

and suggested that our proposal should apply to both. Commenters also inquired about 

the application of this proposal to hospitals that operate laboratory companies for 

non-hospital affiliated customers. Raising concerns about an uneven playing field, some 
 36 

of these commenters urged us to exclude such hospitals from the universe of protected 

donors if we determined to exclude laboratory companies. One commenter suggested 

that we effectuate this limitation by restricting protected hospital donations to those made 

to the hospital’s employed physicians and the hospital’s wholly-owned physician 

practices. 

Response: Our proposal applied to “laboratory companies” and did not 

distinguish between those that provide anatomic pathology services and those that 

provide clinical pathology services. We intend that references to “laboratory company” 

or “laboratory companies” include entities that furnish both types of DHS. 

With respect to the commenters’ suggestion to limit or prohibit hospital donations 

of electronic health records items and services, we appreciate the concerns articulated by 

the commenters, but are not adopting their suggestion at this time. We continue to 

believe that hospitals have a substantial and central stake in patients’ electronic health 

records. Further, the types and prevalence of the concerns that have been brought to the 

OIG’s attention and discussed elsewhere in this final rule about donations by laboratory 

companies have not arisen, to our knowledge, in the hospital-donation context. 

We are also clarifying that, if a hospital furnishes clinical laboratory services 

through a laboratory that is a department of the hospital for Medicare purposes (including 

cost reporting), and the hospital bills for the services through the hospital’s provider 

number, then the hospital would not be a “laboratory company” and would continue to 

qualify as a protected donor under the modified exception. However, if a 

hospital-affiliated or hospital-owned company with its own supplier number furnishes 
 37 

clinical laboratory services that are billed using a billing number assigned to the company 

and not to the hospital, the company would be a “laboratory company” and would no 

longer qualify as a protected donor. The ability of the affiliated hospital to avail itself of 

the exception would be unaffected. We remind readers that it is the substance, not the 

form, of an arrangement that governs under the physician self-referral law. 

Comment: One commenter requested that, if we finalize our proposal to exclude 

laboratory companies from the universe of protected donors, we specifically clarify that 

“[laboratory companies] are prohibited from providing [ ] software to physicians unless 

they comply with another one of the existing exceptions.” The commenter went on to 

cite examples of software leases and sales at fair market value that could potentially 

qualify for protection under an exception other than the one at § 411.357(w). 

Response: We decline the commenter’s invitation to make this clarification. 

Exceptions set forth specific requirements that, if satisfied, assure the parties involved 

that physician referrals to the entity for DHS are not prohibited and that the entity may 

bill Medicare for the services furnished pursuant to those physician referrals. As we have 

stated in prior rulemakings, an arrangement need not satisfy the requirements of a 

particular exception. Rather, the parties to an arrangement may avail themselves of any 

applicable exception to protect the physician’s referrals to the DHS entity with which he 

or she (or an immediate family member) has a financial relationship. 

Comment: One commenter shared its concerns about a practice that it described 

as “post-donation in-sourcing.” The commenter stated that it is aware of situations in 

which laboratory companies are donating electronic health records technology to 
 38 

referring physicians only to have those physicians in-source their laboratory services 

shortly after the donation. The commenter suggested that the donations enable referring 

physicians to avoid bearing the full cost of electronic health records technology without 

continued referrals to the donating laboratory company. 

Response: We are not modifying the exception to address the commenter’s 

concern. We remind stakeholders that the exception does not require the physician 

recipient to make referrals to the donor. To the contrary, § 411.357(w)(5) prohibits the 

physician recipient and his or her practice from making the receipt, amount, or nature of 

the donated items or services a condition of doing business with the donor. Moreover, 

§ 411.357(w)(6) prohibits determining the eligibility of a physician recipient or the 

amount or nature of the items or services to be donated in a manner that directly takes 

into account the volume or value of referrals or other business generated between the 

parties. Whether protection is afforded under the exception to the types of arrangements 

described by the commenter will depend on whether all of the requirements of the 

exception are satisfied. 

Comment: Two commenters raised issues regarding the type of remuneration 

permissible under the exception at § 411.357(w). One commenter characterized the 

exception as allowing laboratory companies to donate funds to physician recipients to 

help them implement electronic health records technology. Another commenter noted 

that some donations from laboratory companies have included hardware. 

Response: We remind stakeholders that the exception at § 411.357(w) applies 

only to the donation of nonmonetary remuneration (in the form of software or 
 39 

information technology and training services) necessary and used predominantly to 

create, maintain, transmit, or receive electronic health records. As stated in the preamble 

to the August 2006 final rule (71 FR 45161), reimbursement for previously incurred 

expenses is not protected, as it poses a substantial risk of program and patient abuse. We 

also remind stakeholders that the exception does not protect the donation of hardware. 
 40 

Comment: Although the majority of commenters supported excluding laboratory 

companies from the types of entities that may donate electronic health records items and 

services under the exception, some commenters made other recommendations related to 

protected donors. A number of commenters recommended that we maintain our current 

scope of protected donors; that is, allow any entity (as defined at § 411.351) to provide 

electronic health records items and services to a physician. Some of these commenters 

stated that limiting the scope of protected donors could have an impact on specialists, 

who, according to the commenters, still have relatively low rates of electronic health 

records adoption. Along the same lines, one commenter stated that limiting the 

categories of donors that may seek protection under the exception will negatively impact 

physician recipients by preventing certain entities from helping to move the entire 

healthcare system toward more interoperable electronic health record systems. Others 

cautioned that restricting the universe of permissible donors will stymie innovation and 

restrict learning from the technology. Finally, some commenters contended that 

laboratory companies and other ancillary service providers have a legitimate clinical 

interest in donating electronic health records technology and that many physician 

practices depend on it. 

Some commenters, while acknowledging our concerns regarding abusive 

donation practices, suggested alternative means to address the concerns we articulated in 

the proposed rule. These commenters variously recommended that we strengthen 

interoperation requirements, provide physician education materials, or adopt enforcement 

policies to prevent abuses rather than limiting the universe of potential donors of 
 41 

electronic health records items and services. 

Response: We agree with many of the reasons articulated by the commenters 

supporting a fully expansive universe of protected donors under the exception. We 

recognize that limiting the universe of potential donors could constrain the ability of 

many physicians to adopt electronic health records technology. However, we are 

persuaded by the commenters that cited examples or patterns of program abuse by 

laboratory companies and are amending the exception to limit permissible donors under 

§ 411.357(w) by excluding laboratory companies. Other than with respect to laboratory 

companies, the universe of protected donors will remain the same. We will continue to 

monitor and may, prior to the end of 2021, reconsider in a future rulemaking the risk of 

program or patient abuse relating to the use of the exception by other donors or 

categories of donors. 

We appreciate the suggestions from commenters regarding alternative means of 

addressing abusive donation practices. However, our authority under section 1877(b)(4) 

of the Act permits us to establish exceptions to the physician self-referral law only where 

protected financial relationships would pose no risk of program or patient abuse. We do 

not believe that adopting the commenters’ alternative suggestions for addressing our 

concerns would meet this standard. 

Comment: We received a number of comments requesting that we retain certain 

categories of providers and suppliers within the universe of permissible donors of 

electronic health records items and services under the exception at § 411.357(w). For 

example, commenters that provide dialysis services specifically requested that they 
 42 

remain protected donors. One of the dialysis-provider commenters noted that excluding 

this specialty would have a chilling effect on the development and availability of the 

specialized electronic health records systems used by nephrologists. A few commenters 

requested that we continue to include hospitals and health systems as protected donors in 

order for them to retain the ability to assist physicians in adopting electronic health 

records technology. Other commenters requested that we explicitly retain home health 

agencies as permissible donors. In support of retaining home health agencies, one 

commenter stated that the depth, breadth, and frequency of communications between 

home health agencies and other direct care providers makes the use of interoperable 

electronic health records technology essential to improving clinical outcomes and 

financial efficiencies. We also received comments in support of retaining safety net 

providers and pharmacies as protected donors. 

Response: We agree generally with the thrust of these comments. We recognize 

the value of permitting entities that participate directly in the provision of health care to 

patients and that have a need to coordinate with care providers to donate electronic health 

records items and services to facilitate those interactions. We take no action in this final 

rule to prohibit entities other than laboratory companies from utilizing the exception. 

Comment: Some commenters agreed with the option we presented in the 

proposed rule to retain the ability of any DHS entity to donate electronic health records 

items and services, except suppliers of ancillary services associated with a high risk of 

fraud and abuse. A few of these commenters suggested that a targeted approach would 

minimize the risk of unintended consequences. One of these commenters asserted that 
 43 

we should exclude the particular individuals or entities that have been the subject of 

complaints. Another of these commenters specifically recommended that we target 

categories of suppliers with a history or pattern of abusive behavior. 

Other commenters variously recommended excluding laboratories, DME 

suppliers, home health agencies, or safety net providers from the types of entities that 

may donate electronic health records items and services under the exception. One 

commenter asserted that entities like laboratory companies and DME suppliers do not 

have an overarching and essential interest in having physicians use electronic health 

records, nor do they coordinate the patient’s care. In contrast, one commenter objected to 

singling out a provider or supplier type to exclude from the scope of protected donors. 

This commenter stated that such an action unjustly: (1) penalizes a whole category of 

providers or suppliers when most, in the commenter’s assessment, are law-abiding; and 

(2) supports other providers or suppliers that may have similar motivations. 

Response: We respond elsewhere in this final rule to the commenters who 

expressly recommended removing only laboratory companies from the universe of 

permissible donors. With respect to the other commenters, we note that, in the proposed 

rule (78 FR 21312), we specifically requested comments, “with supporting reasons,” 

regarding whether particular provider or supplier types should be prohibited from 

utilizing the exception at § 411.357(w). Some commenters suggested that we prohibit 

other types of entities from donating electronic health records items and services under 

the exception, but the comments did not provide specific examples of abusive practices 

with respect to donations of electronic health records items and services by such donors, 
 44 

nor did the comments indicate problems with other types of entities comparable to those 

that are arising in the context of laboratory companies. Finally, we do not agree with the 

commenters that laboratory companies, DME suppliers, home health agencies, safety net 

providers, or, for that matter, any other “ancillary” service providers necessarily do not 

have an overarching and essential interest in having physicians use electronic health 

records, or that they do not coordinate the patient’s care. It is the behavior of laboratory 

companies and physician recipients of donations from laboratory companies of which we 

are aware that drives our determination to finalize our proposal to exclude laboratory 

companies from the types of entities that may provide donations under the exception. We 

have not heard the same concerns about other categories of donors or types of donation 

arrangements and, therefore, believe it is premature to exclude potential donors (other 

than laboratory companies). We also decline to identify particular individuals or 

organizations in the regulation. 

Comment: A few commenters recommended restricting the entities that may 

donate electronic health records items and services under the exception to those types 

listed in the MMA. These commenters also suggested imposing additional restrictions on 

donations from this limited universe of donors. For example, one commenter 

recommended limiting the application of the exception to hospitals and providers 

operating in an integrated setting and to MA plans and providers under contract with 

them. Another commenter suggested limiting the application of the exception to a 

similar integration model, and to hospitals that donate electronic health records items and 

services to their employed physicians and the physician groups that they own. In 
 45 

contrast, one commenter suggested that limiting the protected donor types to the original 

MMA list would be too restrictive. The commenter believed that some provider types 

not listed in the MMA should have the opportunity to make donations (for example, 

ambulatory surgical centers that now perform many procedures previously only 

performed in hospitals). 

Response: We agree that providers and suppliers operating in an integrated 

environment need interoperable electronic health records. However, we do not believe 

that the need for this technology is limited to those individuals and entities in an 

integrated care setting. Patients may receive care from providers and suppliers that are 

not in the same integrated system, and the patient’s medical records need to be shared 

with those providers and suppliers that also care for the patient. The Department’s goal 

continues to be fostering broad adoption of interoperable electronic health records 

technology. In furtherance of that goal, we seek to limit the applicability of the exception 

vis-à-vis permissible donors only to the extent necessary to prevent program and patient 

abuse. At this time, we believe that excluding laboratory companies from the types of 

entities that may utilize the electronic health records exception, rather than limiting the 

universe of permissible donors to the MMA list of donors (or some other subset of 

permissible donors) strikes the right balance between furthering the Department’s goal 

and preventing program and patient abuse. 

2. Data Lock-In and Exchange 

We solicited comments on what new requirements could be added to, or how we 

could modify existing requirements of, the exception at § 411.357(w) in order to achieve 
 46 

our goals of: (1) preventing misuse of the exception that results in data and referral 

lock-in; and (2) encouraging the free exchange of data (in accordance with protections 

for privacy). Additionally, we requested comments on whether such requirements, if 

any, should be in addition to, or in lieu of, our proposal to limit the entities whose 

donations of electronic health records items and services may qualify for protection under 

the exceptions. Finally, we solicited comments on possible modifications to 

§ 411.357(w)(3), which requires that, in order to qualify for the protection of the 

exception, “[t]he donor (or any person on the donor’s behalf) does not take any action to 

limit or restrict the use, compatibility, or interoperability of the items or services with 

other electronic prescribing or electronic health records systems.” We solicited these 

comments to explore whether this requirement could be modified to reduce the 

possibility of data and referral lock-in. 

 Comment: Many commenters asserted that the current requirements of the 

exception provide adequate safeguards to prevent donations of electronic health records 

items and services that result in data or referral lock-in between the donor and physician 

recipient. These commenters expressed general support for the investigation of 

arrangements that may not satisfy the requirements of the exception. Several of these 

commenters were also concerned that adding or modifying requirements may increase the 

burden of compliance and, therefore, lead to fewer entities willing to make appropriate 

donations of electronic health records items and services. 

Response: In general, we agree with these commenters. We are not persuaded to 

adopt significant new requirements or modifications to the exception to address the issue 
 47 

of data or referral lock-in. In addition, we do not wish to take any action that 

inadvertently discourages donors and physician recipients from entering into appropriate 

donation arrangements. However, we are making limited clarifications to 

§ 411.357(w)(3) to reflect our intended meaning of this requirement and our 

interpretation of existing requirements for interoperability as it pertains to potential data 

or referral lock-in. We also remain committed to assisting our law enforcement partners 

in the investigation of potentially abusive arrangements that purport to satisfy the 

requirements of the exception but, in fact, do not. 

Comment: Several commenters expressed concerns about donations of electronic 

health records items and services that lead to data lock-in. As described elsewhere in this 

final rule, some commenters suggested that, although some donated electronic health 

records software has the ability to be interoperable, vendors may charge providers who 

do not use the same donated software high fees to interface with it. The commenters 

contended that these business practices result in electronic health records software that is 

not practically interoperable because non-donor providers cannot afford to connect to the 

donated electronic health records items and services. Other commenters expressed 

general concerns that donated electronic health records items or services are capable of 

interoperation, but that physician recipients implicitly agree to send referrals using the 

technology only to the donor. These commenters did not provide specific 

recommendations to modify the data lock-in requirements of the exception, but generally 

supported our efforts to prevent data lock-in. 

Two commenters representing laboratory companies expressed specific concerns 
 48 

about a feature of donated software that may lead to data lock-in. These commenters 

explained that some software is designed to limit the accessibility of data that is received 

from an electronic health records system that is different than the donated software. 

Most often, data sent from the non-donated electronic health records system cannot 

populate automatically in a patient’s electronic health record or other limits are placed on 

the portability of data sent from the non-donated electronic health records system. 

According to these commenters, the limited accessibility of the data makes it harder for 

the physician recipient to access and use it for clinical purposes. As a result, a physician 

recipient is more likely to utilize only the donor’s services to make sure that necessary 

data is easily accessible. These commenters asserted that there are no technical solutions 

to reducing the possibility of data lock-in; rather, the only solution is to remove 

laboratory companies from the types of entities whose donations may be protected under 

§ 411.357(w). 

Several other commenters generally endorsed our efforts to prevent data and 

referral lock-in. These commenters evidenced strong support for the free exchange of 

health information across different provider types to better coordinate care for patients. 

However, apart from supporting our efforts to ensure that electronic health records 

systems are interoperable, the commenters made no specific recommendations regarding 

modifications to the exception. 

Response: We share the commenters’ concerns about the interoperability of 

donated electronic health records software. Arrangements involving the donation of 

electronic health records software that has limited or restricted interoperability due to 
 49 

action taken by the donor or by any person on the donor’s behalf (which could include 

the physician recipient acting on the donor’s behalf) would fail to satisfy the requirement 

at § 411.357(w)(3) and would be inconsistent with an important purpose of the exception, 

which is to promote the use of technology that is able to communicate with products from 

other vendors. For example, arrangements in which the donor takes an action to limit the 

use, communication, or interoperability of the electronic health records items or services 

by entering into an agreement with the physician recipient to preclude or inhibit any 

competitor from interfacing with the donated items or services would not satisfy the 

requirement of § 411.357(w)(3). Other donation arrangements described by the 

commenters in which electronic health records technology vendors charge high interface 

fees to non-recipient providers or competitors may also fail to satisfy the requirements of 

§ 411.357(w)(3). We believe that any action taken by a donor (or any person on behalf 

of the donor, including the electronic health records technology vendor or the physician 

recipient) to limit the use of the donated electronic health records items or services by 

charging fees to prevent non-recipient providers and the donor’s competitors from 

interfacing with the donated items or services would pose legitimate concerns that parties 

were improperly locking in data and referrals, and that the arrangement in question would 

not satisfy the requirements of the exception. However, whether a donation actually 

satisfies the requirements of the exception depends on the specific facts of the donation 

arrangement. 

Comment: One commenter expressed concern regarding data lock-in and 

supported ensuring that donations of electronic health records items and services are 
 50 

transparent and free of any attempts to steer future business. Although it denied 

knowledge of any specific abuse of the exception, the commenter requested that we allow 

individuals or entities to remedy noncompliance with the physician self-referral law due 

to a donation that may not be protected by the exception. The commenter suggested that 

the remedy for violation of the physician self-referral law due to an arrangement’s failure 

to satisfy the requirements of the exception at § 411.357(w) should be to make physician 

recipients pay the fair market value of any costs for ongoing support of the donated 

electronic health records items or services. The commenter suggested allowing 3 years 

for the physician recipient to either pay full value for the donated electronic health 

records items and services or transition to a new system. 

Response: We appreciate the commenter’s concern and recommendation; 

however, we decline to make the suggested modification. Implementing the 

commenter’s suggestions would be outside the scope of our statutory authority under 

section 1877(b)(4) of the Act to promulgate exceptions to the physician self-referral law 

that pose no risk of program or patient abuse. 

Comment: A few commenters urged us to amend the exception to require the 

physician recipient or the donor to participate in health information exchange with an 

electronic health records system that is different from the one donated. One commenter 

specifically suggested that the physician recipient should have to demonstrate exchange 

with at least one other electronic health records system within a certain timeframe after 

receipt of the donation. Another commenter suggested that the donor should have to—

upon request—enable the physician recipient of the donation to engage in bi-directional 
 51 

exchange of data with competitors not using the same electronic health records system. 

Response: We appreciate the commenters’ recommendations; however, we are 

not modifying the exception to require the parties to an arrangement for the donation of 

electronic health records items and services to demonstrate interoperation. We question 

whether adequate demonstration of interoperation could occur only after the donation has 

been made, which would create uncertainty about whether the donation satisfies the 

requirements of the exception. This uncertainty would undermine the Department’s 

broad goal for the exception—that is, to support widespread adoption of interoperable 

electronic health records technology. However, it is our intent and expectation that 

interoperation of donated items and services will, in fact, occur, and we believe the 

requirements of the exception, in their entirety, promote such interoperation. Moreover, 

routine interoperation with systems other than those of the donor may be evidence that 

neither the donor nor any person on the donor’s behalf has taken any action to limit or 

restrict the use, compatibility, or interoperability of the items or services with other 

electronic prescribing or electronic health records systems, as required under § 

411.357(w)(3). 

 Further, we note that the Department is considering a number of policies to 

accelerate and advance interoperability and health information exchange. As part of this 

process, ONC and CMS issued a notice requesting input from the public on possible 

policies and programmatic changes to accelerate electronic health information exchange 

among individuals and entities that furnish health care items and services, as well as new 

ideas that would be both effective and feasible to implement (78 FR 14793). We believe 
 52 

that the process through which ONC and CMS will jointly act is better-suited than this 

exception to consider and respond to evolving functionality related to the interoperability 

of electronic health records technology. The paper that addresses the public comments 

we received and outlines the Department’s strategy for accelerating health information 

exchange is available at: http://www.healthit.gov/policy-researchersimplementers/accelerating-health-information-exchange-hie. 

Comment: In response to our solicitation of comments, some commenters 

provided suggestions as to how we could broaden the current requirements related to data 

lock-in. Two commenters suggested amending § 411.357(w)(3), which prohibits the 

donor (or any person on the donor’s behalf) from taking any action to limit or restrict the 

use, compatibility, or interoperability of the items or services with other “electronic 

prescribing or electronic health records systems.” Specifically, the commenters 

suggested that we replace the reference to “electronic prescribing or electronic health 

records systems” with “health information technology platforms or other health care 

providers.” The commenters asserted that this proposed change reflects the development 

of health information technology that may not be classified as an electronic health 

records system, but supports the free exchange of health information. These two 

commenters also suggested that we modify § 411.357(w)(3) to state that neither the 

donor nor the physician recipient may take any action to limit the interoperability of 

donated electronic health records items or services and that we require that the modified 

condition be included as part of the written agreement required under § 411.357(w)(7). 

Another commenter suggested amending § 411.357(w)(3) by providing a 
 53 

non-exhaustive list of actions that would cause a donation not to satisfy this requirement 

and by establishing a process for entities to provide the Department with information 

about potential abuses of the exception. A representative of several health plans 

suggested modifying the exception to ensure that, in the context of health information 

exchange, the interoperability requirement of the exception requires that all key 

stakeholders, including health insurance plans, have access to the health information 

exchange. The commenter suggested that we modify the interoperability condition at 

42 CFR 411.357(w)(2) to prohibit restrictions on the communication and exchange of 

data with any covered entity as defined at 45 CFR 160.103. 

Response: The language in the existing regulatory text prohibits donors (or 

persons on the donor’s behalf) from taking any action to limit or restrict the use, 

compatibility, or interoperability of donated items or services with other “electronic 

prescribing or electronic health records systems.” The term “electronic prescribing or 

electronic health records systems” was intended to be broad in order to account for 

developments in the health information technology industry. Based on the commenters’ 

suggestions it appears, however, that stakeholders may have read this term more 

narrowly. This narrow reading is inconsistent with our intended meaning. We have 

always believed and continue to believe that an action taken by a donor (or on behalf of 

the donor) that limits the use, compatibility, or interoperability of donated items or 

services with any other health information technology may impede the free exchange of 

data and limit the ability of providers and suppliers to coordinate care, which is 

inconsistent with the goals of the exception. Therefore, we are clarifying 
 54 

42 CFR 411.357(w)(3) by adding, by way of example and without limitation, a 

non-exhaustive list of some of the forms of technologies that we believe are included 

within the meaning of the existing regulatory language. We are not adopting the 

commenters’ suggested edit, as we do not believe that it is necessary in light of our 

clarification. We also decline to modify 42 CFR 411.357(w)(2) to prohibit restrictions 

on the communication and exchange of data with any covered entity as defined at 

45 CFR 160.103. We believe that existing 42 CFR 411.357(w)(3), which we have 

clarified in this final rule as including health information technology applications, 

products, or services, promotes interoperability with a variety of providers and suppliers, 

as well as other health care entities that may play a role in the coordination of care, 

including health plans that operate health information technology applications, products, 

or services. 

We are also not adopting the commenters’ suggestion to modify the exception to 

state that neither the donor nor the physician recipient may take any action to limit the 

interoperability of donated electronic health records items or services. The requirement 

at § 411.357(w)(3) prohibits the donor (or any person on behalf of the donor) from taking 

any action that limits or restricts the use, compatibility, or interoperability of the donated 

electronic health records items or services. To the extent that a physician recipient takes 

an action on the donor’s behalf to limit the use, compatibility, or interoperability of 

donated items or services, that donation would fail to qualify for protection under the 

exception. Because we see no obvious reason, other than at the behest of the donor or as 

a condition of the donation, why a physician recipient would take action to limit the use, 
 55 

compatibility, or interoperability of donated items or services, we believe that any action 

of this type by a physician recipient would be suspect. We are not making the suggested 

modification because we believe the concern articulated by the commenters is already 

addressed by the existing regulatory language and the policies we are adopting in this 

final rule. Accordingly, we are not making any corresponding revisions to require that 

the recommended provision be incorporated into the written agreement required under 

§ 411.357(w)(7). 

Finally, we are not revising the exception to provide in regulation text examples 

of actions that may cause a donation not to satisfy the requirements of § 411.357(w)(3). 

Whether a donation satisfies the requirements of the exception requires a case-by-case 

analysis and depends on the specific facts of the donation. 

 Comment: One commenter objected to the use of the exception to address the 

issue of data lock-in. The commenter contended that data lock-in may arise in response 

to legitimate concerns, such as the Health Insurance Portability and Accountability Act 

(HIPAA) privacy and security rules, liability issues, licensing requirements, and antitrust 

issues. Further, according to the commenter, data lock-in conditions may cause 

uncertainty for donors because parties may not be able to determine whether a donation 

satisfies the requirements of the exception until after donation. 

Response: Nothing in this final rule is intended to prohibit legitimate actions 

taken to ensure that electronic health records items and services appropriately protect 

data, including measures to ensure the privacy and security of health information data. 

We recognize that there may be appropriate security, privacy and other business reasons 
 56 

to protect data. This final rule addresses only actions that inappropriately lock in data, 

for example, locking in data to secure future referrals. 

Comment: One commenter expressed support for preventing electronic health 

records data lock-in and the free exchange of data. However, the commenter did not 

agree that additional requirements designed to promote these goals would be effective. 

Instead, the commenter suggested that we adopt payment models that continue to foster 

care coordination activities. 

Response: We appreciate the commenter’s suggestion; however, changes to our 

payment models are outside the scope of the proposed rule. We note that, in our joint 

Request for Information, we and ONC solicited input on options for improving several 

different CMS payment models to support better the adoption of interoperable electronic 

health records technology (78 FR 14797). As noted earlier, the paper that addresses the 

public comments we received and outlines the Department’s strategy for accelerating 

health information exchange is available at: http://www.healthit.gov/policy-researchersimplementers/accelerating-health-information-exchange-hie. 

Comment: Two commenters suggested data lock-in could be limited by requiring 

electronic health records software to be open or “open source.” Both commenters 

asserted that open source software would limit data lock-in due to the transparent nature 

of open source software. In addition, it would lead to greater interoperability of 

electronic health records systems. One commenter also suggested that we require 

mandatory advance disclosure of the operational and business policies and practices 

associated with the electronic health records technologies. One commenter suggested 
 57 

that we adopt the e-DOS standard as certification criteria for electronic health records. 

Response: Although we share the commenters’ support for the free exchange of 

health information where appropriate protections for privacy and security exist, we are 

not adopting their recommendations because software certification criteria and standards 

are determined by ONC and are, therefore, outside the scope of this rulemaking. 

3. Covered Technology 

In the proposed rule, we noted that we received questions concerning whether 

certain items or services fall within the scope of the technology potentially covered under 

the exception at § 411.357(w). There, we stated that the answer to such questions 

depends on the exact items or services being donated. We referenced our discussion in 

the August 2006 final rule regarding our interpretation of the term “software, information 

technology and training services necessary and used predominantly.” We stated that we 

believe that the current regulatory text, when read in light of the preamble discussion, is 

sufficiently clear concerning the scope of covered technology. Nonetheless, because we 

received suggestions from stakeholders to modify § 411.357(w) to reflect explicitly this 

interpretation, in the proposed rule (78 FR 21313), we sought comments from the public 

regarding this issue. After considering the public comments with respect to this issue, we 

determined not to make any changes to the regulation text to address the scope of 

covered technology. 

Comment: Several commenters stated that the regulatory text describing the 

scope of technology covered by the exception, when read in light of the August 2006 

final rule preamble, is sufficiently clear. One of these commenters urged us not to revise 
 58 

the regulation in any way that might limit the scope of covered technology, limit the 

ability of donors and physician recipients in the design and selection of items and 

services, or create barriers to achieving interoperability. Other commenters agreed that 

the current definition of covered technology is appropriate, with two of these commenters 

suggesting that we revisit the definition in the future as health information technology 

evolves. Still other commenters asserted that the existing regulatory language can be 

interpreted to include “services that enable the interoperable exchange of electronic 

health records data;” thus, no revisions to the regulatory text are required. In contrast, 

one commenter suggested that we incorporate into the regulatory text the preamble 

language from the August 2006 final rule where we discussed examples of items and 

services that would qualify for coverage under the exception. Another commenter 

suggested that we revise the regulatory text to include as many examples of covered 

“software, information technology and training services” as possible while emphasizing 

that the list is not exhaustive. 

Response: We agree that maintaining flexibility is important, particularly as 

health information technology evolves. We endeavor to avoid revisions to the regulation 

text that could inadvertently narrow the exception, which is intended to promote the 

adoption of interoperable electronic health records technology. Moreover, our 

interpretation of what is covered by the exception has not changed. As we stated in the 

proposed rule (78 FR 21313), whether specific items or services fall within the scope of 

covered technology under the exception depends on the exact items or services that are 

being donated. If the “services that enable the interoperable exchange of electronic 
 59 

health records data” are of the type that do not meet the requirements for covered 

technology (for example, because they include hardware, storage devices, or have core 

functionality other than electronic health records), they would not be eligible for 

protection under the exception at § 411.357(w). 

For these reasons, we are not revising the regulation text at § 411.357(w) to 

identify any specific types of items or services that may be donated if the other 

requirements of the exception are satisfied. We are also not modifying the examples 

identified in the preamble discussion in the August 2006 final rule (71 FR 45151). The 

exception continues to protect nonmonetary remuneration in the form of software, 

information technology and training services necessary and used predominantly to create, 

maintain, transmit, or receive electronic health records. 

Comment: A few commenters requested clarification regarding whether 

third-party fees related to the exchange of health information, such as health information 

exchange service charges for interconnectivity, are “covered technologies” under the 

exception. 

Response: The exception protects only nonmonetary remuneration, in the form of 

software and information technology and training services, that is necessary and used 

predominantly to create, maintain, transmit, or receive electronic health records. 

Whether particular items or services, such as interconnectivity services, may be donated 

under the exception depends on the exact items or services being donated. 

Comment: One commenter suggested that, in addition to maintaining as much 

flexibility as possible, we broaden the scope of the technology covered by the exception 
 60 

to include software and services used for care coordination, quality measurement, 

improving population health, or improving the quality or efficiency of health care 

delivery among parties. The commenter noted that some of these items may be covered 

by the waivers issued in connection with the Medicare Shared Savings Program (MSSP); 

however, because those waivers extend only to parties participating in that program, 

protection for the donation of items or services that advance the Department’s goal of 

encouraging the adoption of health information technology that supports public policy 

objectives is not available to other health care industry stakeholders. To advance these 

goals in a broader way, the commenter suggested that the exception be expanded to 

include items potentially covered by the MSSP pre-participation waiver, such as 

electronic health information exchanges that allow for electronic data exchange across 

multiple platforms, data reporting systems (including all-payer claims data reporting 

systems), and data analytics (including staff and systems, such as software tools, to 

perform analytic functions). Another commenter suggested that we broaden the scope of 

technology covered by the exception to include software separate from the certified 

electronic health records software as long as it is interoperable with the electronic health 

records software. The commenter gave as examples of such electronic health recordsassociated components “patient portals that support patient engagement, direct and other 

standards-compliant means for secure patient information exchange between providers, 

solutions to support transition care, and tools that may assist in inter- and intra-patient 

matching.” A third commenter urged us to consider a broader array of covered 

technologies, provided that they support policy goals such as reducing hospital 
 61 

readmissions and coordinated care across settings outside of traditional office settings, 

including telemonitoring and telemedicine. Another commenter suggested that we 

expand the protection of the exception to cover “any additional items or services that will 

be required or helpful in meeting Stage 2 or Stage 3 requirements for [the EHR Incentive 

Programs].” 

Response: As stated previously, whether specific items or services fall within the 

scope of covered technology under the exception at § 411.357(w) depends on the exact 

items or services that are being donated. Some of the particular items and services that 

may be included within the broad categories identified by the commenters may be 

eligible for donation. For example, if a particular software product related to transitions 

of care was necessary and used predominantly to create, maintain, transmit, or receive 

electronic health records, then it would be eligible for donation, provided that the 

donation satisfied all of the other requirements of the exception. As noted previously in 

this final rule, software is not required to be certified to ONC certification criteria in 

order to be donated under the exception at § 411.357(w). Thus, software that is separate 

from certified software may still be eligible for donation if it satisfies the definition of 

“interoperable” at § 411.351. 

To the extent that the commenters suggested that we expand the scope of the 

exception to protect items and services that are not already eligible for donation, we note 

that revision of the exception to include such items or services would be outside the 

scope of this rulemaking. In the proposed rule (78 FR 21313), with respect to the scope 

of technology potentially covered by the exception, we sought input from the public 
 62 

regarding the singular issue of “whether the current regulatory text, when read in light of 

the preamble discussion, is sufficiently clear concerning the scope of covered 

technology.” With regard to whether the scope of the technology covered under the 

exception should be broadened—as opposed to clarified—we are mindful of the 

important issues raised by the commenters and may consider them in the future. Further, 

we note that other exceptions to the physician self-referral law exist to protect financial 

relationships between physicians and entities furnishing DHS. Depending on the 

circumstances, some of the arrangements described by the commenters may satisfy the 

requirements of another exception or may not implicate the physician self-referral law. 

Comment: One commenter suggested that we define “equivalent technology” for 

purposes of the requirement in the exception that the donor of electronic health records 

items or services may not have actual knowledge of, or act in reckless disregard or 

deliberate ignorance of, the fact that the physician recipient possesses or has obtained 

items or services equivalent to those being donated. This commenter also suggested that 

we prohibit a physician from seeking or accepting a donation of electronic health records 

technology before a certain period of time has elapsed since the receipt of a previous 

donation. Another commenter urged us to eliminate maintenance and service agreements 

from the scope of potentially protected donations under the exception. In the alternative, 

the commenter suggested that we impose a restriction on the time period that donations 

of such services would be permitted. The commenter noted concerns that donors may 

use ongoing donations of maintenance and service agreements to lock in referrals from 

physician recipients. A commenter that urged us not to extend the availability of the 
 63 

exception suggested that we prohibit the donation of all technology except interfaces for 

reporting of laboratory results. 

Response: Although we appreciate the commenters’ suggestions, we are not 

making the requested changes. We believe that the modifications to and clarifications of 

§ 411.357(w) adopted in this final rule and the clarifications offered in this preamble 

address the concerns raised by these commenters. 

Comment: One commenter asserted that the prohibition on donating equivalent 

items or services currently included in the exception locks physician practices into a 

vendor, even if they are dissatisfied with the technology, because the physician recipient 

must choose between paying the full amount for a new system and continuing to pay 15 

percent of the cost of the substandard system. The commenter asserted that the cost 

differential between these two options is too high and effectively locks physician 

practices into electronic health records technology vendors. 

Response: Although we appreciate the commenter’s concern, we continue to 

believe that items and services are not “necessary” if the physician recipient already 

possesses equivalent items or services. As we stated in the August 2006 final rule 

(71 FR 45154), “the provision of equivalent items and services poses a heightened risk of 

abuse, [because] such arrangements potentially confer independent value on the 

physician recipient (that is, the value of the existing items and services that might be put 

to other uses) unrelated to the need for electronic health records technology.” Therefore, 

we are retaining the regulatory preclusion of protection for donation arrangements where 

the donor has actual knowledge of, or acts in reckless disregard or deliberate ignorance 
 64 

of, the fact that the physician recipient possesses or has obtained equivalent items or 

services. We expect that physicians would not select or continue to use a substandard 

system if it posed a threat to patient safety. 

Comment: One commenter referenced the proposed rule’s statement that 

“software or information technology and training services necessary and used 

predominantly for electronic health records purposes” included “information services 

related to patient care (but not separate research or marketing support services)” 

(78 FR 21313). The commenter requested that we retract that statement and clarify that it 

is appropriate for health researchers to use data in electronic health records for research 

that is related to, for example, evidence-based medicine, population management, or 

other research, provided that the use complies with applicable Federal, state, and 

institutional requirements. 

Response: We decline to retract our statement in the proposed rule. To promote 

adoption of electronic health records without risk of abuse, the scope of items and 

services permitted to be donated under the exception is limited to electronic health 

records items and services in the form of software and information technology and 

training services that are “necessary and used predominantly to create, maintain, transmit, 

or receive electronic health records.” Donations of software used for research that is 

separate from clinical support and information services related to patient care are not 

consistent with the primary goals of the exception. 

The exception at § 411.357(w) addresses only the donation of electronic health 

records items and services, and not the use of data. Thus, the portion of the comment 
 65 

related to data use is outside the scope of this rulemaking. We note, however, that 

nothing in the exception prohibits the use of data in electronic health records systems for 

research purposes (assuming the parties comply with all other applicable laws, including 

HIPAA privacy protections). 

Comment: One commenter requested that CMS confirm that patient portals are 

within the scope of the technology potentially protected by the exception. 

Response: We are not certain what the commenter precisely means by “patient 

portals.” Patient portals come in a variety of forms; the key to the analysis is whether the 

specific item or service donated is: (1) in the form of software, information technology 

and training services and; (2) necessary and used predominantly to create, maintain, 

transmit or receive electronic health records. As we stated in the August 2006 final rule 

in response to a commenter’s recommendation that the exception specifically protect the 

provision of patient portal software that enables patients to maintain on-line personal 

medical records, including scheduling functions (71 FR 45152), nothing in the exception 

precludes protection for patient portal software if it satisfies all of the requirements of the 

exception. 

E. Comments Outside the Scope of this Rulemaking

 In addition to the comments described and to which we responded previously, we 

received several comments from stakeholders, including suggestions on policy changes, 

that are outside the scope of this rulemaking. For example, one commenter raised 

concerns about a private insurer’s proposed fee schedule for laboratory services. Another 

commenter expressed concern about “outrageous bills” the commenter received from a 
 66 

laboratory company. Although we appreciate the commenters taking the time to present 

these concerns, we do not address them here, as they are outside the scope of this 

rulemaking. 

IV. Provisions of the Final Regulations

For the most part, this final rule incorporates the proposed revisions stated in the 

proposed rule. Specifically, we are revising the exception to exclude laboratory 

companies from the types of entities that may donate electronic health records items and 

services under the exception, and are modifying the regulation text at § 411.357(w)(1) to 

effectuate this change. We are also amending § 411.357(w)(2) by deleting the phrase 

“recognized by the Secretary” and by replacing it with the phrase “authorized by the 

National Coordinator for Health Information Technology” and replacing the 12-month 

timeframe for certification of electronic health records software with a requirement that 

the software be certified to an edition of the electronic health record certification criteria 

identified in the then-applicable version of 45 CFR part 170 (ONC’s certification 

program). We are clarifying the requirement at § 411.357(w)(3) prohibiting any action 

that limits or restricts the use, compatibility, or interoperability of donated items or 

services. In addition, we are eliminating the requirement at § 411.357(w)(11) that 

donated electronic health records software include electronic prescribing capability. 

Finally, we are modifying § 411.357(w)(13) to extend the expiration of the exception 

from December 31, 2013 to December 31, 2021. 

V. Waiver of the Delay in the Effective Date 

 Ordinarily, we provide a delay of at least 30 days in the effective date of a final 
 67 

rule after the date that the rule is issued. However, the 30-day delay in effective date can 

be waived if the rule grants or recognizes an exemption or relieves a restriction. We 

believe that it is appropriate to waive the 30-day delay in effective date for 

§ 411.357(w)(13), which relieves a restriction on donations of electronic health records 

items and services. Specifically, this final rule amends § 411.357(w)(13) to extend the 

expiration of the existing exception from December 31, 2013 to December 31, 2021. 

Without a waiver of the requirement for a delayed effective date, the entire exception will 

expire on December 31, 2013 and will not be available to protect any ongoing donation 

arrangements or new donations of electronic health records items and services made to 

physicians after December 31, 2013. By waiving the 30-day delay in effective date, the 

exception will not expire, thereby allowing parties to continue utilizing the exception to 

protect donations of electronic health records items and services. We stress, however, 

that donations of electronic health records items and services that occur between 

January 1, 2014 and the effective date of the remaining provisions of this final rule 

([Insert date 90 days after the date of publication in the Federal Register]) will need 

to satisfy all of the requirements of the existing exception. The waiver of the 30-day 

delay in effective date simply serves to maintain the status quo until the rest of this final 

rule becomes effective. 

 The 30-day delay in effective date can also be waived if the agency finds for good 

cause that the delay is impracticable, unnecessary, or contrary to the public interest, and 

the agency incorporates a statement of the findings and reasons in the rule issued. We 

find that it is unnecessary to provide a 30-day delay in effective date for 
 68 

§ 411.357(w)(13) because an earlier effective date simply allows parties to continue 

making donations under the existing electronic health records items and services 

exception; it does not impose any new requirements or restrictions on potentially affected 

parties. Moreover, we find that a 30-day delayed effective date for § 411.357(w)(13) is 

impracticable because it would cause the entire exception to expire, thereby nullifying 

this final rule. 

VI. Collection of Information Requirements

 The provisions in this final rule will not impose any new or revised information 

collection, recordkeeping, or disclosure requirements. Consequently, this rule does not 

need additional Office of Management and Budget review under the authority of the 

Paperwork Reduction Act of 1995. 

VII. Regulatory Impact Analysis 

We have examined the impact of this rule as required by Executive Order 12866 

on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on 

Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory 

Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 

section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995; 

Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits 

of available regulatory alternatives and, if regulation is necessary, to select regulatory 

approaches that maximize net benefits (including potential economic, environmental, 
 69 

public health and safety effects, distributive impacts, and equity). A regulatory impact 

analysis (RIA) must be prepared for major rules with economically significant effects 

($100 million or more in any 1 year). We believe that this final rule does not reach the 

economic threshold for being considered economically significant and, thus, is not 

considered a major rule. It is not economically significant because it will not have a 

significant effect on program expenditures, and there are no additional substantive costs 

to implement the resulting provisions. The rule modifies an existing exception to the 

physician self-referral law, and the modifications would not impose additional 

substantive costs on those seeking to utilize the exception. Further, the donation of 

electronic health records items or services and the use of the exception to protect such 

donations is entirely voluntary. In section III. of this final rule, we provide a detailed 

discussion and analysis of the alternatives considered in this final rule, including those 

considered for extending the expiration date of the electronic health records exception, 

limiting the types of entities that may donate electronic health records items and services, 

and tying the timeframe for deeming electronic health records software to ONC’s 

certification program. Finally, we received no public comments specific to the RIA set 

forth in the proposed rule. 

This final rule extends the exception’s expiration date to December 31, 2021; 

excludes laboratory companies from the types of entities that may donate electronic 

health records items and services; updates the provision under which electronic health 

records software is deemed interoperable; clarifies the requirement at § 411.357(w)(3) 

prohibiting any action that limits or restricts the use, compatibility, or interoperability of 
 70 

donated items or services; and removes the requirement related to electronic prescribing 

capability. Neither this final rule nor the regulations it amends requires any entity to 

donate electronic health records items and services to physicians, but we expect these 

changes to continue to facilitate the adoption of electronic health records technology by 

eliminating perceived barriers rather than creating the primary means by which 

physicians would adopt this technology. 

The summation of the economic impact analysis regarding the effects of 

electronic health records in the ambulatory setting that is presented in the August 2006 

final rule (71 FR 45164) still pertains to this final rule. However, since the August 2006 

final rule, several developments have occurred to make us conclude that it is no longer 

necessary to retain a requirement related to electronic prescribing capability in the 

electronic health records exception. These developments include the passage of two laws 

encouraging adoption of electronic prescribing and electronic health records: (1) the 

Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), 

Pub. L. 110-275; and (2) the Health Information Technology for Economic and Clinical 

Health (HITECH) Act, Title XIII of Division A and Title IV of Division B of the 

American Recovery and Reinvestment Act of 2009 (ARRA), Pub. L. 111–5. In addition, 

there has been an increase over the past few years in the rate of electronic health recordsbased electronic prescribing capabilities.3 

As discussed in more detail in the preamble to the proposed rule, section 132 of 

MIPPA authorized an electronic prescribing incentive program (starting in 2009) for 
 71 

certain types of eligible professionals. The HITECH Act authorized us to establish the 

EHR Incentive Programs for certain eligible professionals, eligible hospitals, and critical 

access hospitals. Also, the HITECH Act required that eligible professionals under the 

EHR Incentive Programs demonstrate meaningful use of certified electronic health 

records technology, including the use of electronic prescribing. Specifically, the final 

rule for Stage 2 EHR Incentive Programs (September 4, 2012; 77 FR 53968) includes 

more demanding requirements for electronic prescribing and identifies electronic 

prescribing as a required core measure. As a result, beginning in calendar year 2015, an 

eligible professional risks a reduction in the Medicare Physician Fee Schedule payment 

amount that will otherwise apply for covered professional services if he or she is not a 

meaningful electronic health records technology user for a reporting period during that 

year. Our intent remains to allow physicians not to receive products or services they 

already own, but rather to receive electronic health records items and services that 

advance the adoption and use of electronic health records. Lastly, according to ONC, 

electronic prescribing by physicians using electronic health records technology has 

increased from 7 percent in December 2008 to approximately 48 percent in June 2012.4 

Furthermore, the rules recently published to implement Stage 2 of the EHR Incentive 

Programs (77 FR 54198 and 77 FR 53989), continue to encourage physicians’ use of 

electronic prescribing technology. However, due to data limitations, we are unable to 

estimate accurately how much the electronic health records exception has contributed to 

 

3 See, for example, State Variation in E-Prescribing Trends in the United States, available at 

http://www.healthit.gov/sites/default/files/us_e-prescribingtrends_onc_brief_4_nov2012.pdf. 
 72 

the increase in electronic prescribing. Nevertheless, we believe that, as a result of recent 

developments, physician adoption of electronic prescribing and electronic health records 

technology will continue to increase despite removal of the electronic prescribing 

capability requirement in the electronic health records exception. 

The RFA requires agencies to analyze options for regulatory relief of small 

entities, if a rule has 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 most other providers and 

suppliers are small entities, either by nonprofit status or by having revenues of less than 

$7.0 million to less than $35.5 million in any 1 year. Individuals and States are not 

included in the definition of a small entity. This final rule does not result in an economic 

effect on small entities of 3 to 5 percent or more of their total revenues or costs. As a 

result, the Secretary has determined that this final rule will not have a significant 

economic impact on a substantial number of small entities. 

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact 

analysis if a rule may have a significant impact on the operations of a substantial number 

of small rural hospitals. This analysis must conform to the provisions of section 604 of 

the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as 

a hospital that is located outside of a Metropolitan Statistical Area for Medicare payment 

regulations and has fewer than 100 beds. The Secretary has determined that this final 

rule would not have a significant economic impact on the operations of a substantial 

 

4 See, for example, State Variation in E-Prescribing Trends in the United States, available at 
 73 

number of small rural hospitals (that is, an effect of more than 3 to 5 percent of their total 

revenues or costs). 

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies 

assess anticipated costs and benefits before issuing any rule whose mandates require 

spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 

2013, that threshold is approximately $141 million. This final rule imposes no mandates 

and, as a result, will have no consequential effect on State, local, or tribal governments, 

or on the private sector, of $141 million or more. 

Executive Order 13132 establishes certain requirements that an agency must meet 

when it issues a final rule that imposes substantial direct requirement costs on State and 

local governments, preempts State law, or otherwise has Federalism implications. For 

the reasons stated earlier, this final rule will not have a substantial effect on State or local 

governments, nor does it preempt State law or have Federalism implications. 

In accordance with the provisions of Executive Order 12866, this rule was 

reviewed by the Office of Management and Budget. 

 

http://www.healthit.gov/sites/default/files/us_e-prescribingtrends_onc_brief_4_nov2012.pdf. 
 74 

List of Subjects for 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 amends 42 CFR part 411 as set forth below: 

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON 

MEDICARE PAYMENT 

1. The authority citation for part 411 continues to read as follows: 

Authority: Secs. 1102, 1860D-1 through 1860D-42, 1871, and 1877 of the 

Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152, 1395hh, and 

1395nn). 

2. Section 411.357 is amended as follows: 

A. Revising paragraphs (w)(1) through (3). 

B. Removing and reserving paragraph (w)(11). 

 C. In paragraph (w)(13), removing the date “December 31, 2013” and adding the 

date “December 31, 2021” in its place. 

 The revision reads as follows: 
 75 

§ 411.357 Exceptions to the referral prohibition related to compensation 

arrangements. 

* * * * * 

 (w) * * * 

 (1) The items and services are provided to a physician by an entity (as defined at 

§411.351) that is not a laboratory company. 

 (2) The software is interoperable (as defined in §411.351) at the time it is 

provided to the physician. For purposes of this paragraph, software is deemed to be 

interoperable if, on the date it is provided to the physician, it has been certified by a 

certifying body authorized by the National Coordinator for Health Information 

Technology to an edition of the electronic health record certification criteria identified in 

the then-applicable version of 45 CFR part 170. 

 (3) The donor (or any person on the donor’s behalf) does not take any action to 

limit or restrict the use, compatibility, or interoperability of the items or services with 

other electronic prescribing or electronic health records systems (including, but not 

limited to, health information technology applications, products, or services). 

* * * * * 
CMS-1454-F 

(Catalog of Federal Domestic Assistance Program No. 93.773, Medicare--Hospital 

Insurance; and Program No. 93.774, Medicare--Supplementary Medical Insurance 

Program) 

Dated: September 5, 2013

 _____________________________ 

Marilyn Tavenner, 

Administrator, 

Centers for Medicare & Medicaid Services. 

Approved: December 12, 2013

 ___________________________________ 

Kathleen Sebelius, 

Secretary, 

Department of Health and Human Services. 

BILLING CODE 4120-01-P 
 77 

[FR Doc. 2013-30923 Filed 12/23/2013 at 4:15 pm; Publication Date: 12/27/2013]