College of American Pathologists
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  Sailing safely through EMR software donations


CAP Today




July 2010
Feature Story

Jane Pine Wood, partner at the law firm McDonald Hopkins LLC, Dennis, Mass., asked her large audience at the Executive War College in April how many had been asked to help pay for the electronic medical records of their physician referral sources. Forty to 50 percent of those in the room had. “For those of you who haven’t been asked, it’s probably a ‘not yet,’” Wood said, confident that most pathologists and lab executives would soon come face to face with the Stark law exception and Medicare anti-kickback law safe harbor that permit a referral recipient to donate to a referral source much of the cost of qualifying EMR software. Here, in an edited transcript, are Wood’s words on what physician groups are requesting, what’s lawful and what’s not, and where to be cautious. Plus, her advice on how to avoid trouble as the CMS steps up its scrutiny of Medicare-enrolled providers.

Jane Pine Wood, Esq.

The reason for the rather bizarre Stark law exception and anti-kickback safe harbor is that the government wants to encourage electronic medical records. And the government’s idea several years ago was that hospitals would jump in and provide EMRs for the medical staff as a whole. The first response from hospitals was, ‘Well, if we provide EMRs to our medical staff, we’re violating the Stark law. We’re providing a financial benefit to referral sources.’ So the government responded with the exception and the safe harbor.

The problem is very few hospitals are actually spending the money to provide EMRs for their medical staff. Some laboratories, and I’m seeing more and more EMR vendors, have been exploiting this exception and saying, ‘Well, we can go to a GI group and say we’ll pay for 85 percent of your EMR if you send us the work.’ That’s the sales pitch.

The safe harbor and the exception have a lot of specific requirements. If you violate the requirements, you have violated serious laws that can result in criminal penalties, fines, and exclusion from the Medicare program. Any pathology claim submitted pursuant to the relationship is a false claim with all the treble damages and qui tam action problems that go with false claims. So the penalties are big, though we don’t see the government doing much enforcement in the area because the government wants EMRs. But if you’re asked to make a donation, it’s important to know the requirements.

This safe harbor and exception are valid through Dec. 31, 2013. Unless it’s extended after 2013, there will no longer be an exception or safe harbor to make these donations. I think you’re going to have most of your requests this year. That’s because, starting in 2011, the Medicare program will have additional dollars that will be paid to physicians, except for certain hospital-based physicians, who use electronic medical records. And the dollar amounts can be significant. Over the period from 2011 through 2015, it can be up to $44,000 additional per physician. So a lot of physician practices are now realizing that if they want to take advantage of this money, they had better get an EMR now. For those of you who are seeing more and more requests, that’s the driving force.

You can donate up to 85 percent of the qualifying costs of EMR software. You cannot donate toward hardware. You cannot donate toward software that’s unrelated to the EMR. Let’s say there’s a separate module that does only billing and collection, or a separate payroll module. If those are separate software modules, you can’t donate toward those. It can only be 85 percent of the EMR module.

The vendors now realize what’s going on. A year ago I saw a lot more of these modules—for bill­ing, for payroll—that were priced out separately for the EMR. Now, the vendors are lumping everything together into one package because the regulations and the preamble to the regu­lations explain that if it’s all lumped together, as long as the EMR functions predominate, then you can donate toward the whole thing. So the vendors are getting savvy; they’re lumping everything.

Physician groups are trying to get various donors to cover 100 percent of the cost. The physician group must pay the first 15 percent. And laboratory or pathology providers cannot donate for something the group already has. This is becoming problematic for many of my clients. If the physicians in the group got an EMR a year ago, they already have it, and the regulation says you cannot pay for something they have that is comparable. So you get these situations where the physicians in the group just signed a contract with the vendor for their EMR, and then they find out from their buddies that they should have gone to the pathology group, or the local laboratory, for payment. They then come and say, ‘Well, can you donate? We just signed the contract.’ I’d rather you not, but as a practical matter, most people are saying, and from what government officials have told me, there seems to be no stomach for enforcing this because the government wants to encourage EMRs. You’re probably okay, if they’ve signed the contract, to go ahead and make the donation.

However, if the physician group has already installed the EMR and it’s operational, then I am not comfortable with the pathology group or laboratory making the donation. What if it’s been operational only two days? What if it’s been operational a month? A year? These are the questions I’m being asked now. It’s very gray in terms of where the safe line is, but I would advise you to think twice before making a donation for an installed EMR. You probably should consult with your legal counsel because the financial consequences of violation, if there’s ever enforcement, are substantial. But, again, I’ve talked to a lot of other health attorneys about this, and based on our conversations with people in the government, we don’t think there’s going to be much enforcement.

The real key is that you cannot make a donation contingent upon referrals. This means you cannot say, ‘Give us an exclusive contract to do your pathology work, and we will donate toward your EMR.’ You have to make the donation for the EMR recognizing you may never get the work or you may lose the work tomorrow. That’s a pretty big risk to take, but that is one of the requirements.

I have a number of clients who have lost work to other laboratories that have made donations toward a group’s EMR. The clients have told me they lost the big GI group, for example, because a big laboratory donated toward the group’s EMR. I said, ‘Go back to them because, remember, that donation cannot be conditioned upon referrals. So that GI group has to be free to send work back to you next week if they’re not happy.’ I have had a number of clients get work back from those GI or urology groups because they were not happy with the quality or turnaround time or responsiveness of the large laboratory that made the donation. And if that large laboratory tries to tie their hands, so they can’t switch the work back to you, then that large laboratory is probably in violation of the safe harbor and the Stark exception.

I had one client that ran into problems. The GI group was being told by the sales reps for the large lab that it did not have the ability to switch work back to the previous laboratory. We were able to talk to the legal counsel for the large laboratory, and the legal counsel said they would talk to the sales rep. They understood that work cannot be conditioned upon referrals.

The software has to be interoperable, meaning it has to be able to connect with others. One of the legal issues is, Does interoperable mean someone can pay an extra $50,000 for an interface and now it’s interoperable? Is there a cost factor that makes something fail to be interoperable because you have to spend a lot of money? A couple of the vendors are charging pretty hefty fees for interfaces. Thus, the argument is, do you really have interoperable software if someone has to pay $80,000 to interface this with a different laboratory? I would argue not.

One vendor I spoke with recently seemed to backtrack from that, and it may be looking at not charging quite the interface costs it had in the past.

There’s a lot of uncertainty about interfaces. For example, there is no guidance from the government on donation of an interface only. There’s certainly a recognition that the EMR is going to require interfaces, so you can donate up to 85 percent toward that. But what if you have a new client and you want to be able to interface, or the client wants you to pay for the interface, just between your laboratory and them. For that alone, there’s no specific guidance from the government except old guidance that goes back to fax machines and computers. And we have guidance from the government saying it’s okay to put a fax machine in a client’s office without charge, as long as that fax machine is used only to transmit results and requisitions back and forth. Same with a computer terminal. It’s okay to put it free of charge in their office as long as it’s used only to transmit information back and forth.

I’ve talked to many other health lawyers who represent other pathology and laboratory providers, and we feel we are in pretty good legal stead to say this is just a more expensive evolution of the free fax and the free computer. As long as that interface is used solely to transmit results between you and the client, then I’m not going to worry about it if you pay 100 percent of it, because that’s your method of getting your results to the client and getting requisitions from the client.

I’ve had other situations, though, where the client has asked the pathology group, ‘Can you pay for the interface to our lab? And can you also pay for the interface for us to get into the hospital medical records system?’ All of a sudden, they want you to be paying for a lot of other interfaces unrelated to your work. If the interface is not related to your work, then I would be cautious. Step back—you want to talk to your lawyer. Maybe that can be structured as part of an EMR donation under the EMR safe harbor. Maybe, maybe not—it depends on the facts and circumstances. But I would not just cut a check for 100 percent of the cost of an interface that is not related to your work.

One of the issues that’s come up with physicians who already got their EMRs a year or two ago is now they’re realizing they missed the boat. They could have had someone donate for it. The next question that comes up is, ‘Well, can we get the lab/pathology provider to donate toward our annual maintenance fee?’ For the typical five- to eight-person GI/urology group, an EMR costs about $80,000 to $120,000. Maintenance may be between $10,000 and $25,000 a year. And if you get a group that consists of 30 or 40 physicians, just multiply those costs. But the $10,000 to $20,000 a year or more of annual maintenance fee is still significant for a lot of these groups. And now they’re asking you to pay for their annual maintenance. The regulations themselves don’t speak to this, but there is some language in the preamble. Every time the Centers for Medicare and Medicaid Services issues new regulations, the regulations take up four pages and then there’s 400 pages of discussion about what they mean, which is usually convoluted and raises many more questions than it answers. In those 400 pages before the four pages of Stark exception and anti-kickback safe harbor, there is a discussion about paying for maintenance after an EMR has already been installed. My para­phrased reading of the government’s take on this is: ‘We don’t really like it. It probably is not in full compliance, but given that the client still has to pay 15 percent of this, given that we want to encourage EMRs, and given that this is going to sunset in 2013, we’re probably not going to do anything about it.’ So it’s not an all clear, but, as a practical matter, it means no one’s going to do anything about it. So I have clients who have made donations toward annual maintenance fees. There’s risk there, but I don’t think it’s significant.

I’m getting five or six calls a week now from clients who are being ‘requested’ by their referral sources to make these EMR donations. The biggest joke about it is, it really is extortion. Because even though it’s not dependent on referrals as a practical matter, if a client comes to you and says, ‘So and so competitor has offered to pay for our EMR. Are you going to pay for it, or should we go with them?’ you really don’t have a choice. This really is all about the referrals. But, unfortunately, the rules are what they are, and they’re being exploited. And I don’t think there’s a whole lot the government’s going to do about the exploitation.

An unrelated issue, but something that’s been coming up in my practice recently that I want to warn people about, and which has had serious consequences for clients, is that the CMS is looking very hard now at enrollment. There’s been a lot of concern that the bar has been very low to become a Medicare pro­vid­er. So the CMS has gone out to all the carriers and sent out a lot of notices that carriers need to make sure they are enrolling in the Medicare program, and keeping in the Medicare program, providers who really should be in it.

Site visits, particularly for laboratories, are one of the things that are being done now. A lot of ancillary providers have been bilking the Medicare system by setting up sham companies with addresses; they submit bills for services, but there’s no company there. So it makes a lot of sense that one of the CMS’ initiatives is to make sure the carriers have someone go out and drive by the street address to see if there really is a provider there. It makes perfect sense in concept. It’s the practice that’s been a problem.

I’ve had now eight or nine situations with cli­ents of ours, and I have heard of multiple others, and these are all pathology laboratory clients, where there has been a drive-by visit. A letter from the CMS is the first the client knows of it. If the letter is dated Jan. 1, it will say, ‘Effective Dec. 10,’ going back 20 days or whatever, ‘your enrollment in the Medicare program has been revoked. You have been disenrolled from the Medicare program. We did an on-site visit, and you weren’t there, or you weren’t open.’ And there’s a 24-month bar on reenrollment.

One of my clients, a laboratory, has had a problem becoming enrolled in the Medicare system. The client’s operational laboratory went through its CLIA inspection. There was a drive-by inspection during the week of the Christmas holiday. The lab was closed because it is a small histology lab. The inspector drove by; no one was there. The lab received the disenrollment letter. I’ve gone to the CMS national office, spoken to the head of CMS enrollment in Baltimore. I’ve talked to others, and it’s still unresolved.

Several of these situations have been simple mistakes where the CMS carrier drove by the wrong address. But in a couple of cases, the laboratories, when they moved and changed locations, failed to notify the CMS. They notified CLIA—everyone’s usually careful in making sure there’s a CLIA certificate with a correct address. But they did not notify the Part B carrier of the address change. This may not have been relevant because often the claims are submitted from the billing office, and the payment is going to a lockbox or to a billing office, so the payments are all fine. But the carrier is not looking at the address on the CLIA certificates for any of these drive-bys. They’re looking at the address in their records for the physical laboratory location. And if you’re not open when they drive by, or you’re not there, you’re going to get a letter, and you’re going to find out your billing privileges were revoked retroactively.

Of the eight or nine I have had so far, we’ve worked out four or five of them. The rest are in process. At least two are probably going to go to an administrative law judge hearing. For one, we sent photographs of the laboratory and the CLIA certificate. We sent everything, and still they said it isn’t sufficient evidence that the lab was in business on the day they drove by.

I asked the head of CMS enrollment, ‘What about a solo practitioner physician who happens to be on vacation? What happens when they drive by?’ He says, ‘I guess if you came and appealed to us, we could probably give instructions to fix that one.’ Not a lot of confidence right there.

I suggest all of you go into the CMS’ system, particularly the PECOS [Provider Enrollment, Chain, and Ownership System], which I’ll talk more about, and make sure your address for your physical laboratory location matches what the carrier has. If it doesn’t match, try to fix it as soon as you can because, apparently, all the carriers have been instructed to make these drive-by visits. They started last November, and they are still ongoing. The CMS has told them to make sure to continue this and to do it routinely.

The PECOS, which is part of this enrollment issue, is Medicare trying to make sure also that the people who order tests are actually Medicare providers. The problem is, starting in 2011, if your referring physicians are not listed in the PECOS, and you are submitting claims in the name that you have as the referring physician on your claim, and it’s not matching what’s in their system, the CMS will deny payment for your pathology laboratory services. So, unfortunately, it’s incumbent upon you, for your biggest referral sources, to go into the PECOS [at]. There is a section that talks about enrollment. If you go into their search field and put in P-E-C-O-S, it will get you there. There will be a huge data file in which you can look for all your physicians. Problem is, it is so big, and there are so many people accessing it, you may have to look at it multiple times. It may take five or 10 minutes for this to download on your computer.

The other key is, the name you use in submitting your claim for the physician has to match exactly what’s in the system. So if you don’t have that physician’s middle initial, but he or she has the middle initial in the PECOS, you had better make sure your software puts that middle initial in. Same thing for perhaps a dash in a hyphenated name. It’s going to have to be an exact match for payment to be made. It will be a big paperwork and time hassle on your part, but I think it will be well worth it to spend the time doing it now, whenever someone in your office has free time, rather than do it later when you find out claims have been denied.

If there’s a mismatch, the carriers are supposed to go into their systems and make an effort to identify the physician and see if the physician is elsewhere in the system. My concern is that carriers are not going to bother. They’re supposed to do a fallback and see if the physician is elsewhere in the system, but who knows how much time or effort they’ll spend doing it.

The effective date for this is 2011.