EHR Donation Ruling in WA Raises Questions for Labs

State AG issues ruling that donations of money to physicians for EHRs is illegal under state law

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CEO SUMMARY: When the Washington State Attorney General issued an Attorney General Opinion last fall, he created confusion among pathologists and lab directors whose labs have paid to have EHR software installed in physicians’ offices. The Washington AG’s ruling not only conflicts with federal law, which allows labs to donate EHR software, but raises questions within Washington state about other lab industry marketing and business practices that federal regulations permit.

PATHOLOGISTS AND CLINICAL LAB DIRECTORS in Washington state are wondering what effect—if any—the November 2012 ruling by former state Attorney General Rob McKenna has on any donations of electronic health record (EHR) software made to physicians in full compliance with federal law.

The broad language of this Attorney General Opinion also gives rise to additional uncertainty in Washington State about other common laboratory business practices long deemed appropriate by the federal government.

This opinion is consistent, however, with a trend of state-level regulations getting tougher on the types of activities common in the marketing practices of clinical laboratories and other providers.

In the opinion, McKenna writes: “A clinical laboratory’s donating money to a physician to be used for a portion of the cost of an electronic health record, when the donations are made only to those physicians who maintain or create arrangements for the physician’s referral of specimens to the laboratory, would violate the anti-rebate provisions in RCW 19.68.010.”

RCW 19.68.010 generally prohibits the payment or receipt of rebates when medical professionals refer patients to others to obtain services or supplies, he added.

Opinion, Federal Law Differ

“The Washington State Attorney General’s opinion is confusing and likely to be troubling to pathologists and lab directors whose labs already have paid for 85% of EHR software installed in the offices in their physician customers, in full compliance with the federal regulations,” said David W. Gee, a lawyer with Garvey Schubert Barer in Seattle. “As envisioned by the federal laws, such EHR software likely serves as the labs’ principal mode of receiving lab test orders and reporting lab test results into the EHR systems of those customers.

“Another practical dilemma is that, as federal law permits, the labs likely have undertaken contractual obligations with the software vendor to support and maintain the software. Those vendor agreements now need to be terminated or assumed by the physician groups,” Gee added.

Federal Law Undermined

“It’s hard to understand why the attorney general would take the view that donating EHR software is illegal because that position directly undermines the federal government’s statutory efforts to promote physicians’ electronic health information connectivity,” he said. “Likewise, the AG’s opinion talks about a ‘cash donation,’ but the EHR software donation permitted by the federal laws does not contemplate monetary donation to a physician,” noted Gee. “In fact, EHR software donation is expressly excluded from the Stark law definition of ‘remuneration.’

“The AG Opinion also seems to overlook some of the key safeguards of the federal law. For instance, the AG’s principal objection to donation of EHR software is that lab donations are limited to those physicians who refer patients to the lab. However, under the federal statutes, laboratories may not condition their donation of EHR software on where the physicians refer their lab tests,” Gee explained.

“Instead, the federal law requires that the software be interoperable. That means physicians must be able to use donated EHR software to send lab tests to any lab,” he said.

Challenges for Labs

“Another challenge for labs, hospitals that run labs, and other healthcare providers generally is that the AG’s reasoning in the opinion is so broad that it arguably extends the prohibitions of the Washington anti-rebate statute to a variety of other common practices between healthcare providers that have long been permitted under federal law. For example, labs are permitted under federal guidelines to provide supplies and equipment to their physician customers, as long as those items are used by the physician solely for ordering and receiving lab testing results,” Gee explained.

“Supplies and equipment viewed as permissible under federal law include fax machines or other communication interfaces dedicated to ordering and reporting lab tests. It is not clear if the AG’s interpretation of the Washington state anti-rebate law would include or exclude donation of such items, even if used solely for transmission of lab orders and reports,” he said.

Clinical lab companies doing business in Washington State should be aware of this Attorney General Opinion. It creates different compliance issues and labs will want to establish compliance policies that are consistent with this opinion. Further, this opinion is a reminder that a growing number of states are getting tougher on business practices used by many labs.

State Representative Asked About EHR Donations

TO ANSWER A QUESTION from a state representative, Washington State Attorney General Rob McKenna stated the following:

“A clinical laboratory’s donating money to a physician to be used for a portion of the cost of an electronic health record, when the donations are made only to those physicians who maintain or create arrangements for the physician’s referral of specimens to the laboratory, would violate the anti-rebate provisions in RCW 19.68.010.

“RCW 19.68.010 generally prohibits the payment or receipt of rebates when certain licensed medical professionals refer patients to others to obtain services or supplies. The state legislature enacted the law in 1949 during a period when the Federal Trade Commission and the Justice Department were cracking down on rebate or kickback schemes.”

The ruling is available online at: https://www.atg.wa.gov/AGOOpinions/Opinion.aspx?section=archive&id=30767#.UPG x6uR9Le6.

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