By Clay J. Countryman

On May 30, 2008, the Centers for Medicare & Medicaid Services (CMS) issued an Advisory Opinion regarding a proposed arrangement under which a hospital system would license a custom software interface for use by the physicians on its medical staffs. The specific question addressed by CMS was whether the provision of the custom software interface by the hospital system to its medical staff physicians would create a compensation arrangement for purposes of implicating the self-referral prohibition of the Stark Law.

If the definition of a compensation arrangement is met by the provision of the custom software interface, then the proposed arrangement to provide the software interface would need to meet an exception to the Stark Law otherwise the physicians would be prohibited from referring Medicare and Medicaid patients to the hospital system for any of the services subject to the Stark Law (e.g., outpatient and inpatient hospital services).

Two important aspects of the proposed arrangement are the limited functions and use of the software interface and the costs paid by the hospital system to develop and provide the software to the physicians.

Under the proposed arrangement, the hospital system would pay an IT vendor to develop a software interface customized to a medical staff physician’s existing electronic health record (EHR) software. The hospital system would also purchase licenses to authorize physician practices to use the interface software during the term of the hospital system’s license agreement. A physician practice would only be able to use the software interface to order or communicate the results of tests and procedures furnished by the hospital system and the software could not be used for any purpose other than the ordering or communicating of test results furnished by the hospital system.
CMS noted that in the Stark Law, a “compensation arrangement” is defined as “any arrangement involving any remuneration between a physician (or an immediate family member of such physician) and an entity.” However, this definition of a “compensation arrangement” also provides that certain types of remuneration would not crate a compensation arrangement, which includes “the provision of items, devices, or supplies that are used solely … to order or communicate the results of tests or procedures for such entity.”

CMS concluded in the Advisory Opinion that the license to use the software would not constitute a compensation arrangement under the Stark Law because of the limited use of the interface and the inability of the medical staff physicians to modify the interface functionality or sell, transfer, or assign the interface software. This conclusion was based on the exceptions noted above to the types of remuneration that create a compensation arrangement.

Hospitals should also note that CMS did not analyze the applicability of any Stark Law exception to the proposed arrangement of providing the hospital providing the software interface to physicians, but only, whether the provision met the definition of a “compensation arrangement.”