When Mikki Clancy was charged last year with the task of extending her hospital system's electronic health record software to community physicians, she soon discovered a tangle of legal, financial and cultural obstacles. But the vice president and CIO of Premier Health Partners in Dayton, Ohio, was unfazed. The leadership team of her three-hospital organization is determined to develop an EHR that follows patients through the entire continuum of care. "We expect to gain greater transparency through-out the system, with fewer duplicative tests and clinical information shared freely," she says of Premier's effort to extend its ambulatory EHR to physicians' offices.

Hospitals seeking to follow Premier's example got a recent boost from the Internal Revenue Service. A May 2007 IRS memorandum may have removed one of the major impediments to community-wide adoption of EHRs. The memo stated that hospitals donating up to 85 percent of the cost of EHR software to physicians, as permitted by legislative exceptions to the antikickback statute and Stark Federal Physician Self Referral law, would not be in danger of losing their nonprofit status.

While many hospital executives and their attorneys around the country viewed the memo as an opportunity to begin strategic planning, a few organizations such as Premier had no need to shift gears because they had already begun offering local physicians subsidized software.

After studying the Stark exceptions outlined by the U.S. Department of Health and Human Services in August 2006 and consulting with attorneys, the health system pushed ahead, assuming the IRS would rule the way it eventually did.

For example, before the end of 2007, Premier expects to support four pilot physician practices in implementing the ambulatory EHR from Verona, Wis.-based Epic Systems Corp. that is being installed throughout the hospital chain. The goal for 2008 is to have Epic in use by 75 percent of the 140 physicians in HealthNet, which is owned by Premier, and 20 independent practice physicians.

"The IRS memo helps validate our decision to be an early mover in this area," Clancy says. "It is promising that barriers continue to be removed."

Besides helping improve the quality of care, Clancy says Premier also saw the project as helping it maintain a regional leadership role in technology.

Executives at Premier, a Miami Valley organization with more than 1,700 beds, believe hospitals must work on EHR connectivity now, before physicians start buying their own software. Premier realized that if six or seven health record applications are in use, the interoperability issues become almost insurmountable. "If you are not considering doing something like this now," Clancy says, "you are opening yourself up to greater complexity down the road."

Tremendous interest

Whether the IRS memo will lead to a trickle or flood of new IT relationships between hospitals and physicians is unclear.

It is true that many organizations felt stymied by the law, originally sponsored by U.S. Rep. Pete Stark (D. Calif.), which prohibited hospitals from giving hardware or software worth more than $300 to physicians referring Medicare patients to that hospital. The law was designed to keep physicians from sending patients to facilities in which they had a financial stake.

The HHS regulations detailing the exceptions "were comprehensive and a real model of clarity," says Scott Wallace, president and CEO of the Chicago-based National Alliance for Health Information Technology (NAHIT). They spelled out that among other things, the software must be certified as interoperable; that before receiving software or services, physicians must pay 15 percent of the donor's costs; and eligibility to participate cannot be based on the volume of referrals or other business generated between the parties.

"Hospitals could feel confident that if they followed them, they were not going to violate Stark," he says.

But hospitals' attorneys quickly noted that if a not-for-profit gives something of value to a for-profit entity such as a physician practice, it could endanger its 501c3 status. Many organizations hesitated until the IRS memorandum, which stated that as long as hospitals follow the HHS regulations, the not-for-profit status would not be in peril.

Wallace says the IRS memo will not lead to an immediate groundswell, but it will help. "From my talks with CEOs of hospital systems and physicians, there is a tremendous amount of interest in this area," he says. "With information from physician offices, they believe they can do a more efficient job of treating patients when they show up in the hospital."

Three early movers

Some folks at hospitals and health systems have put a high priority on making patient information seamlessly available all the way from the private physician practice to the hospital bedside. They perceive enough community benefits that they are willing to devote considerable resources to overcoming the business, technical and cultural bumps along the way.

According to Clancy, the phase-in of Epic Care software at Premier's Miami Valley Hospital drew interest in early 2006 from affiliated physicians who didn't already have EHRs and wanted to be integrated with the Premier environment. "We were informally querying physicians about potential price points," she says, "but we felt stopped by the Stark law." Once the Stark exceptions were introduced and Premier could absorb up to 85 percent of the software's cost, every-thing changed.

"We went back to the Premier management council and got approval to start with owned practices and begin a pilot with private practices," Clancy says. Internal and outside counsel studied the HHS ruling. "Although the IRS position was not yet firm, the attorneys believed that as long as you're clear that it's only EHR and eprescribing that's being subsidized, we wouldn't be in jeopardy," Clancy says. The organization is still finalizing a fixed price-per-doctor model.

Scott Wallace

Clancy says one of the biggest challenges for her IT group has been taking on the job of supporting outside physicians.

Epic has many workflow features to improve practice management and it offers personalized reports, so it requires six weeks of configuration and training, Clancy says. "We want it to work for the physicians, not just to dump this on them," she notes. "We have to act exactly as if we were their vendor." Premier developed a contract with implementation schedules, service level agreements, and rules about upgrades.

To handle that support role, 15 new staffers in a separate unit will be joining Clancy's IT team of 170. "We already have great customer service in our IT department," she says, "but there are different expectations when you are basically acting as a vendor."

Partners and P4P

Not every effort to migrate EHRs into the community involves hospitals subsidizing physicians. In some cases, regional pay-for-performance incentives from health in-surers are proving enough to motivate doctors.

In Massachusetts, Partners Community Healthcare Inc. (PCHI) had been thwarted by Stark regulations in its efforts to help physicians join the health record initiative it began in 2003. "We really felt they tied our hands," says Cindy Bero, CIO of PCHI. "We were part of a group actively lobbying for changes around health IT."

The PCHI network is a management services organization arm of Boston-based Partners HealthCare, an integrated health system founded by Brigham and Women's Hospital and Massachusetts General Hospital in 1994. Besides the two tertiary hospitals, the 2,507-bed Partners group has six community hospitals and four specialty hospitals.

Despite its difficulties with Stark regulations, Partners found another way to offer physicians incentives. PCHI's efforts to increase physician use of EHRs coincided with the rise of pay-for-performance contracts with payers. In Massachusetts, Bero says, those incentives proved so attractive that when the Stark relief was announced last fall, Partners executives decided they didn't need to sub-sidize the software after all.

PCHI has 5,900 physicians, and 2,800 are already using EHRs. The community physicians can choose between two products, the Longitudinal Medical Record (LMR), an ambulatory EHR developed in-house by Partners, and Centricity from U.K.-based GE Health-care. Physicians closely tied to Partners tend to choose LMR, while ones without so tight an affiliation are more likely to go with GE's product, Bero says. The LMR product is offered as an ASP (application service provider) solution, with the practice signing a contract for software and support over the Internet.

Although P4P doesn't cover all the costs, Bero says, PCHI has been able to convince doctors that this is a moment when someone is willing to help them make the transition from paper to digital. "Once people start to move," she says, "that window may close."

Partners HealthCare is putting even more pressure on physicians. Its board of directors recently announced that to remain in PCHI, physician offices must adopt electronic records by 2009. "I think 12 months ago that would have been laughed at or would have seemed odd," Bero says. But now that 78 percent of primary care doctors are using the software and the specialists are paying attention, it makes sense, she adds.

Some practices might drop out of the organization rather than adopt EHRs so soon. "The board was making a statement that we're a certain kind of organization that is committed to using health IT to improve the quality of care," she says. "It was a huge leap. If you're not such an organization, then you're not one of us. That's OK."

Expanded effort in Connecticut

Saint Francis Hospital and Medical Center in Hartford, Conn., saw the Stark exception as an op-portunity to expand its effort to bridge the gap between the 617-bed hospital's so-phisticated IT environment and the more mom-and-pop operations of local physician offices.

Jess Kupec

Jess Kupec, president and CEO of the Saint Francis Physician Hospital Organization, a joint venture between physicians and the hospital, says that when the clarification came out his group was already working with the hospital on choosing and implementing practice management software from Misys Healthcare Systems LLC (Raleigh, N.C.) and an EHR from Chicago-based Allscripts.

The PHO initially bought 150 Allscripts TouchWorks licenses, but when the Stark changes were introduced in mid-2006, the hospital agreed to donate 85 percent of the cost of the software to any of the 650 physicians in the PHO that wanted to use it. To meet legal requirements, the PHO shifted ownership of the Allscripts licenses to the hospital, but it will continue to work with physicians on the Misys and Allscripts implementations, including offering help with technology integration and policy issues.

The hospital will host the software and servers in its data center, and will bill the physicians 15 percent upfront. A service level agreement addendum to the contract physicians sign identifies expectations on both sides, Kupec says. "The physicians are still making a considerable investment," he notes. "No one is going to sign up and not use it. The training hours are extensive. There are eight hours just for the initial training with additional time for different modules, and other members of the staff need to train as well."

The rollout will be gradual, Kupec says. "Our plan is to have 150 physicians using it by 2011."

Kupec admits being a pioneer in this field is a high-risk/high-reward approach. "It's high-risk because we're trying to talk 650 physicians onto a common system platform. The high reward is the potential benefit of sharing that data. We think that by 2011 we could have a unique advantage in our market and be seen as a leader nationally."

One of Saint Francis' goals is to share more clinical data. With the move toward RHIOs, interoperability is going to be key. The organization realized it would be difficult to make progress if local physicians were using a dozen different practice management systems and EHRs. "That is why best-of-breed decision making is important to the sharing of clinical data," Kupec says. If the first-year cost is about $30,000 per physician, once physicians have already made their decision, you're not going to get them to change to unify on a single platform, he says.

Kupec says that Saint Francis is a conservative, Catholic hospital system that wants to be progressive, but wouldn't do something without careful consideration. "We researched this carefully, with inside counsel and outside counsel," he says. "We found the risk to be insignificant. We see it as an opportunity, compared with the risk of doing nothing. Progressive hospital systems have to drive this."

More excuse than reason?

Before the IRS memo was issued, 62 percent of the members who responded to an April survey by CHIME (The College of Healthcare Information Management Executives) said their organizations had no plans to take advantage of the new Stark exception and antikickback safe harbor laws. Most CIOs cited concerns about the IRS, although others say they feared that with the change in Congress to Democratic control, the relaxation of Stark could be reversed. (Rep. Stark's office denied HCI's request for an interview.)

One CHIME member wrote: "The physicians are using the safe harbor to get pretty much free services from as many hospitals as possible, without any real intention of utilizing what is provided. Therefore we are not biting into this yet."

Keith MacDonald, research director in the emerging practices research group of Long Beach, Calif.-based First Consulting Group, believes the IRS status issue has been "more of an excuse than a reason."

MacDonald, whose firm has helped hospitals, including Premier Health Partners, work through issues involving health IT implementations, says many hospitals would just move down the list to their next excuse.

"Many go through the strategic planning phase and are just not ready to pull the trigger," he says. "They are nervous about the costs and will say they want to see other people do it first. This is a very hot area, but the number of hospitals actually doing something is less than 5 percent, I would estimate."

NAHIT's Wallace agrees that organizations lacking the technical wherewithal and strategic orientation would find other reasons not to act. "But this will allow those ready to move to do so," he says.