Recent IRS Ruling on EHRs Can Unite a Non-Profit Hospital Board and Medical Staff

Hospital directors and administrations are in the cross-hairs of every governmental and health agency, as well as third party payers and the media, concerning quality of care. We are constantly reminded that every level of our healthcare system is beset with unsustainable costs, inconsistent quality, the need for electronic transportable health records, the desire of consumers to participate with their doctors in clinical decision-making, and a looming national single-payer system. At the heart of these issues is the fundamental question of whether or not our hospitals and physicians are delivering the highest possible quality of medical care.

Beginning in 2008, inpatient quality will no longer just be a board agenda item. Medicare will begin either adding or deducing significant hospital reimbursements based on quality criteria developed by the Centers for Medicare & Medicaid Services (CMS). Quality of care will be directly tied to the financial health of the institution and the hospital/health system’s ability to document and improve quality for Medicare patients will be a major concern of healthcare boards.

This responsibility is not new; it is rather a change in emphasis. Hospital boards have borne the primary responsibility for the quality of care rendered in their institutions since the landmark court case Darling v. Charleston Community Memorial Hospital in 1965. In spite of this legal reality, directors have typically viewed clinical care as being within the doctors’ prevue, with many directors viewing their ability to monitor providers’ clinical performances as being tenuous at best. Fortunately, there are usually physicians on the board who are able to assist in the quality assessment role.

Physicians have typically engaged in some level of quality monitoring activities and they have generally maintained an acceptable level of care for hospitalized patients. Physicians’ quality assurance activities generally consume significant blocks of meeting time, but they participate because the returns are viewed as being effective and therefore worthwhile. But, for the most part, hospitals have been unable to financially compensate doctors for their additional efforts even though the outcomes of such activities have resulted in improved clinical documentation, shorter lengths of stay, and more efficient ordering patterns. These outcomes create bottom line savings for the hospital. Any small changes in physicians’ ordering patterns that result from quality improvement activities often and significantly help the hospital’s profitability, particularly for those patients on fixed reimbursement, such as Medicare recipients.

Until now, there has not been a mechanism to provide a direct financial benefit to physicians for working together with the hospital to document and improve medical quality. Thanks to a recent IRS ruling, that has now changed. This new ruling allows not-for-profit hospitals to assist their affiliated physicians with the cost of installing electronic health record (EHR) systems in their practices without jeopardizing the hospital’s tax-exempt status. This relaxation of federal kickback laws can add a new and dynamic dimension into a hospital’s quality improvement activities and engage physicians in a very positive manner, because physicians’ office medical practices need efficiency improvements as well. The implementation of electronic health records can provide the improved efficiencies they seek. For the hospital to subsidize office EHRs, however, the money must come from somewhere, and that source can be from inpatient clinical efficiencies created by physicians’ voluntary practice pattern modifications. This source of funds can be realized if the hospital provides reliable clinical data and a process improvement system for the doctors.

Practicing physicians have a great deal of control over clinical quality improvement. Their ordering pens control the vast majority of all resources consumed during a patient’s hospital stay, in addition to determining which patients are admitted and when they are discharged. Clinical process improvement activities measure and assist physicians with reduction of variations in care processes that lead to objective improvements in clinical and resource consumption outcomes. If the hospital board and administration are willing to provide reliable medical data and an educational, non-threatening, clinical process improvement environment, the physicians will be able to objectively improve the quality of their care. When quality and efficiencies improve, the hospital’s financial position invariably improves for all patients, not just Medicare recipients.

For a hospital board and medical staff to determine if such a system should be put in place, they need to ask themselves some basic questions:

1. Do we have inpatient quality outcomes that need improvement? If yes, for which patients?
2. Does each physician know the severity levels of his/her patients? Are the severity levels changing?
3. Have we consistently reduced variations in our largest patient groups? If yes, how significantly?
4. Does each physician know his/her comparative efficiencies? In lab, pharmacy, X-Ray, etc.?
5. How do our clinical outcomes compare to other hospitals across our network?
6. How do our clinical outcomes compare to other hospitals outside our network?
7. Are the clinical and financial outcomes in our largest patient groups improving? And most importantly, do we have a process to objectively improve them?

If answers to any of the above questions are in doubt, the hospital and physicians might want to deploy a reliable data set and a process to address these questions. Undertaking a quality improvement strategy may free up the financial resources necessary, within a few months, for the hospital to assist physicians with securing EHRs for their offices.

Physicians will be receptive to their hospital’s assistance in securing EHRs for their offices for a number of reasons. Aside from electronic prescription writing and the financial benefits of adopting EHRs, a typed and legible health record is an asset that is universally recognized as critical to the delivery of high quality care. Moreover, from both the hospital and physician perspectives, efficiencies are enhanced when records can be electronically and securely transmitted to other physicians and to the hospital as a patient’s history and physical (H&P). If the doctors choose an Internet-based electronic records system that can facilitate patient-physician collaboration by enabling patients to assist their physicians in creating the medical office records, so much the better. This function is a major time and cost savings for doctors in addition to facilitating patient being brought into the decision-making process of their care.

This recent IRS ruling opens the door for progressive hospital boards to create an environment for their medical staffs to embrace clinical quality improvement activities that will objectively improve the hospital’s quality of care, cost efficiencies and therefore, financial position. The net saving can then be used to assist participating physicians in their efforts to improve quality and efficiencies of their outpatient practices by receiving the hospital’s assistance in acquiring electronic health records (EHR) for their offices. Each of the aforementioned problems—unsustainable costs, inconsistent quality, the need for electronic transportable health records, and the desire of consumers to participate with their doctors in the decision-making process—can be successfully addressed by the implementation of these two initiatives: 1) an inpatient clinical process improvement strategy, and 2) EHRs in physicians’ offices.

Hospital boards, administrations, and medical staffs seldom have such a demonstrable opportunity for a true win-win situation.

The Governance Institute thanks William C. Mohlenbrock, M.D., founder and chairman of Crossflo Systems, Inc. and Governance Institute Faculty, for contributing this article. He can be reached at (858) 354-0415 or bmohlenbrock@crossflo.com. For more information on the IRS ruling concerning EHRs, see www.irs.gov/pub/irs-tege/ehrdirective.pdf.