Medicare Program; Physicians Referrals to Health Care Entities With Which They Have Financial Relationships; Exceptions for Certain Electronic Prescribing and Electronic Health Records Arrangements, 45140-45171 [06-6667]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 71, Number 152 (Tuesday, August 8, 2006)]
[Rules and Regulations]
[Pages 45140-45171]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-6667]



[[Page 45139]]

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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 411



Medicare Program; Physicians' Referrals to Health Care Entities With 
Which They Have Financial Relationships; Exceptions for Certain 
Electronic Prescribing and Electronic Health Records Arrangements; 
Final Rule

Federal Register / Vol. 71 , No. 152 / Tuesday, August 8, 2006 / 
Rules and Regulations

[[Page 45140]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 411

[CMS-1303-F]
RIN 0938-AN69


Medicare Program; Physicians Referrals to Health Care Entities 
With Which They Have Financial Relationships; Exceptions for Certain 
Electronic Prescribing and Electronic Health Records Arrangements

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: As required by section 101 of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA), this final rule 
creates an exception to the physician self-referral prohibition in 
section 1877 of the Social Security Act (the Act) for certain 
arrangements in which a physician receives compensation in the form of 
items or services (not including cash or cash equivalents) 
(``nonmonetary remuneration'') that is necessary and used solely to 
receive and transmit electronic prescription information. In addition, 
using our separate legal authority under section 1877(b)(4) of the Act, 
this rule creates a separate regulatory exception for certain 
arrangements involving the provision of nonmonetary remuneration in the 
form of electronic health records software or information technology 
and training services necessary and used predominantly to create, 
maintain, transmit, or receive electronic health records. These 
exceptions are consistent with the President's goal of achieving 
widespread adoption of interoperable electronic health records to 
improve the quality and efficiency of health care while maintaining the 
levels of security and privacy that consumers expect.

DATES: Effective date: These regulations are effective on October 10, 
2006.

FOR FURTHER INFORMATION CONTACT: Lisa Ohrin, (410) 786-4565, or Linda 
Howard, (410) 786-5255.

SUPPLEMENTARY INFORMATION:

I. Background

    This final rule establishes exceptions to the physician self-
referral law for certain arrangements involving the donation of 
electronic prescribing and electronic health records technology and 
training services. Set forth below is a brief background discussion 
addressing:
     The physician self-referral law and its exceptions;
     A summary of the relevant provisions of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), 
(Pub. L. 108-173);
     The Secretary's authority to implement exceptions under 
section 1877(b)(4) of the Social Security Act (the Act); and
     The November 9, 2005 Open Door Forum on electronic 
prescribing and electronic health records.

A. The Physician Self-Referral Law and Exceptions

    Section 1877 of the Act, also known as the physician self-referral 
law: (1) Prohibits a physician from making referrals for certain 
designated health services (DHS) payable by Medicare to an entity with 
which he or she (or an immediate family member) has a financial 
relationship (ownership interest or compensation arrangement), unless 
an exception applies; and (2) prohibits the entity from submitting 
claims to Medicare or billing the beneficiary or third party payor for 
those referred services, unless an exception applies. The statute 
establishes a number of exceptions and grants the Secretary the 
authority to create additional regulatory exceptions for financial 
relationships that do not pose a risk of program or patient abuse.

B. Section 101 of the MMA

    Section 101 of the MMA added a new section 1860D to the Act 
establishing a prescription drug benefit in the Medicare program. As 
part of the new statutory provision, in section 1860D-4(e)(4) of the 
Act, the Congress directed the Secretary to adopt standards for 
electronic prescribing in connection with the new prescription drug 
benefit with the objective of improving patient safety, quality of 
care, and efficiency in the delivery of care. (See H.R. Conf. Rep. No. 
108-391, at 455, 456 (2003)). Section 1860D-4(e)(6) of the Act directs 
the Secretary, in consultation with the Attorney General, to create an 
exception to the physician self-referral prohibition that would protect 
certain arrangements involving the provision of compensation in the 
form of nonmonetary remuneration (consisting of items and services in 
the form of hardware, software, or information technology and training 
services) that is necessary and used solely to receive and transmit 
electronic prescription information in accordance with electronic 
prescribing standards published by the Secretary under section 1860D-
4(e)(4) of the Act. Specifically, this new exception sets forth 
conditions under which the provision of such remuneration by hospitals, 
group practices, and prescription drug plan (PDP) sponsors and Medicare 
Advantage (MA) organizations (collectively, for purposes of this 
preamble discussion, donors) to prescribing physicians (collectively, 
for purposes of this preamble discussion, physician recipients) would 
be protected. As we noted in the preamble to the October 11, 2005 
proposed rule, depending on the circumstances, provisions in the 
existing physician self-referral regulations may also provide 
protection for the donation of these items and services to physicians.
    In addition to mandating the new exception to the physician self-
referral prohibition, section 1860D-4(e)(6) of the Act directs the 
Secretary to create a corresponding safe harbor under the anti-kickback 
statute (section 1128B(b) of the Act, 42 U.S.C. 1320a-7b(b)). The 
Health and Human Services Office of Inspector General (OIG), the agency 
that enforces the anti-kickback statute, is promulgating that safe 
harbor through a separate rulemaking. We have attempted to ensure as 
much consistency as possible between our final electronic prescribing 
exception and the corresponding final safe harbor, given the 
differences in the respective underlying statutes. One significant 
difference in the statutory schemes is that complying with a safe 
harbor under the anti-kickback statute is voluntary, whereas fitting in 
an exception under section 1877 of the Act is mandatory. In other 
words, arrangements that do not comply with a safe harbor may not 
necessarily violate the anti-kickback statute. Rather, such 
arrangements are subject to the customary case-by-case review under the 
statute. If an arrangement fails to meet all requirements of a 
physician self-referral exception, however, it violates section 1877 of 
the Act. Another difference is that section 1877 of the Act applies 
only to referrals from physicians, while the anti-kickback statute 
applies more broadly.

C. Section 1877(b)(4) Authority

    Section 1877(b)(4) of the Act authorizes the Secretary to create 
regulatory exceptions for financial relationships that he determines do 
not pose a risk of program or patient abuse. Using this authority, this 
final rule also sets forth terms and conditions for a separate 
exception to the physician self-referral prohibition for certain 
arrangements involving the donation of electronic health records 
software or information technology and training

[[Page 45141]]

services. Information technology, and electronic health records in 
particular, supports treatment choices for consumers and enables better 
and more efficient care, while maintaining the levels of security and 
privacy that consumers expect. We seek to encourage the adoption of 
such technology through this final rulemaking. We believe that 
electronic health records systems that are secure and interoperable may 
mitigate many of our concerns regarding the potential anticompetitive 
effects of stand-alone electronic health records systems.

D. Open Door Forum

    We held an Open Door Forum early in the comment period for the 
proposed rule, on November 9, 2005, to discuss the benefits and risks 
of donating electronic prescribing and electronic health records 
technology. The OIG also participated in this Open Door Forum. This 
Open Door Forum was in addition to, and not in lieu of, the public 
comment process. During this Open Door Forum, panelists representing 
the health care industry (for example, the American Hospital 
Association and the American College of Physicians), the health 
information technology industry, and members of the public contributed 
to the discussion. Panelists described the types of technology they 
believe are necessary to have a useful, workable, interoperable 
electronic health records system, including software, training, 
connectivity, upgrades, and a help desk function. The following topics 
were also included in the discussion:
     The cost of the technology to the donor versus the value 
to the physician and a cap on the value of the technology;
     Safeguards necessary to protect against program or patient 
abuse, including permissible donors and recipients and donation 
selection criteria;
     Staged implementation;
     Standards for the certification of the technology;
     Physician certification of technical and functional 
equivalence; and
     The limitations of electronic prescribing functionality 
alone as opposed to electronic prescribing functionality integrated 
into electronic health records software.

II. Provisions of the October 11, 2005 Proposed Rule

    On October 11, 2005, we published a proposed rule to issue three 
exceptions under the physician self-referral statute (70 FR 59182). The 
first proposed exception addressed arrangements involving electronic 
prescribing technology as required by section 101 of the MMA. Many 
industry and government stakeholders had expressed concerns that the 
MMA provision was not sufficiently useful or practical, and would not 
adequately advance the goal of achieving improved health care quality 
and efficiency through widespread adoption of interoperable electronic 
health records systems. Accordingly, we proposed two additional 
exceptions to address donations of certain electronic health records 
software and directly related training services, using our authority at 
section 1877(b)(4) of the Act. One proposed exception would have 
protected certain arrangements involving nonmonetary remuneration in 
the form of interoperable electronic health records software certified 
in accordance with criteria adopted by the Secretary (and directly 
related training services). The second proposed exception would have 
protected certain arrangements involving donations of electronic health 
records technology made before the adoption of certification criteria. 
The proposed rule for safe harbors under the anti-kickback statute, 
issued the same day, contained comparable proposals.
    In response to our proposed rule, we received 74 timely filed 
comment letters. The majority of the comments came from hospitals and 
health systems, trade associations, and vendors. We also received 
comments from information technology organizations, health plans, and 
providers.
    The OIG received 71 timely filed comment letters. The majority of 
the comments came from the same types of entities from which CMS 
received its comments. However, the OIG also received comments from 
pharmaceutical manufacturers and pharmacies.
    Overall, the commenters welcomed the establishment of exceptions 
and safe harbors for electronic prescribing and electronic health 
records technology arrangements. However, we received many specific 
comments about various aspects of the proposed rule.
    After considering these public comments, we are finalizing two 
exceptions:
     An exception that protects certain arrangements involving 
electronic prescribing technology (new Sec.  411.357(v)); and
     An exception that protects certain arrangements involving 
interoperable electronic health records software or information 
technology and training services (new Sec.  411.357(w)).
    These final exceptions create separate and independent grounds for 
protection under the physician self-referral law. For the convenience 
of the public, we are providing Chart 1 that lays out schematically the 
overall structure and approach of the final exceptions, details of 
which we are providing in sections III and IV of this preamble. Readers 
are cautioned that the final exceptions contain additional conditions 
and information not summarized in Chart 1.

                                CHART 1.
------------------------------------------------------------------------
                                  MMA-mandated
                                   electronic         Electronic health
                                   prescribing        records exception
                                 exception  Sec.      Sec.   411.357(w)
                                   411.357(v)
------------------------------------------------------------------------
Authority for Exception.....  Section 101 of the    Section 1877(b)(4)
                               MMA.                  of the Social
                                                     Security Act.
Covered Technology..........  Items and services    Software necessary
                               that are necessary    and used
                               and used solely to    predominantly to
                               transmit and          create, maintain,
                               receive electronic    transmit, or
                               prescription          receive electronic
                               information.          health records.
                                                     Software packages
                                                     may include
                                                     functions related
                                                     to patient
                                                     administration, for
                                                     example, scheduling
                                                     functions, billing,
                                                     and clinical
                                                     support.
                              Includes hardware,    Software must
                               software, internet    include electronic
                               connectivity, and     prescribing
                               training and          capability.
                               support services.

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                                                    Information
                                                     technology and
                                                     training services,
                                                     which would
                                                     include, for
                                                     example, internet
                                                     connectivity and
                                                     help desk support
                                                     services.
Standards with Which Donated  Applicable standards  Electronic
 Technology Must Comply.       for electronic        prescribing
                               prescribing under     capability must
                               Part D (currently,    comply with the
                               the first set of      applicable
                               these standards is    standards for
                               codified at Sec.      electronic
                               423.160).             prescribing under
                                                     Part D (currently,
                                                     the first set of
                                                     these standards is
                                                     codified at Sec.
                                                     423.160).
                                                    Electronic health
                                                     records software
                                                     must be
                                                     interoperable.
                                                     Software may be
                                                     deemed
                                                     interoperable under
                                                     certain
                                                     circumstances.
Donors and Recipients.......  As required by        Entities that
                               statute, protected    furnish designated
                               donors and            health services
                               recipients are        (DHS) to any
                               hospitals to          physician.
                               members of their
                               medical staffs;
                               group practices to
                               physician members;
                               PDP sponsors and MA
                               organizations to
                               prescribing
                               physicians.
Selection of Recipients.....  Donors may not take   Donors may use
                               into account          selection criteria
                               directly or           that are not
                               indirectly the        directly related to
                               volume or value of    the volume or value
                               referrals from the    of referrals from
                               recipient or other    the recipient or
                               business generated    other business
                               between the parties.  generated between
                                                     the parties.
Value of Protected            No limit on the       Physician recipients
 Technology.                   value of donations    must pay 15 percent
                               of electronic         of the donor's cost
                               prescribing           for the donated
                               technology.           technology and
                                                     training services.
                                                    The donor may not
                                                     finance the
                                                     physician
                                                     recipient's payment
                                                     or loan funds to
                                                     the physician
                                                     recipient for use
                                                     by the physician
                                                     recipient to pay
                                                     for the items and
                                                     services.
Expiration of the Exception.  None................  Exception sunsets on
                                                     December 31, 2013.
------------------------------------------------------------------------

General Comments and Responses to the Proposed Rule

    Comment: Most commenters supported the promulgation of exceptions 
for electronic prescribing and electronic health records arrangements. 
Commenters observed that both the Congress and the Administration have 
recognized the compelling need for rapid and widespread adoption of 
electronic prescribing and electronic health records technology. 
Several commenters suggested that fraud and abuse concerns should not 
impede the adoption of health information technology. In this regard, 
commenters suggested that the final rule should better balance the goal 
of preventing fraud and abuse with the goal of creating incentives for 
health information technology arrangements that reduce fraud and abuse, 
increase quality and efficiency, and improve patient care. One 
commenter asserted that investments in health information technology 
and the desire to provide an incentive to participate in health 
information technology systems do not raise typical fraud and abuse 
concerns present with other financial arrangements. However, another 
commenter noted that the proposed rule generally struck an appropriate 
balance between the needs of physicians who may require assistance to 
develop health information technology systems and the underlying 
purpose of Federal fraud and abuse laws to promote the professional 
independence of the physicians receiving the support.
    Response: We disagree with the commenter that suggested that 
financial arrangements involving incentives in the form of health 
information technology do not pose the same fraud and abuse concerns as 
other financial arrangements between parties in a potential referral 
relationship. Indeed, our enforcement experience demonstrates that 
improper remuneration for Medicare referrals may take many forms, 
including free computers, facsimile machines, software, and other goods 
and services. However, we recognize that certain arrangements for the 
transfer of health information technology between parties with actual 
or potential referral relationships may further the important national 
policy of promoting widespread adoption of health information 
technology to improve patient safety, quality of care, and efficiency 
in the delivery of health care. We believe the final rule strikes the 
appropriate balance between promoting the adoption of health 
information technology and protecting against program or patient abuse.
    Comment: Several commenters stated that the Congress and the 
Administration need to offer meaningful financial incentives for 
practitioners to accept the increased cost and workflow burdens 
associated with the implementation of health information technology. 
For example, the government could provide modest add-on payments to 
physicians who employ health information technology as part of overall 
quality improvement measures. Some commenters observed that the 
proposed rule would remove a minor impediment to the adoption of health 
information technology, but suggested that we must play a larger role 
in providing capital for the technologies that assist physicians in 
providing quality care and avoiding medical errors.
    Response: These comments address matters outside the scope of this 
rulemaking. However, we note that the Administration supports the 
adoption of health information technology as a normal cost of doing 
business. Specifically, the 2007 Budget states that ``[t]he 
Administration supports the adoption of health information technology 
(IT) as a normal cost of

[[Page 45143]]

doing business to ensure patients receive high quality care.''
    Comment: Some commenters complained that the proposed exceptions 
were too narrow and vague. These commenters urged that the final 
exceptions should be easy to understand, interpret, and enforce so that 
donors and physicians readily can distinguish permissible activities 
from those that violate the statute. Some commenters believe that the 
proposed rule was too complex and might have the unintended effect of 
discouraging participation in health information technology 
arrangements.
    Response: As described in this preamble, we have adopted a number 
of modifications and changes that address the commenters' concerns. 
Although the final exception at Sec.  411.357(v) addresses only 
electronic prescribing arrangements, the final exception at Sec.  
411.357(w) protects a broad scope of arrangements involving electronic 
health records technology. We have made a number of changes that 
clarify and simplify the final rules. We have endeavored to create 
bright line provisions to the extent possible. Moreover, we do not 
believe that the Congress, in enacting section 1860D-4(e)(6) of the 
Act, intended to suggest that a new exception is needed for all 
arrangements involving the provision of electronic prescribing items 
and services, nor do we believe that an exception is needed for all 
electronic health records arrangements. Many arrangements can be 
structured to fit in existing exceptions.
    Comment: Some commenters observed that the description of the 
nonmonetary remuneration that would be included in the exceptions as 
proposed did not reflect the many existing combinations and varieties 
of electronic prescribing, electronic health records, and similar 
technology.
    Response: As discussed in greater detail, we believe that the final 
exceptions are sufficiently broad to accommodate the most essential 
current and evolving electronic prescribing and electronic health 
records technology. We began this rulemaking process by looking to the 
guidance from the Congress in section 101 of the MMA with respect to 
electronic prescribing technology. Using our regulatory authority, we 
have added a separate exception for arrangements involving electronic 
health records software or information technology and training 
services. We believe that we have appropriately balanced the goal of 
promoting widespread adoption of health information technology against 
the significant fraud and abuse concerns that stem from the provision 
of free or reduced cost goods or services to actual or potential 
referral sources.
    Comment: A commenter suggested that the final rule should include 
provisions that allow us to evaluate and ensure that the regulatory 
requirements, once enacted, have not negatively impacted key 
stakeholders or business segments within the health care industry.
    Response: Nothing in this rulemaking prevents us from reviewing the 
impact of the regulations on stakeholders in the health care industry. 
As with all regulatory exceptions, we may, in future rulemaking, 
propose modifications or clarifications to the exception as 
appropriate.
    Comment: We solicited comments on whether and, if so, how to take 
into account physician access to publicly available software at free or 
reduced prices. One commenter urged that the availability of free 
public software should not impact the design of the final exceptions. 
In addition, the commenter stated that we should grant physicians and 
hospitals substantial latitude in selecting interoperable technology 
that best meets their needs.
    Response: After further consideration, we concluded that it was not 
necessary to take the availability of publicly available software into 
account in developing the final exceptions. Hospitals, physicians, and 
other donors will have great flexibility in selecting technology that 
will qualify for protection under the exceptions. Nothing in this rule 
limits the choice of health information technology, although certain 
technology, such as non-interoperable electronic health records 
software (as discussed in section IV), would not qualify for protection 
because it would not meet all of the conditions of the exception.
    Comment: Some commenters suggested that the exceptions under the 
physician self-referral law should mirror the safe harbors under the 
anti-kickback statute in all respects in order to promote the rapid and 
widespread adoption of electronic prescribing and electronic health 
records technology. A few commenters suggested that OIG not adopt anti-
kickback statute safe harbors or that any safe harbors should be 
stricter than any corresponding exceptions to the physician self-
referral law.
    Response: We believe consistency between these exceptions and the 
corresponding safe harbors under the anti-kickback statute is 
preferable. We have attempted to ensure as much consistency between the 
two sets of regulations as possible given the underlying differences in 
the two statutory schemes.
    Comment: A few commenters requested that the Federal physician 
self-referral exception preempt State laws that prohibit physician 
self-referrals relating to health information technology. One commenter 
wanted the physician self-referral exceptions, once finalized, to 
preempt any State laws or regulations that conflict with the provisions 
of the exceptions.
    Response: The MMA specifically dictated that the Part D electronic 
prescribing standards would preempt any State law or regulation that--
(1) Is contrary to the adopted final Part D electronic prescribing 
standards or that restricts the Secretary's ability to carry out Part D 
of title XVIII; and (2) pertains to the electronic transmission of 
medication history and of information on eligibility benefits, and 
prescriptions with respect to covered Part D drugs under Part D. No 
similar authority was provided with respect to the physician self-
referral exception for the donation of electronic prescribing 
technology. Moreover, the legal authority for the electronic health 
records exception in this rule is derived from section 1877(b)(4) of 
the Act, which similarly does not provide authority to preempt State 
physician self[pi]referral laws. Existing Federal physician self-
referral law permits States to regulate physician self-referrals 
concurrently.
    Comment: Some commenters inquired whether the electronic 
information that is transmitted via electronic prescribing or 
electronic health records systems would be considered remuneration for 
purposes of the physician self[pi]referral law.
    Response: Whether a particular item or service constitutes 
remuneration for purposes of the physician self-referral law depends on 
the particular facts and circumstances. Typically, information about a 
particular patient's health status, medical condition, or treatment 
exchanged between or among the patient's health care providers and 
suppliers for the purpose of diagnosing or treating the patient would 
not constitute remuneration to the recipient of the information. In 
this regard, the electronic exchange of patient health care information 
is comparable to the exchange of such information by mail, courier, or 
phone conversation. Thus, when related to the care of individual 
patients, information such as test results, diagnosis codes, 
descriptions of symptoms, medical history, and prescription information 
are part of the delivery of the health care services and would not have 
independent value to the recipient. However, in other

[[Page 45144]]

situations, information may be a commodity with value that could be 
conferred to induce or reward referrals. For example, data related to 
research or marketing purposes, or information otherwise obtained 
through a subscription or for a fee, could constitute remuneration for 
purposes of the physician self-referral law.

III. Response to Comments and Final Rule Provisions Regarding 
Electronic Prescribing Exception Required Under Section 101 of the MMA 
(proposed Sec.  411.357(v))

A. Summary of the Proposed Provisions Related to Sec.  411.357(v)

    On October 11, 2005, as mandated in the MMA, we proposed adding a 
new paragraph (v) to the existing regulations at Sec.  411.357 for 
certain electronic prescribing arrangements. We proposed the following:
     That the exception would protect certain arrangements 
involving the provision of nonmonetary remuneration (in the form of 
hardware, software, or information technology and training services) 
necessary and used solely to receive and transmit electronic 
prescription information. We construed this language broadly to include 
internet connectivity services (of all types, including broadband or 
wireless), and upgrades of equipment and software that significantly 
enhance functionality.
     That the donated technology must be part of, or used to 
access, a prescription drug program that meets applicable standards 
under Medicare Part D.
     That the technology must be donated by a hospital to 
members of its medical staff, by a group practice to its members, or by 
a PDP sponsor or MA organization to prescribing physicians, as long as 
all of the exception conditions are satisfied.
     That the physician could not make the receipt of donated 
technology a condition of doing business with a donor.
     That protected arrangements must be fully and completely 
documented.
     That the exception would not protect donations of 
technology that replicate technology the physician already possessed. 
To ensure compliance with this provision, we proposed requiring 
physicians to certify that they did not already possess equivalent 
technology. Moreover, we proposed that donors would not be protected if 
they knew or should have known that the physicians already possessed 
equivalent technology.
     That neither a physician's eligibility for donated 
technology, nor the amount or nature of the technology, could be 
determined in any manner that takes into account the volume or value of 
referrals or other business generated between the parties.
     That the parties could not take any action to impede the 
compatibility or interoperability of the technology.
     That the donor could not restrict the ability of the 
physician to use the technology for any patient, regardless of payor.
     Limiting the value of donated technology that could be 
protected by the exception.
     A separate exception for multifunctional items and 
services used for electronic prescribing (for example, multi-use hand-
held devices) because we recognized the limitations imposed by the 
``used solely'' standard set forth in the MMA.

B. General Comments

    Comment: Many commenters stated that the proposed electronic 
prescribing exception was too narrow to be useful and should be merged 
into an electronic health records exception, noting that physicians 
would likely resist adopting stand-alone electronic prescribing 
systems. One commenter observed that the proposed rule was generally in 
accordance with the congressional intent underlying section 101 of the 
MMA.
    Response: We agree that the proposed exception was consistent with 
congressional intent. As we are not free to ignore a congressional 
mandate, we must promulgate the electronic prescribing exception 
described in section 101 of the MMA. However, we are also promulgating 
a separate exception for electronic health records arrangements that 
incorporate an electronic prescribing component. This new exception 
should address the commenters'' concerns.

C. Specific Comments

1. Protected Compensation in the Form of Items and Services 
(Nonmonetary Remuneration)
    The proposed rule clarified the items and services that would 
qualify for the new exception (for purposes of this preamble, 
``qualifying electronic prescribing technology'') that the Congress 
authorized only for the provision of items and services that are 
``necessary and used solely'' to transmit and receive electronic 
prescription drug information.
a. Covered Technology
    In our proposed exception, we proposed protecting hardware, 
software, or information technology and training services that met the 
various exception conditions. We interpreted the statutory language to 
include the donation of broadband or wireless internet connectivity, 
training, information technology support services, and other items and 
services used in connection with the transmission or receipt of 
electronic prescribing information.
    Comment: Various commenters suggested that the scope of covered 
technology should be expanded to include: billing, scheduling, and 
other administrative functions; implementation and maintenance of the 
system; upgrades; and licenses, rights of use, or intellectual 
property. Commenters also urged that any exception cover educational 
sessions and consulting assistance related to the electronic 
prescribing technology. Commenters generally agreed that the provision 
of equipment for personal, non-medical purposes should not be 
protected. One commenter suggested that it would not be possible to 
develop a comprehensive list of protected remuneration that would 
sufficiently reflect all possible electronic prescribing items and 
services. The commenter recommended that we periodically review the 
scope of protected items and services, and expand it as needed.
    Response: We agree that it would be difficult to provide a 
comprehensive list of items and services covered by the exception. 
Although a specific list would provide a ``bright line'' rule, in this 
case, it would also impede the ability of the exception to accommodate 
novel or rapidly evolving technologies in the marketplace. For these 
reasons, we are not promulgating a specific list of protected items and 
services.
    Consistent with the MMA mandate, covered items and services under 
Sec.  411.357(v) include ``hardware, software, and information 
technology and training services'' that are necessary and used solely 
for electronic prescribing and that meet the other conditions of the 
exception. We believe that licenses, rights of use, intellectual 
property, upgrades, and educational and support services (including, 
for example, help desk and maintenance services) are items and services 
that potentially can fit in the exception if all conditions of the 
exception are met. Billing, scheduling, administrative, and other 
general office software cannot. Operating software that is necessary 
for the hardware to function can qualify for protection under the 
exception because it is integral to the hardware and distinct from 
other software applications that are not necessary to transmit and 
receive electronic

[[Page 45145]]

prescribing information. Interfaces designed to link the donor's 
existing electronic prescribing system to the physician's existing 
electronic prescribing system can qualify for protection. The exception 
does not protect the provision of technology for personal, nonmedical 
purposes, nor does the exception protect the provision of office staff.
    Comment: We solicited comments on whether the exception should 
protect electronic prescribing technology that is used for the 
transmission of prescription information for items and services that 
are not drugs (for example, durable medical equipment (DME) or 
laboratory tests). Several commenters suggested that the exception 
should support the use of electronic prescribing technology for all the 
functions currently accomplished through written prescriptions, in 
order to encourage provider utilization of electronic prescribing 
technology to increase safety, cost-effectiveness, and efficiency. The 
commenters suggested including the use of electronic prescribing 
technology used for prescribing medical supplies and durable medical 
equipment, physical therapy, dialysis testing, laboratory tests, and 
other nondrug prescriptions. A commenter from the clinical laboratory 
industry supported a broad reach, but only if clinical laboratories 
were included as permissible donors under the exception.
    Response: We agree generally with the first set of commenters. We 
have reviewed further the language in section 101 of the MMA. The 
exception mandated by section 1860D-4(e)(6) of the Act requires that 
the donated technology be capable of receiving and transmitting 
``electronic prescription information'' in accordance with the 
electronic prescribing standards promulgated for purposes of the MMA 
electronic prescription drug programs described in section 1860D-
4(e)(1) through (3) of the Act. We believe that the specific term 
electronic ``prescription information'' as commonly used and as used in 
section 1860D-4(e)(6) of the Act retains a broad meaning, to include 
information about prescriptions for any items that would normally be 
conducted with a written prescription. In contrast, the information to 
be transmitted under an electronic prescription drug program 
established under section 1860D-4(e)(2) of the Act is clearly limited 
to drug information for Part D eligible individuals. Moreover, we do 
not believe that the statutory language is intended to be construed to 
prohibit the use of the donated technology for the transmission and 
receipt of orders or prescriptions for other items and services or to 
require the use of separate systems depending on the payor or the item 
or service to be prescribed or ordered. We believe this approach is 
consistent with the broad applicability of the physician self-referral 
law, the objectives of the electronic prescribing standards, and the 
patient safety, quality, and efficiency goals underlying the mandated 
exception. Accordingly, we are defining ``prescription information'' 
for purposes of the exception to mean information about prescriptions 
for drugs or any other item or service normally accomplished through a 
written prescription. With respect to the clinical laboratory 
commenter, consistent with the MMA language, we are not including 
clinical laboratories as permissible donors under the exception. 
However, we have expanded the new exception for electronic health 
records arrangements to include clinical laboratories.
b. ``Necessary and Used Solely''
    In the proposed rule, we proposed protecting items and services 
that are necessary and used solely to transmit and receive electronic 
prescription information. We stated that the exception would not 
protect arrangements in which donors provide items or services that are 
technically or functionally equivalent to items that the receiving 
physician already possessed or services that the physician had already 
obtained. We proposed requiring the physician to certify that the items 
and services provided were not technically or functionally equivalent 
to those that the physician already possessed or had already obtained. 
We also proposed that arrangements would not be protected if the donor 
knowingly provided technology that duplicated the physician's existing 
technology. We indicated that we would consider ``necessary,'' for 
purposes of the exception, upgrades of equipment or software that 
significantly enhance the functionality of the item or service.
    Because the term ``necessary'' appeared in our proposed rule in the 
discussions of all three proposed exceptions, many commenters chose to 
address comments on the meaning of the term ``necessary'' in the 
context of the proposed exceptions for electronic health records 
arrangements. We intend to interpret the term ``necessary'' uniformly 
for both new exceptions. Thus, there is a detailed discussion of our 
interpretation of the term ``necessary'' in section IV.C of this 
preamble, which addresses the new electronic health records exception. 
We are addressing here only the comments received on the ``necessary 
and used solely'' requirement that are specific to the proposed 
electronic prescribing exception.
    Comment: One commenter observed that the ``necessary and used 
solely'' requirement ensures that items and services will be used to 
encourage electronic prescribing activities. This commenter suggested 
including an additional requirement that the items or services clearly 
be intended to promote the interoperability of health information 
technology and the improvement of quality in a clinical setting.
    Response: We agree that it was the intent of the Congress to 
encourage electronic prescribing activities, in part, through the 
development of an exception for donations of certain items and services 
necessary and used solely for electronic prescribing transactions. 
However, the additional standards suggested by the commenter, while 
reflecting laudable goals, are not sufficiently ``bright line'' for 
purposes of this exception. We have included a requirement at Sec.  
411.357(v)(3) intended to ensure that protected technology meets Part D 
electronic prescribing standards applicable at the time of the 
donation, including any standards relating to interoperability.
    Comment: Some commenters expressed concern that we have taken an 
unnecessarily narrow interpretation of the statutory language 
``necessary and used solely to receive and transmit electronic 
prescription information in accordance with the standards promulgated 
under [section 101 of the MMA].'' One commenter explained its view that 
the phrase ``necessary and used solely'' should be read such that the 
word ``necessary'' modifies the phrase ``in accordance with the 
standards issued under this subsection.'' In other words, in this 
commenter's view, the protected hardware, software, and services must 
be ``necessary'' to perform electronic prescribing transactions 
``solely'' in accordance with CMS-established data interchange 
standards. The commenter explained that this interpretation would be 
consistent with the purpose of the exception and the practical 
realities of computers and electronic transactions.
    Response: We appreciate the comment; however, we do not believe 
that the commenter's proposed interpretation is the best or most 
logical reading of the statutory language. We believe the better and 
less strained reading is that the Congress intended for all donated 
technology to be necessary for the receipt and transmission of

[[Page 45146]]

electronic prescription information and to be used solely for that 
purpose. Limiting the exception to necessary items and services helps 
ensure that the exception does not become a means of conveying valuable 
items and services that do not further the underlying policy goals and 
that might, in reality, constitute disguised payments for referrals. As 
we noted in the preamble to the proposed rule, we believe that the 
Congress included the ``used solely'' requirement to safeguard against 
abusive arrangements in which the donated technology might constitute a 
payment for referrals because it might have additional value 
attributable to uses other than electronic prescribing. For example, a 
computer that a physician can use to conduct office or personal 
business might have value to the physician apart from its electronic 
prescribing purpose. Accordingly, consistent with section 101 of the 
MMA, the final exception requires that the protected items and services 
be necessary and used solely to receive and transmit electronic 
prescribing information.
    We note that software that bundles general office management, 
billing, scheduling, electronic health records, or other functions with 
the electronic prescribing features does not meet the ``used solely'' 
requirement and is not protected by the final electronic prescribing 
exception. In some cases, the provision of such bundled software may be 
eligible for protection under the new exception for electronic health 
records arrangements at Sec.  411.357(w).
    Comment: One commenter suggested that the definition of 
``necessary'' include all components required for a physician to be 
enabled to prescribe electronically whether or not other functionality 
is available or incorporated into the electronic prescribing 
technology.
    Response: We believe that the commenter is referring to technology 
that is beyond the scope of the MMA-mandated exception. We have elected 
not to finalize a multifunctional electronic prescribing exception. The 
final exception for arrangements involving the donation of electronic 
health records technology may address the commenter's concerns.
    Comment: Many commenters requested that we eliminate the proposed 
requirement that physicians provide written certification that the 
donated technology is not technically or functionally equivalent to the 
technology that the physician already possesses. Several commenters 
expressed concern about the potential difficulty of making this 
determination, the potential lack of expertise on the part of some 
physicians, and the potential increased cost that could arise by having 
an outside expert provide a determination of technical or functional 
equivalence.
    Response: For the reasons noted in section IV of this preamble with 
respect to the electronic health records exception, we are not adopting 
the proposed requirement that physicians provide written certification 
that the donated technology is not technically or functionally 
equivalent to technology the physician already possesses. Although we 
have eliminated the certification requirement, we retained the 
requirement for written documentation regarding the specifics of the 
arrangement in the final exception at Sec.  411.357(v)(7).
    We do not believe that items and services are ``necessary'' if the 
physician already possesses equivalent items and services. The 
provision of duplicative items and services poses a heightened risk of 
abuse, since such arrangements would confer independent value on the 
physician (that is, the value of the existing items and services that 
may be put to other uses) unrelated to the need for electronic 
prescribing technology. Thus, if a donor knows that the physician 
already possesses equivalent items or services, or acts in deliberate 
ignorance or reckless disregard of that fact, the exception will not 
protect the donation. Therefore, prudent donors may want to make any 
reasonable inquiries to potential physician recipients and document the 
communications. We do not believe this requirement necessitates the 
hiring of technical experts by either the donor or the physician 
recipient.
    Comment: One commenter supported our interpretation of the term 
``necessary'' as permitting upgrades of equipment or software that 
significantly enhance the functionality of an item or service. Another 
commenter suggested that we should not require that the upgrades 
``significantly'' enhance the functionality of the item or service. 
Rather, the commenter believes that we should allow the marketplace to 
determine whether an upgrade constitutes a beneficial improvement.
    Response: Although we continue to believe that the term 
``necessary'' does not preclude upgrades of equipment or software that 
significantly enhance the functionality of the item or service, we 
agree with the commenter that distinguishing ``significant'' 
enhancements from other beneficial improvements introduces unnecessary 
complexity. Under the final exception, any upgrade that is necessary 
and used solely to transmit and receive electronic prescribing 
information is protected (as long as all other conditions of the 
exception are satisfied).
    Comment: Many commenters noted that it would be impractical to 
require physicians to acquire or use software and hardware solely for 
electronic prescribing. Several commenters noted that, in most cases, 
single-use technology is of limited value to a physician, and could 
result in inefficiencies. Another commenter expressed concern that the 
``used solely'' standard would preclude the use of robust electronic 
clinical support tools, such as tools to identify drug-to-drug 
interactions or to conduct drug-to-lab or prescription data analysis. 
This commenter urged that any exceptions from the physician self-
referral prohibition for health information technology arrangements 
promote access to all information needed by physicians to evaluate 
alternative drug therapies, identify potential drug-to-drug 
interactions, and to improve safety, quality, and efficiency of patient 
care.
    Response: The ``used solely'' condition derives directly from the 
MMA language. We believe that many of the arrangements of interest to 
the commenters are addressed best by the electronic health records 
exception, which is not restricted to technology used solely for 
electronic prescribing. The MMA-mandated electronic prescribing 
exception reasonably is interpreted to encompass electronic tools that 
provide information necessary to formulate, transmit and receive a 
medically appropriate prescription for a patient. These tools would 
include electronic clinical support tools identifying alternative drug 
therapies, drug-to-drug interactions, or a payor's formulary 
information.
    The nature of the ``prescription data analysis'' tools referenced 
by the commenter is not clear. We believe the appropriate inquiry would 
be whether the tool is used to formulate, transmit and receive a 
medically appropriate prescription for a patient. To the extent the 
data analysis tool (or any other electronic item or service) is used to 
transmit and receive data unrelated to formulating a medically 
appropriate prescription for a patient (for example, data collected for 
marketing purposes), the tool would not be necessary for electronic 
prescribing and would not be protected under the exception.
c. Standards
    The MMA required that donated electronic prescribing technology 
must comply with the standards for electronic prescribing under 
Medicare Part D at the

[[Page 45147]]

time the items and services are donated. In the November 7, 2005 
Federal Register (70 FR 67568), we finalized the first set of these 
standards (the ``foundation standards''). We proposed in Sec.  
411.357(v)(2) a requirement that the items and services be provided as 
part of, or be used to access, an electronic prescription drug program 
that complies with the applicable standards under Medicare Part D at 
the time the items and services are donated.
    We received no comments on this issue. The final exception requires 
that the donated technology must comply with the applicable standards 
under Medicare Part D at the time the items and services are donated.
2. Permissible Donors and Physician Recipients
    We proposed protecting the same categories of donors and physician 
recipients listed in section 101 of the MMA.
    Comment: We received numerous comments requesting that we expand 
the list of permissible donors and physician recipients.
    Response: Because most commenters commented on this issue jointly 
with the proposed electronic health records exception, we included a 
detailed discussion of these comments in our discussion of the 
electronic health records exception in section IV.D. of this preamble.
    We are finalizing the exception consistent with the MMA-mandated 
donors and physician recipients set forth by the Congress. We are not 
persuaded that additional donors or physicians are necessary to achieve 
the purpose of this exception for electronic prescribing. The 
enumerated categories of donors and physicians reflect individuals and 
entities centrally involved in the ordering, processing, filling, or 
reimbursing of prescriptions. Accordingly, protected donors and 
physicians under Sec.  411.357(v) are hospitals to members of their 
medical staffs, group practices to their physician members, and PDP 
sponsors and MA organizations to prescribing physicians. For the 
convenience of the reader, we note the following:
     Group practice is defined as specified in Sec.  411.352;
     Members of a group practice is defined as all persons 
covered by the definition of ``member of a group practice'' at Sec.  
411.351;
     PDP sponsor or MA organization is defined as specified in 
Sec.  423.4 and Sec.  422.2, respectively.
3. Selection of Physician Recipients
    We proposed additional conditions in proposed Sec. Sec.  
411.357(v)(5) and (v)(6) related to how donors select recipients of the 
electronic prescribing technology. These proposed conditions were 
designed to minimize the risk that donors would select recipients for 
the improper purpose of inducing or rewarding the generation of 
Medicare business. Proposed Sec.  411.357(v)(5) would require that the 
recipients (including their groups, employees, or staff) refrain from 
making the donation of qualifying electronic prescribing technology a 
condition of doing business with the donor. Proposed Sec.  
411.357(v)(6) would preclude protection if the eligibility of a 
physician to receive items and services from a donor, or the amount or 
nature of the items or services received, is determined in any manner 
that takes into account the volume or value of the physician's 
referrals or other business generated between the parties. We observed 
that this requirement would not preclude selecting a recipient based 
upon the total number of prescriptions written by the recipient, but 
would preclude selecting the recipient based upon the number or value 
of prescriptions written by the recipient that are dispensed or paid by 
the donor (as well as on any other criteria based on any other business 
generated between the parties). (see October 11, 2005 proposed rule, 
(70 FR at 59187)).
    Comment: Commenters requested that we confirm that donors can 
select physician recipients of electronic prescribing technology based 
upon the total number of prescriptions written by the physician, but 
cannot select them based upon the number or value of prescriptions 
written by the physician recipient that are dispensed or paid by the 
donor (or on any other criteria based on any other business generated 
between the parties). A commenter supported excluding from the 
protection of the exception donations that take into account directly 
the volume or value of referrals or other business generated between 
the parties. This commenter expressed concern that donors would employ 
such selection criteria to disadvantage small practices and practices 
in rural or underserved areas. To counter this potential disadvantage, 
the commenter suggested that the final rule include incentives to 
promote donations to small practices, especially in rural and 
underserved areas. Other commenters suggested that donors, such as PDP 
sponsors and MA organizations should be permitted to consider the 
volume and value of prescriptions written by the physician recipient, 
particularly for a donor's patient or plan population.
    Response: To safeguard against the use of donated technology to 
disguise referral payments, we are adopting our proposal that neither 
the eligibility of a physician to receive items and services, nor the 
amount or nature of the items or services received, may be determined 
in a manner that takes into account, directly or indirectly, the volume 
or value of the physician's referrals or other business generated 
between the parties. Notwithstanding, in the instant case, we believe 
that prohibiting the selection of recipients based on total number of 
prescriptions written by the recipient would be inconsistent with the 
MMA mandate and congressional intent to promote the use of electronic 
prescribing. Accordingly, we confirm our interpretation, for purposes 
of the exception at Sec.  411.357(v), that donors may select physician 
recipients of electronic prescribing technology based upon the total 
number of prescriptions written by the physician, but cannot select 
them based upon the number or value of prescriptions written by the 
physician that are dispensed or paid by the donor (or on any other 
criteria based on any other business generated between the parties). 
They also may not select physician recipients based on the overall 
value of prescriptions written by the physician or on the volume or 
value of prescriptions written by the physician that are reimbursable 
by the Medicare program.
    We are not persuaded that PDP sponsors or MA organizations should 
be permitted to offer technology selectively based on the volume or 
value of business generated for the plan by the recipient, especially 
in the context of Part D, which includes some reimbursement based on 
the plan's costs, rather than capitated payments.
    The exception would not protect arrangements that seek to induce a 
physician to change loyalties from other providers or plans to the 
donor (for example, a hospital using an electronic prescribing 
technology arrangement to induce a physician who is on the medical 
staff of another hospital to join the donor hospital's medical staff), 
because such arrangements take into account business generated for the 
donor. We understand the commenter's concern about donors excluding 
rural and underserved area physicians from their health information 
technology arrangements. Some donors may favor large or urban practices 
over small or rural ones. However, we can discern no ``incentives'' 
that could be included appropriately in an exception to address

[[Page 45148]]

this concern, nor has the commenter proposed any with respect to 
assisting rural or solo practitioners. We note that our decision not to 
limit the value of technology that can qualify under the exception may 
assist rural and solo practices insofar as donors may want to provide 
them with greater resources in recognition of their greater need for 
assistance in adopting electronic prescribing technology.
    Comment: Some commenters supported our proposal to exclude from the 
protection of the exception donations that are a condition of doing 
business with the donor.
    Response: We are retaining the proposed requirement that recipients 
(or any affiliated group, employee, or staff member) cannot make the 
receipt of items or services a condition of doing business with the 
donor. We have clarified that the condition applies with respect to all 
individuals and entities affiliated with the recipient.
4. Value of Technology: Cap
    In our proposed rule, we solicited public comments on various means 
by which we might limit the value of protected technology under the 
electronic prescribing exception. We indicated that we were considering 
a limit on the value of protected technology as a further safeguard 
against program or patient abuse. We received a large number of 
comments on this topic, the majority of which opposed any limit on the 
value of donated technology. Because these commenters typically 
commented jointly on this issue for all three proposed exceptions (and 
each commenter typically had the same concerns under all three proposed 
exceptions), an extensive description of these comments is found in 
section IV of this preamble. Having considered the comments, we are 
persuaded not to limit the value of the donated technology under the 
new exception for electronic prescribing arrangements at Sec.  
411.357(v). We believe the final conditions of the exception, including 
the ``necessary and used solely'' requirement and the conditions 
related to how donors select physician recipients, should be sufficient 
to guard against program and patient abuse. Although we are not 
limiting the value of donated technology, it is not our expectation 
that donors will necessarily want, or be in a position, to donate 
unlimited amounts of electronic prescribing technology.
5. Additional Conditions on the Provision of Qualifying Electronic 
Prescribing Technology
a. All Payors Requirement
    In proposed Sec.  411.357(v)(4), we stated that we would require 
that, where possible, physicians must be able to use the protected 
technology for all patients without regard to payor status.
    Comment: Commenters universally supported the requirement that, 
where possible, physicians must be able to use the donated technology 
for all patients regardless of payor source.
    Response: We agree, and we have included this requirement in the 
final exception.
b. Documentation
    We proposed at Sec.  411.357(v)(7) a requirement that the 
arrangement for the donation of electronic prescribing technology be in 
writing, be signed by the parties, identify with specificity the items 
or services being provided and their values, and include a 
certification that the donated items and services are not technically 
or functionally equivalent to items and services the physician 
recipient already has. We stated that, to permit effective oversight of 
protected arrangements, the writing must cover all qualifying 
electronic prescribing technology provided by the donor to the 
physician. For example, if a donor provides a piece of hardware under 
one arrangement and subsequently provides a