Editor's Note: Health care attorney Patricia King discusses the new rules for hospital subsidies of a physician practice's purchase of electronic medical records (EMR) software.

Under new rules, hospitals can help medical staff members acquire EMRs

Electronic medical records

Physician adoption of electronic medical records (EMR) continues to lag, in spite of sustained encouragement for EMR adoption from the government and private payers. One reason may be that physicians simply can’t afford the investment. Not only is a steep cash outlay required, but also the practice’s productivity may take an initial hit as physicians and staff adapt to electronic systems. Since the return on this investment is difficult to predict, it’s not surprising that physicians balk at incurring these costs.

In 2004, the Government Accountability Office reported that the laws that restrict financial relationships between hospitals and physicians present barriers to expansion of HIT. Shortly after publication of the GAO report, the Department of Health and Human Services (HHS) and the HHS Office of Inspector General proposed rules to permit hospitals to subsidize acquisition of EMR technology by their medical staff physicians, with limitations. The rules are now final.

Four years have passed since the President announced a major initiative to encourage health information technology (HIT), but federal funding for HIT has gone toward government programs rather than putting technology in the hands of doctors. 

Under the new rules, hospitals are not permitted to donate cash to physician practices to purchase an EMR, but can offer direct subsidies.

What can be subsidized

Hospitals can subsidize costs of licensing EMR software, provided that (1) the software is interoperable (meaning that it can exchange data with different electronic medical record systems), (2) it includes electronic prescribing, and (3) the hospital does not modify it to restrict its interoperability.  (The government does not want a hospital to modify the software so that it can communicate with the donor hospital's EMR, but not with EMRs used by competing hospitals.)  The hospital can also subsidize interface and translation software; connectivity services (e.g. wireless internet services); clinical support; maintenance services; secure messaging; training; and help desk services.

Practically speaking, some hospitals are offering Application Service Provider services. In this service, the hospital hosts the EMR software on its servers and provides connectivity to the practice's database. The cost for the software license and support are billed back to participating practices on a monthly basis.  This has the advantage of spreading the costs of acquiring the EMR over the product’s useful life.

What cannot be subsidized

Hospitals cannot subsidize acquisition of hardware, operating system software, storage devices, software primarily used for practice management rather than electronic medical records, personal business items and services, physician office staff, or assistance in converting paper files to electronic records.  Also, the hospital cannot offer technology that duplicates EMR capabilities the practice already has.


The hospital can subsidize up to 85% of the cost.  The practice must pay the remaining 15%, and cannot get a loan from the hospital to finance this. If a hospital decides to offer an EMR subsidy, the hospital is not required to offer it to every member of the medical staff.  The hospital cannot determine subsidies based on volume of referrals, but can use other factors, such as the overall size of the practice or the volume of uncompensated care.

Pat King

About the Author 

Patricia King is a health care attorney in Illinois, and principal of the web-based business Digital Age Healthcare LLC (www.digitalagemd.com).

Other Resources

Practice tools, like Psychiatry EMR and software for other specialties are available through individual specialty pages.

Topics #EHR #electronic health records #electronic medical records #emr #health information technology