A narrow regulatory exception allows hospitals and health systems to provide referring physicians with free or discounted EHR software, but missing even one condition turns the arrangement into a potential kickback violation under the Stark law and Anti-Kickback Statute, according to a Health Law Alliance analysis by founding partner Anthony Mahajan.
The Stark law exception sits at 42 CFR 411.357. CMS and the HHS Office of Inspector General eliminated the exception’s sunset date in their 2020 final rules, making the protection permanent. The agencies concluded they “no longer believe that the need to protect EHR donations will disappear,” citing new entrants to practice, aging EHR systems and improved technology, per law firm McDermott Will & Emery’s analysis of the final rules.
The exception protects software, IT and training services, including cybersecurity tools, that physicians use to create, maintain or transmit electronic health records. Hardware is not covered. A donation that bundles in laptops, tablets or servers falls outside the protected arrangement. According to the blog post, the software must also be certified as interoperable under federal health IT standards on the date it is provided. Outdated or uncertified software does not qualify regardless of how the rest of the arrangement is documented.
Before receiving any donated software, the physician must pay 15% of the donor’s cost, and the donor cannot finance, loan or otherwise cover that payment. Beyond the cost-share, the arrangement must also satisfy all of the following:
- A signed written agreement must specify the items and services provided and the donor’s costs
- The physician’s eligibility and the amount of technology donated cannot be tied to referral volume or value
- Receiving the technology cannot be made a condition of doing business with the donor
- The software must be certified as interoperable on the date it is provided
Hospitals and health systems typically lose the exception by drifting off one condition while assuming the paperwork still covers them, according to the blog post. Common failure points include quietly waiving or reimbursing the physician’s 15% payment through a side arrangement or marketing credit, and scaling the EHR subsidy to a physician’s referral volume even if no document says so directly.
A 2025 Justice Department settlement with a Fresno, Calif., health system illustrates the stakes. Community Health System and its affiliate agreed to pay $31.5 million to resolve False Claims Act allegations that included subsidizing EHR technology at referring physicians’ offices in exchange for referrals. The government alleged the subsidies were tied to referral volume, the 15% cost-sharing was collected late rather than upfront and the written agreements failed to clearly specify the items, costs and required physician contributions. A whistleblower brought the case and received approximately $5 million of the settlement.
Because the same facts can create both Stark law and Anti-Kickback Statute exposure, physicians and health systems that receive a subpoena, audit notice or civil investigative demand related to an EHR donation should bring in healthcare defense counsel immediately rather than responding informally. An AKS violation also carries the risk of OIG program exclusion, a separate consequence that can be more damaging than the financial settlement itself.
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