Hospital affiliation practice IT: what a New Jersey tie-up changes
Affiliating with a health system usually comes with an offer of technology. The rules governing that offer changed in 2021 in ways that make it more available and no less consequential.
Hospital affiliation practice IT arrangements commonly involve donated electronic health record technology. The Stark Law exception permitting this no longer sunsets, now expressly covers cybersecurity software and services, and requires the physician to pay 15 per cent of the donor’s cost.
Three things practices reliably misremember about donated technology, and all three changed at once.
The exception expires at the end of 2021. The donor cannot give you technology if you already have equivalent technology. The software has to include electronic prescribing. Those were all true, and none of them is now.
They changed together, effective 19 January 2021, and the current text reads quite differently from the version most people learned.
The EHR donation exception, as it now reads
Start with the text, because the text changed and the summaries mostly did not.
42 CFR 411.357(w) permits nonmonetary remuneration consisting of items and services in the form of software or information technology and training services, including cybersecurity software and services, necessary and used predominantly to create, maintain, transmit, receive or protect electronic health records, provided a set of conditions is met.
Note what is on the face of it: cybersecurity software and services are named expressly. That was not previously the case, and it matters, because security tooling is frequently the most valuable part of what a health system can offer a small practice.
Note also what is no longer there. Two conditions are now marked Reserved: the prohibition on donating technology equivalent to what the physician already has, and the requirement that the software include electronic prescribing capability. And the sunset that read to 31 December 2021 is gone from the text entirely.
- If your counsel’s memo on donated technology predates January 2021, three of its conditions no longer exist and one of its deadlines has been removed. That is worth a refresh before a negotiation rather than during one.
The contribution requirement, which did not change
One condition is unchanged and is the one with a number attached.
The exception requires that, before receipt of the initial donation of items and services or the donation of replacement items and services, the physician pays 15 per cent of the donor’s cost for the items and services. For items and services received after the initial donation, the physician pays 15 per cent of the donor’s cost at reasonable intervals. The donor, or any party related to the donor, must not finance the physician’s payment or loan funds to be used for it.
Fifteen per cent of the donor’s cost is not fifteen per cent of what the practice would have paid buying the same thing alone, and the difference is usually favourable. It is still a real number that needs budgeting, and the financing prohibition means it cannot be rolled into the arrangement.
A note on scope: that 15 per cent figure is verified for the Stark exception. There is a parallel safe harbor under the Anti-Kickback Statute whose contribution requirement we could not verify from the current codified text, so we are not printing a percentage for it. If your arrangement is being structured against the safe harbor rather than the exception, have counsel confirm that figure directly.
The interoperability condition and data lock-in
This is the condition that protects the practice, and it is worth knowing you have it.
The exception requires that the software be interoperable at the time it is provided, and deems it so if on that date it is certified by a body authorised by the National Coordinator for Health Information Technology to the then-applicable certification criteria. It also requires that, for items usable for any patient without regard to payer status, the donor does not restrict or take any action to limit the physician’s right or ability to use them for any patient.
OIG has been explicit about what that means in practice. Its policy reminder on information blocking states that agreements which preclude or inhibit any competitor from interfacing with the donated system would not satisfy the requirement, and that arrangements where technology vendors agree with donors to charge high interface fees to non-recipient providers or to competitors may also fail. That reminder predates the 2020 amendments, and it remains the clearest statement of OIG’s posture on data lock-in.
The practical question to ask before signing is what happens at the end: who owns the data, in what format it can be extracted, and what that extraction costs. Those answers are cheap to obtain before the arrangement and expensive afterwards, which is the sort of thing worth settling inside a compliance and technology review.
Offered a system as part of an affiliation?
We read the technology terms, work out what the contribution really costs and what leaving would involve, and hand you written findings before you sign.
The consolidation trend, with the right label on it
Context for why this comes up so often, stated carefully.
A 2025 Government Accountability Office review reports that at least 47 per cent of physicians were employed by or affiliated with hospital systems in 2024, up from less than 30 per cent in 2012, and that private equity ownership of or investment in physician practices represented about 6.5 per cent of physicians nationally in 2024. It also notes that studies indicate physician consolidation with hospital systems can lead to increased spending and prices, while generally resulting in no changes in the quality of care.
Those figures are national rather than New Jersey. For the state specifically, the Health Care Facilities Financing Authority’s acute care hospital map names fourteen health systems operating in New Jersey alongside separately listed single-site hospitals. A practice in Bergen or Hudson County is usually choosing among a small number of systems rather than facing a single option, and that is worth remembering in a negotiation.
- Refresh any pre-2021 advice. Three conditions and a sunset are gone.
- Budget the 15 per cent. It cannot be financed by the donor.
- Ask the exit question first. Ownership, format, cost of extraction.
- Know how many systems are actually in reach. Fourteen operate in the state.
Qventive provides hospital affiliation practice IT services in Hackensack NJ and across service areas across New Jersey, working through the technology terms before they are signed.
Where an affiliation changes how systems connect, that work runs through our interface engine and managed IT support, and every new connection belongs in your HIPAA risk analysis. Practices in Bergen County usually have more than one system within reach.
Affiliation and technology: common questions
Does the EHR donation exception still expire?
What does the practice actually have to pay?
What stops us being locked into the donor’s system?
What are the HIPAA implications of an affiliation?
How many health systems are actually operating in New Jersey?
Let’s meet
Qventive advises New Jersey practices on affiliation technology terms. Thirty years healthcare-exclusive, from our office in Hackensack.
- Nonmonetary remuneration in the form of software or information technology and training services, including cybersecurity software and services; physician pays 15 per cent of the donor’s cost; interoperability condition. ecfr.gov
- Agreements that preclude or inhibit any competitor from interfacing with the donated system would not satisfy the requirement. oig.hhs.gov
- At least 47 per cent of physicians employed by or affiliated with hospital systems in 2024, up from less than 30 per cent in 2012. gao.gov