It has been approximately two months since the Centers for Medicare and Medicaid Services (“CMS”) first displayed the long-awaited final rule defining the process and criteria that eligible hospitals (“Hospitals”) and eligible professionals (“EPs”) must be followed to establish themselves as “meaningful users” of certified electronic health records technology (the “Meaningful Use Rules”). It has also been approximately two months since the Office of the National Coordinator for Health Information Technology (“ONC”) issued a final rule that established the certification requirements that electronic health records system (“Certified EHR System”) technology must meet to support and help to accomplish the tasks that a meaningful user must perform (the “EHR Certification Criteria”). These rules define the requirements that must be met for Hospitals and EPs to be eligible for the American Recovery and Reinvestment Act of 2009 (“ARRA”) incentive payments (“Incentive Payments”) for implementation of Certified EHR Systems. Needless to say, those interested in obtaining Incentive Payments have a significant stake in understanding the rules and how they work together. Despite lengthy guidance in the preamble and commentary language to these rules, significant questions remain.

To help the industry understand these requirements, CMS and ONC have published various guidance documents. In addition, on August 10–12, CMS held a series of teleconference presentations to provide further guidance and to answer specific questions from the public. Given the link between the Meaningful Use Rules and the EHR Certification Criteria, an ONC representative was also present for a portion of the teleconferences. In addition, ONC hosted its own teleconference on August 19th. The CMS slide presentations are available by selecting the following links: presentation for EPs and presentation for Hospitals.

We attended the CMS and ONC teleconferences, and it was clear that industry stakeholders still have many questions about the Meaningful Use Rules, the interplay between those rules and the EHR Certification Criteria as well as the process for obtaining Incentive Payments. The teleconferences provided clarification on many questions. However, we suspect that numerous questions remain. This client alert will provide a background summary of the events surrounding these rules and then will focus on key provisions in the Meaningful Use Rule, common questions that we have received from clients and other issues that were raised during these teleconferences.


As widely known, ARRA provides for Incentive Payments to be made to certain “meaningful users” of Certified EHR Systems. Since enactment of ARRA, hospitals, physicians and other providers have anxiously been awaiting final clarification on the requirements they must meet to be eligible for the ARRA Incentive Payments. Of course, determining how the government would define Certified EHR Technology was of great interest to both EHR vendors and those eligible to receive the Incentive Payments. However, of greater concern to providers has been the uncertainty surrounding how meaningful use would be defined because the meaningful use criteria will define the operational obligations that must be implemented and satisfied to successfully qualify for — and maximize — Incentive Payments.

On July 13, 2010, CMS issued the long-awaited final Meaningful Use Rules and on that same date, ONC issued the final EHR Certification Criteria. Note that ONC had previously issued a final rule establishing a temporary certification program for EHRs and is expected to issue a final rule establishing the permanent certification program in the fall of this year.

To Pay or Not to Pay, That is the Question!

The number and content of questions asked by health care industry members during the CMS teleconferences highlights that confusion remains regarding the types of providers eligible to obtain Incentive Payments, despite guidance contained in the Meaningful Use Rules and further guidance issued by CMS. This confusion mainly appeared to center on EPs practicing at clinics and other non-Hospital facilities, and EPs providing services at Hospitals.

I am a Physician. Am I Eligible to Obtain Incentive Payments?

First and foremost, it is important to emphasize that EPs can participate in either the Medicare Incentive Payments or the Medicaid Incentive Payments but not both. EPs who are eligible for both must choose which program in which they wish to participate. Under the Medicare program, EPs include physicians, dental surgeons, doctors of dental medicine, podiatrists, optometrists and chiropractors. Specialties are eligible if they meet one of the above categories.

Under the Medicaid program, EPs include physicians, dentists, certified nurse midwives and nurse practitioners who meet certain patient threshold requirements. Physician assistants (“PAs”) are also eligible professionals under the Medicaid program if they practice in a federally qualified health center (“FQHC”) or rural health clinic (“RHC”) led by a PA. A FQHC or RHC is considered to be led by a PA if a PA is the primary provider in a clinic (e.g., part-time physician and full-time PA), if a PA is a clinical or medical director at a clinical site of practice or if a PA is an owner of an RHC.

Although there are a couple of exceptions, professionals can be eligible for the Medicaid Incentive Payment only if they have at least 30% patient volume attributable to Medicaid recipients over any continuous, representative 90-day period. However, a professional does not have to meet the preceding standard to qualify for the Medicaid Incentive Payment if he or she:

  1. is a pediatrician who has at least 20% of patient volume attributable to Medicaid patients; or
  2. practices predominantly at a FQHC or RHC and has a minimum of 30% of his or her patient volume attributable to "needy individuals" (patients receiving Medicaid or Children's Health Insurance Program assistance, uncompensated care or services at no cost or reduced cost based on a sliding scale determined by ability to pay).

It is important to note that eligibility for the Incentive Payments is based upon the individual EP. During the CMS teleconference, a number of questions were asked regarding the eligibility of group practices, clinics, behavioral health centers or other types of facilities where EPs may provide services. Group practices and other non-Hospital facilities through which EPs may practice are not eligible for Incentive Payments. However, the EPs who practice in such facilities are eligible, and it is possible for EPs to assign their Incentive Payments to their group practice, or to a clinic or other facility. As a result, clinics or other health care facilities, which would otherwise not be eligible, could still obtain Incentive Payment dollars.

CMS Response: CMS representatives indicated that they expected many employment or personal services agreements to be reviewed and amended to address assignment of Incentive Payments. In response to questions, CMS representatives also clarified that an EP may assign his or her Incentive Payments to one employer or entity per payment year.

Hospital-based EPs — defined to mean professionals who provide more than 90% of their Medicare or Medicaid services in inpatient hospital and emergency room settings — are not eligible for the Incentive Payments under either Medicare or Medicaid. Although the proposed meaningful use rules would have also excluded professionals in hospital provider-based departments (e.g., outpatient clinics) from receiving Incentive Payments, a legislative fix was enacted in April 2010 that limited this exclusion to only inpatient and emergency department settings.

Thus, professionals such as anesthesiologists, pathologists, hospitalists and emergency medicine physicians, who practice almost exclusively in the inpatient or emergency room hospital setting, will not be eligible for Incentive Payments. That said, hospital-based professionals also will not personally be subject to penalties for failure to meaningfully use certified EHR technology by 2015. Nevertheless, they will be under pressure from Hospitals where they practice to meaningfully use the Hospital's Certified EHR System to further the Hospital's achievement of meaningful use.

CMS Response: In response to questions, CMS representatives emphasized the EPs providing services in hospital outpatient departments are not excluded.

Our Hospital Treats Medicare and Medicaid Patients. Can We Get Incentive Payments from Both Programs?

Hospitals are eligible for both Medicare and Medicaid payments. The following summarizes requirements for eligibility in each program.


Under Medicare, the Incentive Payments are available to both acute care hospitals that are paid under the prospective payment system and are located in the 50 United States or the District of Columbia, and critical access hospitals (“CAHs”) (referred to collectively throughout this update as “Hospitals”).

We also wanted to mention that in the final Meaningful Use Rules, CMS held to its position that hospitals within a system would receive separate Incentive Payments only if the hospitals operated under different CMS Certification Numbers (“CCNs”). CMS received many objections to this standard from hospital systems and hospitals with multiple campuses, which noted that hospital systems and multicampus hospitals have great latitude to choose whether to operate under a single or multiple CCNs. They argued that those that chose to operate under a single CCN would unfairly receive lower Incentive Payments for a decision that had nothing to do with the Meaningful Use Rules. CMS, however, held its position. Nevertheless, in late July a bill was introduced in Congress to provide a legislative fix and clarify that hospitals with multiple campuses could obtain larger incentives.


Acute care hospitals that meet a Medicaid patient volume threshold of 10%, and separately-certified children’s hospitals are eligible to receive the Medicaid Incentive Payments. In the proposed meaningful use rules, CMS would have excluded CAHs from the Medicaid Incentive Payments. But in the final rule, CMS revised the definition of “acute care hospitals” to include CAHs, short-term general hospitals and cancer hospitals with an average length of patient stay of 25 or fewer days.

CMS Response: In response to questions from the public, CMS emphasized that Medicare-eligible Hospitals can also obtain Medicaid Incentive Payments if they are otherwise eligible. CMS also emphasized that psychiatric hospitals and long-term care hospitals are not eligible for Incentive Payments.

To Get the Incentive Payments, Meaningfully Use Your Certified EHR!

Obtaining the Incentive Payments requires Hospitals and EPs to “meaningfully use” Certified EHR Systems. As noted above, “meaningful use” and “certified EHR technology” are two separately defined standards, each separately regulated via the Meaningful Use Rules and the Certification Criteria, respectively.

The interplay between these two standards has created universal confusion in the industry, as reflected by the numerous questions to CMS and ONC. It is important to note that the definition of a Certified EHR System is more broad than the conventional definition of a traditional electronic medical record system. During the CMS and ONC teleconferences, many questions were asked about technology components outside the traditional electronic medical records system, including “home grown” components and functionality that may not be part of the Certified EHR System.

CMS Response: Although subject to a number of nuances, CMS made it clear that achievement of meaningful use objectives must be done on a Certified EHR System, and if a technology component is being used to achieve a meaningful use objective, then that component must be certified as an EHR Module, even if it is outside the formal Certified EHR System.

Note that the U.S. Department of Health and Human Services Secretary recently announced nearly $20 million in new technical support assistance to help CAHs and rural hospitals to convert from paper-based medical records to certified EHR System technology.

This funding is being awarded to 46 Regional Extension Centers in 41 states and the nationwide Indian Country. The program is intended to provide additional support for staffing, and expertise to assist CAHs and rural hospitals with fewer than 50 beds in selecting and implementing certified EHR System technology.

What Exactly is “Meaningful Use,” and What is the Point?

As CMS was eager to articulate, Congress did not intend the Incentive Payments to be a mechanism to reimburse Hospitals and EPs for the costs they incur in acquiring EHR technology. Simply having an EHR System does not achieve any of the goals articulated by Congress to reduce costs, increase quality, etc. That system must be used in a real and meaningful way by physicians and other health care professionals in order to achieve these goals.

However, “meaningful use” is a vague term, so CMS created a series of standards that amount to a yardstick for measuring the actual use of an EHR. These are the minimum standards that must be met to qualify for the Incentive Payments.

  1. Meaningful use standards fall into three categories:
  2. The provider must use certified EHR technology in a meaningful manner (e.g., electronic prescribing);
  3. The provider’s certified EHR technology must be connected in a manner that provides for the electronic exchange of health information to improve the quality of care; and

In using certified EHR technology, the provider must submit to the Department of Health and Human Services (“DHHS”) information on clinical quality measures and any other measures selected by DHHS. Note that, for Medicaid Incentive Payments, states may add additional standards that providers have to meet to demonstrate meaningful use. However, EPs and Hospitals can receive the first-year payment under the Medicaid program for simply being engaged in efforts to adopt, implement or upgrade Certified EHR Technology.

How Difficult Will it be to Demonstrate “Meaningful Use”?

Achievement of meaningful use consists of a phased approach with the initial meaningful use criteria that must be met to qualify for Incentive Payments in 2011 and 2012 (referred to as Stage 1) with the Stage 2 and Stage 3 meaningful use criteria to be finalized through future rulemaking on a periodic basis.

In response to comments that its initial attempt to define meaningful use was unrealistic and overly burdensome, CMS revised its approach to demonstrating meaningful use. The Meaningful Use Rules now provide a degree of flexibility by dividing the criteria into “core” required objectives (“Core Objectives”) and a “menu set” of objectives (“Menu Set Objectives”). For Stage 1, there are 14 Core Objectives for Hospitals and 15 Core Objectives for EPs. There are 10 Menu Set Objectives from which EPs and Hospitals must choose 5.

Although not all Menu Set Objectives must be achieved in Stage 1, it is important to note that pursuant to the phased approach, all of the Menu Set Objectives will be required in Stage 2 along with other criteria. As a result, Menu Set Objectives not chosen in Stage 1 should be included in planning efforts to prepare for Stage 2.

In addition to the Core Objectives and Menu Set Objectives, there are a total of 15 clinical quality measures (“Clinical Quality Measures”) on which Hospitals must report and a total of 6 Clinical Quality Measures on which EPs must report. CMS had initially proposed more than 50 quality measures but reduced those in response to comments.

Within the Core Objectives are measures to be applied to assist in achieving the core objective (“Measures”). The Meaningful Use Rules made some very important changes to the performance levels contained within the Measures to be applied to determine if a particular Core Objective was met, including reducing the performance threshold from 80% down to 50% or lower. This was designed to make achievement of the Core Objectives in Stage 1 much more attainable. Of course, it will be important for Hospitals and EPs to also remain focused on the “bigger picture” and to push to prepare for Stage 2 and increased performance thresholds.

What is the Difference Between “Exclusion” and “Deferment” of Core Objectives and Menu Set Objectives? Do These Concepts Apply to Clinical Quality Measures?

Many of the questions surrounding the Core Objectives, Menu Set Objectives and Clinical Quality Measures have been centered around concepts of “exclusion” and “deferment.” The following provides clarification on these concepts and how they apply to the Core Objectives, Menu Set Objectives and Clinical Quality Measures.

  • Exclusion vs. Deferment

The concepts of exclusion and deferment were created based upon the voluminous comments to CMS emphasizing that many EPs and Hospitals would find it difficult or impossible to demonstrate meaningful use, as defined in the proposed version of the Meaningful Use Rules. Specifically, these commenters noted that certain objectives could be beyond the scope of a provider’s licensing authority or standard of practice, or would not be relevant to smaller or specialized hospitals. CMS indicated that it believed the change to create Core Objectives and Menu Set Objectives minimized this issue. However, to further respond to this concern, CMS implemented the concepts of exclusions and deferment.

  • Exclusions

CMS modified the Core Objectives and Menu Set Objectives to account for circumstances where an EP or Hospital has an “insurmountable barrier” to meet the objective. Examples of such insurmountable barriers cited by CMS include an EP, such as a chiropractor, not having prescribing authority, and, hence, not being able to use an EHR’s e-prescribing functionality, or a Hospital not receiving requests for electronic copies of discharge instructions, and, hence, not being able to meet the Core Objective to provide patients with electronic copies of discharge instructions.

To address these circumstances, CMS modified each Core Objective, Menu Set Objective and their respective measures to provide for exclusions in the event that an objective and its measures could be inapplicable. It is important to note that not all objectives may be subject to an exclusion. Only those Core Objectives and Menu Set Objectives that specifically contain an option for exclusion can be excluded. If exclusion is an option, then its criteria will be listed below the objective and measure. To qualify for an exclusion, all of the criteria for the particular exclusion must be met.

  • Impact of Exclusions

If an EP or Hospital meets the criteria for an exclusion to a Core Objective, then for Stage 1, the EP or Hospital can attest that it met the exclusion criteria. This will result in removal of that particular Core Objective from consideration in the determination of meaningful use.

If an exclusion applies to a Menu Set Objective, then attestation also removes that particular Menu Set Objective from consideration. This results in a decrease in the number of Menu Set Objectives that must be met. To further illustrate, if one Menu Set Objective can be excluded, then there will only be 9 Menu Set Objectives at issue instead of 10. This would mean that the EP or Hospital would only have to satisfy 4 Menu Set Objectives for Stage 1, and the remaining 5 Menu Set Objectives could be deferred. Deferment of Menu Set Objectives is further discussed next.

  • Deferment

As discussed above for Stage 1, EPs and Hospitals are provided with 10 Menu Set Objectives, from which they must choose at least 5. The remaining 5 may be deferred to Stage 2. The only limitation on deferment is that at least one of the Menu Set Objectives for Stage 1 must be a population and public health measure. Otherwise, an EP or Hospital has complete discretion to determine which 5 Menu Set Objectives to defer. As clarified above, if a Menu Set Objective is subject to exclusion, then the number of Menu Set Objectives that must be met for Stage 1 decreases, not the number of Menu Set Objectives that can be deferred (see below).

  • Clarification on Interplay Between Exclusion and Deferment

During the CMS conferences there were numerous questions regarding the interplay between exclusions and deferments. Many participants thought that if an EP or Hospital did not have eligible patients or actions for a measure within a Menu Set Objective, that this would result in a “deferment.”

CMS Response: CMS clarified that the lack of eligible patients or actions does not trigger a deferment. Rather, this would likely result in an exclusion. CMS reiterated that exclusions do not count against the five Menu Set Objectives that can be deferred. For example, an EP or Hospital could end up successfully achieving 3 Menu Set Objectives, attesting to 2 exclusions and deferring 5 Menu Set Objectives for Stage 1.

  • Clarification on Reporting Clinical Quality Measures

Reporting on Clinical Quality Measures is a Core Objective for both EPs and Hospitals. Confusion arises, however, because many of the Clinical Quality Measures have numerators and denominators to be reported on, similar to many of the measures under the Core Objectives and Menu Set Objectives. Based upon questions asked during the CMS conferences, it was clear that many participants believed that the concepts of exclusion and deferment apply in the same way to reporting on Clinical Quality Measures as they do to meeting the Core and Menu Set Objectives.

CMS Response: CMS clarified that, for Stage 1, Clinical Quality Measure reporting is just that, a reporting requirement and not a requirement to meet a performance standard or to have patients that fall within the denominator of all measures. CMS emphasized that EPs and Hospitals need to report on all required Clinical Quality Measures. However, if an EP or Hospital does not have patients who fit a particular measure, then the EP or Hospital would simply report zero for the denominator. If accurate, reporting the value as zero would still result in the EP or Hospital meeting the requirement to report that particular Clinical Quality Measure.

How will the Government Know Whether We have Demonstrated “Meaningful Use”?

EPs and Hospitals will report their success in meeting the meaningful use standards through attestation. In the first year that an EP or Hospital applies for the Incentive Payments, it will have to report its successful performance in meeting the meaningful use standards for any continuous 90-day period during that year. In subsequent years (and in 2015 and after), it will have to demonstrate meaningful use for the entire year. As noted above, for Payment Year 2011, this will occur through an attestation process. The attestation process is to begin April 2011, and occur via a CMS website.

We are a Hospital, and We Think We Will be Able to Begin Establishing Stage 1 “Meaningful Use” as soon as Our EHR Officially Obtains Certification. What is the Process for Reporting on and Obtaining Medicare Incentive Payments in the First Payment Year?

Hospitals may technically begin their 90 day EHR Reporting Period for Stage 1 at the start of Federal Fiscal Year 2011, which is October 1, 2010. Registration for the EHR Incentive Program, however, will not commence until January 2011. Hospitals will not be able to attest to meaningful use for the Medicare EHR incentive program until April 2011. Medicare Incentive Payments will begin being issued May 2011.

What is the Difference Between Registration and Attestation?

An EP or Hospital must register to participate in the EHR Incentive Payment Program. Registration simply allows an EP or Hospital the opportunity to participate. Registration, in and of itself, does not trigger an Incentive Payment. Incentive Payments are obtained through attestation (for Payment Year 2011). Attestation is the process whereby the EP or Hospital certifies that it has successfully demonstrated meaningful use for 90 continuous days, and is thereby entitled to Incentive Payments.

Can We Obtain Both Medicare and Medicaid-based Incentive Payments?

Hospitals are eligible to receive Incentive Payments through both the Medicare and Medicaid programs. However, EPs can only receive either Medicare or Medicaid Incentive Payments. If an EP elects to receive Medicaid Incentive Payments in a payment year, that EP must waive his or her right to receive Incentive Payments under Medicare. However, EPs may switch between the Medicare and Medicaid programs once prior to 2015.

Do Hospitals and EPs have to Demonstrate “Meaningful Use” to Get the Medicaid Incentive Payments?

Neither Hospitals nor EPs have to actually achieve meaningful use in the first payment year to obtain the Medicaid Incentive Payments. Rather, Hospitals and EPs can receive the first-year payment under the Medicaid program for simply being engaged in efforts to adopt, implement or upgrade certified EHR technology.

OK. Here is the Most Important Question of all. How Much Will our Incentive Payment be?

  • Calculation of Payments — Hospitals/Medicare

Hospital incentives are based on a rather complicated formula that will generally provide higher payments for Hospitals with more discharges, more Medicare patients compared to total patient population and more charity care. There is no ceiling on Hospital EHR Incentive Payments.

The calculation formula is:

Incentive Payment = initial amount x Medicare share x transition factor

Initial amount = $2 million + [$200 per discharge from the 1,150th to the 23,000th discharge]

Medicare Share = [Medicare] / [Total x Charity Care]

Medicare = [# of inpatient bed days for Part A beneficiaries] + [# of inpatient bed days for Medicare Advantage beneficiaries]

Total = # of total inpatient bed days

Charity Care = [total charges – charges for charity care] / total charges (Note: If data on charity care is not available, data on uncompensated care is used; if data on uncompensated care is not available, then “total” = 1)

Transition factor:  

Please click here to view table.

CAHs’ Incentive Payments are calculated differently. CAHs will be reimbursed for the cost of the EHR proportional to their Medicare patient population plus 20%. For example, if the cost of the EHR is $400,000 and Medicare patients represent 70% of a CAHs’ patient population, the CAHs will receive an Incentive Payment of $360,000 ($400,000 x (.7 + .2)).

  • Calculation of Payments — EPs/Medicare

EPs would receive an incentive equal to 75% of their Medicare allowed charges for covered professional services during a year, subject to a ceiling. For EPs who provide more than 50% of their covered professional services in a Health Professional Shortage Area (“HPSA”), the ceiling is 10% higher. EPs could receive up to $44,000 over five years if they qualify for the Medicare Incentive Payments starting in 2011 or 2012 (plus an additional $4,400 if performing in a HPSA). Below is a table summarizing the potential Medicare Incentive Payments for EPs.

Please click here to view table.  

  • Calculation of Payments — Hospitals/Medicaid

A Hospital’s Incentive Payment calculation under Medicaid is similar to the Medicare calculation, except that the Hospital’s share of Medicaid patients is used rather than its Medicare share.

  • Calculation of Payments — EPs/Medicaid

An EP can receive up to $63,750 over a six-year period under the Medicaid program or $42,500 for those who had already adopted an EHR by the time the Meaningful Use Rules become effective. However, rather than paying EPs based on billings to the Medicaid program, EPs would be paid based on cost, with an annual cap ($21,250 in the first payment year, and $8500 in the next five payment years).

What Happens if the Government Determines that We Incorrectly Attested that We are Meaningful Users and Received Incentive Payments Based Upon that Incorrect Attestation?

The government has indicated that is will conduct compliance reviews, including verification of meaningful use, and will recoup any overpayments that are the result of incorrect or fraudulent attestations, among other things. The government advises retaining documents supporting qualification to receive Incentive Payments for 10 years after the date of registration for the Incentive Payments programs.

We are a Hospital. What is the Last Day on which We Can Register and Obtain an Incentive Payment for FFY 2011?

November 30, 2011 is the last day for Hospitals to register and attest to Meaningful Use in order to receive an Incentive Payment for FFY 2011.