On March 7, 2012, the Centers for Medicare and Medicaid Services (CMS) published proposed regulations (Proposed Regulations) outlining the Stage 2 “meaningful use” requirements for the Medicare and Medicaid Electronic Health Records (EHR) Incentive Programs (collectively, the EHR Incentive Programs). In addition, the Proposed Regulations make several other proposed changes to the EHR Incentive Programs, including the Stage 1 meaningful use requirements. For those providers who are currently participating in the EHR Incentive Programs or expect to participate in these programs, the Proposed Regulations provide insight into the potential requirements necessary to meet the Stage 2 meaningful use criteria and otherwise qualify for EHR incentive payments. Providers who wish to submit comments on the Proposed Regulations must do so by May 7, 2012.

The EHR Incentive Programs, which were enacted as part of the American Recovery and Reinvestment Act of 2009, are estimated to pay more than $30 billion in EHR incentive payments to eligible professionals (EPs), eligible hospitals, critical access hospitals (CAHs), and Medicare Advantage (MA) organizations that make “meaningful use of certified EHR technology” between 2011 and 2021. EPs who qualify for Medicare incentives can receive up to $44,000 per EP over a five-year period, while EPs who meet Medicaid patient-volume requirements and qualify for Medicaid incentives can receive up to $63,750 per EP over six years. (EPs who qualify for both EHR Incentive Programs must choose one.) The amount available to hospitals varies based on several factors, including the size of the hospital and Medicare or Medicaid patient volumes, but begins with a $2 million base payment.

Although the Medicare EHR Incentive Programs has a “carrot” in the form of incentive payments, it also has a “stick” in the form of downward Medicare payment adjustments. Those EPs who are not meaningful EHR users by calendar year (CY) 2015 will experience a downward payment adjustment to their Medicare physician fee schedule payments. Hospitals that are not meaningful users by federal fiscal year (FY) 2015 will experience a decrease in their market basket update. Although in limited situations EPs and hospitals can potentially qualify for a “hardship exception” to these payment adjustments, all EPs and hospitals would be well advised to evaluate their EHR adoption strategies.

Meaningful Use

A central component of the EHR Incentive Programs is the requirement that eligible hospitals and EPs make meaningful use of certified EHR technology. The EHR Incentive Programs utilize a phased approach to implementing the meaningful use criteria, whereby the meaningful use criteria are released in three stages. Stages 1 and 2 are discussed below. Stage 3 will be addressed in future rulemaking.

Stage 1

The Stage 1 meaningful use criteria, released on July 28, 2010, require the achievement of 15 “core” objectives and five of 10 “menu” objectives for EPs. Eligible hospitals are required to satisfy 14 core objectives and five of 10 menu objectives. According to CMS, the goal of the Stage 1 criteria is to set a baseline for electronic data capture and information sharing.

While the Proposed Regulations primarily address the Stage 2 requirements, they propose several revisions to the Stage 1 requirements, most of which would be optional in 2013 and required for Stage 1 beginning in 2014. These proposed changes are summarized in Table 3 of the Proposed Regulations.

Stage 2

The proposed Stage 2 meaningful use criteria endeavor to build upon the goals of Stage 1 by focusing on “continuous quality improvement at the point of care and the exchange of information in the most structured format possible.” Under Stage 2, CMS proposes that EPs meet 17 core objectives and three of five menu objectives, while hospitals must meet 16 core objectives and two of four menu objectives. Almost all of the Stage 1 core and menu objectives have been incorporated into Stage 2. The proposed Stage 2 meaningful use criteria and associated measures are summarized in Table 4 of the Proposed Regulations.

To give hospitals and EPs (and EHR vendors) additional time to prepare for Stage 2, the Proposed Regulations delay the effective date of Stage 2 from 2013 to 2014 for those providers who initially achieved Stage 1 meaningful use in 2011. CMS summarizes the proposed implementation schedule in Table 2 of the Proposed Regulations.

Group Reporting Option

For CY 2014 and subsequent years, CMS proposes to allow Medicare EPs within a single group practice to report core and menu objective meaningful use data through a “batch file” process in lieu of individual Medicare EP attestation through the CMS Attestation Web site. The purpose of the group reporting option is to provide administrative relief to group practices that have large numbers of EPs who need to attest to meaningful use. However, each EP would still have to meet the required meaningful use thresholds independently (i.e., CMS is not permitting EPs to meet the required meaningful use thresholds through the use of a group average or any other method of group demonstration). States would also have the option of offering batch reporting of meaningful use data for Medicaid EPs.

For purposes of the group reporting option, CMS proposes to define a Medicare EHR Incentive Group as two or more EPs, each identified with a unique National Provider Identifier (NPI) associated with a group practice identified under one tax identification number (TIN) through the Provider Enrollment, Chain, and Ownership System (PECOS). CMS seeks public comment on a group reporting option that allows groups to report for their EPs in aggregate, rather than broken out by individual EP.

CMS also indicates that it is still considering a range of issues related to reporting by groups and payment assignment to groups. It invites comments on the group reporting option and a number of additional related issues, including:

  • The definition of a group for the exercise of group reporting
  • Whether there should be a self-nomination process for groups as in the Physician Quality Reporting System (PQRS) or an alternative process for identifying groups
  • Whether the group should be required to utilize the same certified EHR technology
  • Whether the group should be eligible for incentive payments if certified EHR technology (same or different) is not available to all associated EPs at all locations
  • Whether a group should be eligible if its members use multiple certified EHR technologies that cannot share data easily
  • How meaningful use activities should be calculated for EPs who practice in multiple groups or who practice in a group and individually
  • How the Medicare-covered services performed by EPs in another practice would be assigned to the group TIN
  • Whether and how meaningful use activities performed at groups other than the attesting group would be accounted for
  • How CMS should address an EP’s failure to meet a measure individually
  • Whether an EP’s decision not to participate in a particular objective should prevent the EP from being a meaningful EHR user under the group if his or her non-participation still allows group compliance with a percentage threshold
  • What covered services the meaningful use calculation should capture for groups consisting of EPs that serve both Medicare and Medicaid patients
  • Whether the incentive payment should be assigned to the group automatically or whether the EP still needs to assign it to the group at registration
  • Whether automatic assignment should be allowed if the EP has covered services billed to other TINs
  • How covered services for EPs who leave a group during an active EHR reporting period should be handled
  • How payment adjustments for a group should be handled
  • What alternative options should be considered for reporting meaningful use, while capturing necessary data

Clinical Quality Measures (CQMs)

Another important requirement of the EHR Incentive Programs is the submission of CQMs by EPs and hospitals. The Stage 1 regulations require EPs to report on six CQMs and hospitals to report on 15 CQMs. In the Proposed Regulations, CMS seeks to align the CQMs with the quality reporting requirements of other CMS and national quality measurement programs, such as PQRS, the Medicare Shared Savings Program (MSSP), and the Medicare Hospital Inpatient Quality Reporting Program. The Proposed Regulations also describe electronic reporting options for the submission of the CQMs by Medicare EPs and hospitals, which include submission through CMS-designated portals and existing quality reporting systems. For Medicaid EPs and hospitals, states are responsible for designating an electronic submission process for CQMs.

CQMs for EPs

Beginning with CY 2014, the Proposed Regulations require EPs to satisfy 12 CQMs. These CQMs would apply to all EPs for EHR reporting periods in CY 2014 and CY 2015 (and potentially subsequent years), regardless of whether an EP is in Stage 1 or Stage 2 of meaningful use.

CMS is considering two potential CQM reporting options for EPs, and invites comments regarding the advantages and disadvantages of both options. In the first reporting option, EPs would either report on: 1) 12 CQMs from Table 8 of the Proposed Regulations, including at least one measure from each of the six domains (Option 1a), or 2) 11 core CQMs from Table 6 of the Proposed Regulations plus one menu item from Table 8 (Option 1b). Only one of these alternatives would be adopted. In the second reporting option, Medicare EPs who submit and satisfactorily report PQRS clinical quality measures under the PQRS system’s EHR reporting option using certified EHR technology would satisfy their CQM reporting under the Medicare EHR Incentive Program.

For CY 2014 and subsequent years, CMS also proposes to permit medical groups to report CQMs pursuant to three “group reporting options.” Under these group reporting options, EPs within a single group practice could report CQM data on a group-wide level as opposed to an individual basis. This is similar to the ability of Medicaid EPs to aggregate Medicaid patient volumes at a group or clinic level, and reflects CMS’s recognition of the administrative challenges involved in collecting and reporting data in large medical practices. The group reporting options are only available if all EPs in the group are beyond their first year of Stage 1. All three reporting options would be available for Medicare EPs, but only the first option would be available to Medicaid EPs, at a state’s discretion. The three options include group reporting by:  

  • Two or more EPs, each with a unique NPI associated with a group practice under one TIN
  • Medicare EPs participating in the MSSP and the testing of the Pioneer Accountable Care Organization (ACO) model who use certified EHR to submit ACO measures under the MSSP
  • Medicare EPs who satisfactorily report PQRS clinical quality measures using certified EHR under the PQRS Group Practice Reporting Option

CQMs for Hospitals

Beginning in FY 2014, hospitals would be required to satisfy 24 CQMs from a menu of 49 CQMs, including at least one CQM from each of six domains. These six domains are patient and family engagement; patient safety; care coordination; population and public health; efficient use of health care resources; and clinical process/effectiveness. The proposed CQMs would apply to all hospitals beginning in FY 2014, regardless of whether a hospital is in Stage 1 or Stage 2 of meaningful use. The proposed list of hospital CQMs is set forth on Table 9 of the Proposed Regulation.

Additional Highlights of the Proposed Regulations

Medicare Payment Adjustments

If hospitals and EPs (other than hospital-based EPs) do not demonstrate meaningful use of certified EHR technology by 2015, CMS implements penalties in the form of downward adjustments to Medicare payments. To avoid these payment adjustments, hospitals and EPs must demonstrate meaningful use in 2013 or, if in 2014, at least three months prior to end of the FY (for hospitals) or CY (for EPs). For those EPs who opt to receive Medicaid incentives, the “adoption, implementation, or upgrade” (AIU) of certified EHR technology, for which incentives are available in Payment Year 1, is insufficient to avoid Medicare payment adjustments.

In the Proposed Regulations, CMS also defines three categories of exceptions to the Medicare payment adjustment for EPs and hospitals: 1) lack of availability of the Internet or barriers in obtaining information technology infrastructure; 2) a time-limited exception for newly practicing EPs or hospitals that would not otherwise be able to avoid payment adjustments; and 3) unforeseen circumstances such as natural disasters (handled on a case-by-case basis). CMS seeks comments on whether it also should permit a fourth category of exceptions due to a combination of clinical features limiting a provider’s interaction with patients and lack of control over the availability of certified EHR technology at their practice locations. Hospitals must apply for a hardship exception to the payment adjustment by April 1 of the FY and EPs by July 1 of the CY prior to the payment adjustment year.

With respect to hospitals that change ownership, CMS also clarifies that the Medicare payment adjustments are tied to the hospital CMS Certification Number (CCN). By way of example, if Hospital A meets meaningful use and merges into Hospital B, and Hospital B keeps its CCN but is not a meaningful user of certified EHR technology, then payment penalty adjustments would apply beginning in 2015.

Appeal Rights

The Stage 1 regulations established requirements for states to create appeals processes under the Medicaid EHR Incentive Program, but did not establish an appeal process for the Medicare EHR Incentive Program. In the Proposed Regulations, CMS proposes a process for Medicare EPs, eligible hospitals, CAHs, qualifying MA organizations on behalf of an EP, and qualifying MA-affiliated hospitals to file an appeal in the Medicare fee-for-service EHR Incentive Program where the appeal challenges whether the provider met the EHR Incentive Program standards, but does not challenge the standards themselves. Specifically, CMS proposes to allow three types of Medicare appeals:

  1. Eligibility Appeals (which can be filed by EPs, eligible hospitals, and CAHs) where a provider should have received payment but could not qualify for circumstances outside of the provider’s control (e.g., systems issues, natural disasters).
  2. Meaningful Use Appeals (which could be filed by EPs, eligible hospitals, and MA organizations on behalf of providers) to challenge an audit or other finding that the provider did not satisfactorily demonstrate meaningful use. CMS notes that this administrative appeals process also is available to Medicaid EPs and hospitals to the extent that CMS rather than the state makes an adverse audit finding.
  3. Incentive Payment Appeals (which could be filed by Medicare EPs) to challenge claims counts used to calculate the EHR incentive payments.

The Proposed Regulations also set forth deadlines for filing appeals and other administrative procedures associated with these appeals processes.

Modifications to Medicaid EHR Incentive Payment Program

The Proposed Regulations also provide additional flexibility in methods for qualification for and calculation of Medicaid EHR incentive payments.

Calculation of Medicaid Patient Volume

To qualify for Medicaid EHR incentive payments, EPs and hospitals must meet Medicaid or needy patient volume thresholds of 30 percent for EPs and 10 percent for hospitals. To provide more flexibility in meeting these thresholds, CMS proposes to include in the definition of a Medicaid “encounter” all encounters for individuals enrolled in a Medicaid program (even if a third party ultimately pays for some or all of the costs of services furnished) and Medicaid encounters attributable to Title XXI-funded State Children’s Health Insurance Program (SCHIP) expansion populations (but not those attributable to separate state-funded CHIP programs).

CMS also has provided flexibility with respect to the look-back period for Medicaid payment volume. Under the Proposed Regulations, EPs would have the option of calculating patient volumes based on any continuous 90-day period in the 12 months preceding attestation, or the prior calendar year, as is currently allowed.

Lastly, CMS clarified that if a patient is seen by multiple EPs on a given day, it is permissible to count the encounter in each of the EP’s patient volume calculations.


CMS proposes to include as eligible hospitals an additional 12 children’s hospitals that do not have CCNs. Despite satisfying other eligibility criteria, these particular hospitals do not have CCNs because they do not bill Medicare for hospital services.

For purposes of calculating hospital incentive payments, CMS also gives hospitals the flexibility to use cost reports for the most recent continuous 12-month period for which data is available prior to the payment year.

Finally, the Proposed Regulations clarify existing policy that the count of Medicaid discharges and bed days would include only those days that would count as inpatient bed days for Medicare purposes under section 1886(n)(2)(D) of the Social Security Act.


CMS also proposes technical changes to implement section 205(e) of the Medicare and Medicaid Extenders Act of 2010 (Extenders Act) (Pub. L. 111-309), enacted on December 15, 2010. Prior to the Extenders Act, Medicaid EPs who wanted to participate in the Medicaid EHR Incentive Program were required to provide documentation of certain costs related to acquiring and implementing certified EHR technology. The Extenders Act provided that an EP has met this responsibility as long as the incentive payment is not in excess of 85 percent of the net average allowable cost ($21,250 for first-year payments). Consequently, the documentation is no longer needed.

CMS also makes certain technical changes to ensure that Medicaid funding is used to encourage the adoption and use of technology specifically for care of Medicaid patients. Specifically, CMS proposes that at least one of the clinical locations that an EP uses to calculate Medicaid patient volumes have certified EHR technology.


With the publication of the Proposed Regulations, providers and EHR vendors can begin to evaluate their current technology and implementation strategies in light of the proposed Stage 2 meaningful use requirements. Providers should also carefully review the other proposed changes to the EHR Incentive Programs, such as the CQMs, group reporting options, and the expanded definitions of Medicaid patient encounters and Medicaid hospitals. These proposed changes potentially impact the ability of EPs and hospitals to qualify for EHR incentive payments and therefore may require adjustments to EHR strategies, implementation plans, and cost assessments if these Proposed Regulations are finalized.