The Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), which was enacted as part of the American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”), contains a variety of financial incentives to encourage hospitals and physicians to use certified electronic health record technology. This alert summarizes the Medicare and Medicaid payment incentives contained in the Stimulus Bill.  

Medicare Incentives  

The HITECH Act uses a carrot and stick approach to encourage physicians and hospitals to use electronic health record (EHR) technology. Physicians and hospitals will receive additional Medicare payments if they use EHR technology in a meaningful way prior to 2015. Penalties, in the form of reduced Medicare payments, are imposed on physicians and hospitals that are not meaningful users by 2015.  

Incentive Payments for Physicians  

Physicians who qualify as “meaningful EHR users” will receive additional Medicare payments in an amount equal to 75% of the allowed charges for Medicarecovered professional services furnished by the physicians. The incentive payments will be paid over a 5-year period beginning in 2011. There is an annual cap on the amount of the incentive payments and the maximum amount that may be received by any physician over a 5-year period is $44,000. In order to receive the maximum payment, physicians will have to qualify as meaningful EHR users in 2011 or 2012. Physicians who do not become meaningful EHR users by 2014 will not receive any incentive payments. Incentive payments are increased by 10% for physicians who practice in health professional shortage areas. Hospitalbased physician are not eligible to receive incentive payments. A chart showing the annual payments caps is attached as Attachment 1.  

“Meaningful EHR Users” are physicians who (a) demonstrate to the satisfaction of HHS that they are using certified EHR technology in a meaningful manner, including the use of electronic prescribing, (b) demonstrate to the satisfaction of HHS that their technology is connected in a manner that provides for the electronic exchange of health information, and (c) use the technology to report on clinical quality measures and other measures selected by HHS.  

Medicare will penalize physicians who do not become meaningful EHR users by 2015. For such physicians, payments for their professional services will be reduced by 1% in 2015, by 2% in 2016 and by 3% in 2017 and each subsequent year. Additional reductions may occur if the number of physician who are meaningful EHR users in 2018 or any subsequent year is less than 75%. HHS has the authority to exempt physicians from the payment reductions if they are able to demonstrate that compliance with the meaningful EHR user requirements would result in a significant hardship.  

The HITECH also contains incentives and disincentives for physicians who provide the vast majority of their professional services through Medicare Advantage plans.  

Incentive Payments for Hospitals  

Hospitals that are “meaningful EHR users” will receive additional Part A Medicare payments under a formula based on the number of discharges and the proportion of the Hospital patients that are Medicare beneficiaries. The formula is described in detail in Attachment 2. For many hospitals, total incentive payments will be in the millions of dollars. Payments are made over a 4-year period and the incentive amount is reduced by 25% in year 2, 50% in year 3 and 75% in year 4. The first payment year is 2011. Hospitals that first become meaningful EHR users after 2013 will receive smaller incentive payments and no incentive payments will be made to hospitals that are not meaningful EHR users by 2014.  

“Meaningful EHR users” are hospitals that (a) demonstrate to the satisfaction of HHS that they are using certified EHR technology in a meaningful manner, (b) demonstrate to the satisfaction of HHS that their technology is connected in a manner that provides for the electronic exchange of health information, and (c) use the technology to report on clinical quality measures and other measures selected by HHS.  

Medicare will penalize hospitals that do not qualify as meaningful EHR users by 2015. For such hospitals, threequarters of their market basket adjustment will be reduced by 33.33% in 2015, by 66.66% in 2016 and 100% in 2017. HHS has authority to exempt hospitals from the payment reductions if they are able to demonstrate that compliance with the meaningful EHR use requirements would result in a significant hardship.  

The HITECH Act also contains incentives and disincentives for hospitals that are operated as part of Medicare Advantage plans.  

Medicaid Incentives

Reimbursement for the Adoption and Use of Certified EHR Technology  

The Stimulus Bill calls for states to reimburse eligible Medicaid providers for a portion of their costs attributable to adoption and use of certified EHR technology. Certified EHR technology means a “qualified electronic health record,” as defined under the Public Health Service Act (“the PHSA”), that has been certified as meeting the PHSA’s requirements applicable to the appropriate type of electronic health record involved (i.e., inpatient or outpatient hospital record, physician office record, laboratory record, etc.).  

The HITECH Act permits reimbursement to two types of hospitals, children’s hospitals and acute care hospitals, and to three types of individual professional providers referred to as “eligible professionals.” All but one of these categories of providers (children’s hospitals) must demonstrate a certain volume of Medicaid or “needy” patients in order to be eligible for Medicaid EHR reimbursement. (See Attachment 3, below.) The term “eligible professional” includes non-hospital-based physicians, dentists, certified nurse midwives and certified nurse practitioners, and it includes physician assistants (“PAs”) practicing in a Federally Qualified Health Center (“FQHC”) or rural health clinic (“RHC”), either of which must be led by a PA. In order to receive Medicaid EHR reimbursement, an eligible professional must waive any rights to Medicare EHR Incentive payments available to professionals under the HITECH Act, including incentives available to providers associated with Medicare Choice programs.  

Eligible professionals are reimbursed 85% of the Net Average Allowable Costs (“NAAC”) for EHR technology, up to specified dollar amounts and during limited time periods (See Attachment 3). The NAAC is an amount that will be determined by the Secretary of Health and Human Services (“the Secretary”) based on the Secretary’s analysis of the average costs for adopting and operating EHR technology in the industry. Hospital providers may be reimbursed up to an aggregate payment limit, which is determined using a formula designed to approximate the “Medicaid share” of a hospital’s overall cost for adopting and operating EHR technology. This formula is similar to the one used to calculate Medicare EHR incentives for hospitals. The Medicaid EHR hospital payment formula starts with a base amount ($2 million), which is increased by a specified dollar amount per qualifying hospital discharge during a given period, and then multiplied by the hospital’s percentage of Medicaid patients. Under this formula, an eligible hospital may receive millions of dollars in reimbursement for EHR technology.  

Requirements for Reimbursable Certified EHR Payments  

In order for a state to receive funds, for making Medicaid EHR payments and for certified EHR technology payments to be considered reimbursable to a provider, the following requirements must be met:

  • The state must make certified EHR technology payments directly to providers without rebates or deductions.
  • An eligible professional must pay the nonreimbursed 15% of NAAC for EHR technology.  
  • During the first payment year (for providers who have not already adopted EHR technology), the provider must demonstrate that it is engaged in efforts to adopt, implement, or upgrade certified EHR technology.
  • For subsequent payment years, and for any provider who adopted certified EHR technology prior to its first payment year, the provider must demonstrate “meaningful use” of certified EHR technology, according to a standard which is likely to be the same as or similar to the Medicare “meaningful use” standard.  
  • The EHR technology being used must be compatible with the state and federal administrative management systems.  

It is Still Too Early to Make an Application for Certified EHR Technology Payment

Currently there is no system in place through which a provider may apply to the State of Michigan for Certified EHR Technology Payments. Further, neither the federal government nor the State of Michigan has developed regulations that set the NAAC or Overall Hospital EHR Amounts, define what constitutes “meaningful use,” or describe how a provider may confirm compatibility with government administrative management systems. As the state and federal government publish more specific guidelines, we will bring you up to date.  

Steps to Take Today  

Until there is more definitive guidance from DHHS regarding the incentive payment programs, providers should focus on establishing and documenting their eligibility for certified EHR technology payments. This includes such steps as determining and documenting hospital discharge numbers and Medicare and Medicaid patient volumes, confirming (for Medicaid incentive purposes) that your existing or proposed EHR technology meets all applicable PHSA standards, and confirming compatibility of an existing or proposed EHR system with state and federal administrative management systems. Further, eligible professionals may wish to perform a preliminary calculation to determine whether it would be more beneficial to receive Medicare EHR payment incentives or Medicaid EHR reimbursement payments. Please contact a member of our health care practice group if you require assistance with these efforts. In addition, providers not currently using EHR technology may want to begin a product review process.

Attachment 1 – Medicare Incentive Payments to Physicians

Notes:  

  1. The incentive payments to physicians will be in the form of additional Medicare payments in amounts equal to 75% of the allowed charges for professional services. Payment may be in a lump-sum or periodic installments. The caps on annual payments are set forth above.  
  2. Payment for physicians who predominantly furnish services in health professional shortage areas are increased by 10% increase in the first, second, third and fourth payment year.  
  3. Hospital-based physicians (anesthesiologists, pathologists, radiologists, etc.) are not eligible for incentive payments.  
  4. Physicians must be “meaningful EHR users” to qualify for incentive payments. In order for physicians to be “meaningful EHR users” they must (a) demonstrate to HHS that certified EHR technology is being used in a meaningful way, including the use of electronic prescribing, (b) demonstrate to HHS that their certified EHR technology is connected in a manner that provides for electronic exchange of health information to improve quality of care, as determined by the HHS Secretary, and (c) use the certified EHR technology to submit information on clinical quality measures and other measures selected by HHS.

Attachment 2 – Formula for Determining Medicare Incentive Payments to Hospitals

The Formula: The amount of the Medicare incentive payment is the product of the following: (a) the Initial Amount, (b) the Medicare Share, and (c) the Transition Factor.

  • Initial Amount. Initial Amount is the sum of $2,000,000 plus the Discharge Related Amount for a 12-month period selected by HHS for a payment year. The Discharge Related Amount is $200 for each discharge during a 12-month period from the 1,150th discharge through 23,000th discharge.
  • Medicare Share. Medicare Share is a fraction (total Medicare inpatient days over total inpatient days), which is calculated as follows:  
  1. the numerator of which the sum of (A) the estimated number of inpatient-bed days (as established by HHS) which are attributable to individuals with respect to whom payment is made under Part A, and (B) the estimated number of inpatient-bed days which are attributable to individuals who are enrolled with a Part C Medicare Advantage organization, and  
  2. the denominator of which is the product of (A) the estimated total number of inpatient bed-days with respect to the eligible hospital during such period, and (B) the estimated total amount of the eligible hospital’s charges during such period, not including any charges that are attributable to charity care (as such term is used for purposes of hospital cost reporting), divided by the estimated total amount of the hospital’s charges during such period.
  • Transition Factor. Transition Factor is 1 for the first payment year, 3/4 for the second payment year, 1/2 for the third payment year, 1/4 for the fourth payment year, and 0 for any succeeding payment year.  

Example: Assume that a hospital, which qualifies as a meaningful EHR user in 2011, has 23,000 discharges annually and a Medicare Share of 40%. Its Medicare incentive payments would be calculated as follows:  

  1. The Initial Amount is $6,370,200, which is the sum of $2,000,000 plus $4,370,200 [(23,000-1,149 = 21,851) x200].  
  2. The Initial Amount of $6,370,200 is multiplied by the Medicare Share of 40%. The product is $2,548,080.  
  3. The total incentive payment would be $6,370,200, which is calculated as follows:  
  1. For 2011, $2,548,080.
  2. For 2012, $1,911,060 ($2,548,080 x .75).
  3. For 2013, $1,274,040 ($2,548,080 x .50).
  4. For 2014, $637,020 ($2,548,080 x .25).

Attachment 3 - Eligible Medicaid Providers and Reimbursement Amounts

Notes and Definitions:

  1. Net Allowable Average Costs or NAAC = Average Allowable Costs reduced by any payment that is made to the provider from any other source that is directly attributable to payment for EHR technology or services.  
  2. Average Allowable Costs = For the 1st year of payment, the average cost for purchase and initial implementation or upgrading of EHR technology, and the support services, including maintenance and training, necessary for the adoption of EHR, as determined by HHS based on studies of industry costs. For payment years after year 1, the average costs of operation, maintenance and use of EHR technology not attributable to initial implementation or upgrade, as determined by HHS based on studies of industry costs.  
  3. Pediatricians = A pediatrician who has a minimum 30% Medicaid patient volume is not subject to the 2/3 payment limit, and may receive 85% of the NAAC, subject to applicable limits. 3. Needy Individual = Any individual who (a) is a Medicaid recipient, (b) receives Title XXI assistance, (c) is furnished uncompensated care by the provider, or (d) whose charges are reduced by the provider on a sliding scale based on ability to pay.  
  4. Overall Hospital EHR Amount = Same as the “Initial Amount” used to calculate the Medicare EHR Incentive, as described on Attachment 2. HHS to publish Overall Hospital EHR Amounts for each eligible hospital in the Federal Register.  
  5. Medicaid Share = Calculated using same formula used to determine the “Medicare Share” for purposes of determine Medicare EHR Incentive Payments (See Attachment 2), but substituting for the numerator in that equation the amount equal to the number of Medicaid inpatient-bed-days, including days for individuals enrolled in Medicaid Managed Care, but not including patients for whom payment may be made under Medicare Part A or Medicare Advantage under Part C.