The Centers for Medicare & Medicaid Services (CMS) published on September 4, 2012, a final rule (Stage 2 Rule) to establish the Stage 2 “meaningful use” (MU) criteria (Stage 2 Criteria) of the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs established under the Health Information Technology for Economic and Clinical Health Act (HITECH Act) and make certain changes to the Stage 1 criteria (Stage 1 Criteria) and other EHR Incentive Program requirements currently in place.

The Centers for Medicare & Medicaid Services (CMS) published on September 4, 2012, a final rule (Stage 2 Rule) to establish the Stage 2 “meaningful use” (MU) criteria (Stage 2 Criteria) of the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs established under the Health Information Technology for Economic and Clinical Health Act (HITECH Act) and make certain changes to the Stage 1 criteria (Stage 1 Criteria) and other EHR Incentive Program requirements currently in place.

Beginning in 2014, eligible professionals (EPs), eligible hospitals (EHs) and critical access hospitals (CAHs) that have met Stage 1 Criteria under the Stage 1 rule published on July 28, 2010 (Stage 1 Rule), for two or three years will need to meet Stage 2 Criteria to continue to earn the Medicare and/or Medicaid EHR incentive payments and to avoid significant payment penalties beginning in Medicare fiscal year (FY) 2015. 

The objectives of the Stage 2 Rule include promoting higher quality and more efficient patient care through better clinical decision support, care coordination and patient engagement.  This On the Subject provides an overview of the key changes to the EHR Incentive Programs included in the Stage 2 Rule, including the following:

  • Meaningful Use Timeline for EPs, EHs and CAHs
  • Increased Eligibility for EHR Incentives for Hospital-Based Physicians
  • Stage 2 Objectives and Measures
  • Batch Reporting of MU Measure Data
  • Medicare Payment Penalties
  • Reporting Periods for Eligible Providers to Avoid Penalties
  • Hardship Exceptions to Medicare Payment Penalties
  • Eligibility Expansion for the Medicaid EHR Incentive Program

The Office of the National Coordinator for Health Information Technology (ONC) also published a separate final rule on September 4, 2012 (Stage 2 Certification Rule), establishing the final standards, implementation specifications and certification criteria for EHR technology to qualify as Certified EHR Technology (CEHRT) to support MU under the Stage 2 Rule beginning in 2014 (2014 Edition EHR Certification Criteria). The Stage 2 Certification Rule will be the subject of a separate On the Subject publication to be issued shortly. For more information about the Stage 1 Rule, see McDermott’s White Paper “Navigating the Government’s Final Rules for Earning Incentive Dollars Through ‘Meaningful Use’ of E-Health Record Technology.” 

Meaningful Use Timeline

The Stage 1 Criteria include certain objectives, associated measures and other requirements that must be met in order to demonstrate MU during Stage 1.  The Stage 1 Rule requires EPs, EHs and CAHs (collectively, eligible providers) who first attested to Stage 1 Criteria in 2011 to meet the Stage 2 Criteria in 2013 in order to continue to earn EHR incentive payments.  The Stage 2 Rule amends this timeline to require eligible providers that first attested to Stage 1 Criteria in 2011 to meet the Stage 2 Criteria one year later in 2014.  This extension will allow EHR vendors additional time to update and recertify EHR technology under the 2014 Edition EHR Certification Criteria.

With the Stage 2 Rule, CMS has also introduced a special three-month reporting period for eligible providers attesting to either Stage 1 or Stage 2 in 2014, to allow time for eligible providers to implement CEHRT under the Stage 2 Certification Rule.  However, in subsequent years, eligible providers must use the standard 12-month reporting period (except for eligible providers in their initial year of demonstrating MU, which may report for the three-month period).

The following table reproduced from the Stage 2 Rule shows the MU stage applicable to an eligible provider based on the payment year during which the eligible provider first demonstrates MU.

Click here to view table.

Increased Eligibility for Hospital-Based Physicians

Under the Stage 1 Rule, EPs for the Medicare EHR Incentive Program include doctors in five specialty areas—medicine or osteopathy, dental surgery or dental medicine, podiatric medicine, optometry or chiropracty—each of whom must be legally authorized to practice under applicable state law.  However, EPs that are considered “hospital-based” are not eligible to receive incentive payments.

In a significant departure from the Stage 1 Rule, the Stage 2 Rule authorizes CMS to make individualized determinations of whether an EP is hospital-based and thus ineligible for incentive payments.  Specifically, based on applications submitted by EPs, CMS can determine that an EP is non-hospital-based and eligible to receive incentive payments if the EP demonstrates that the EP has funded the acquisition, implementation and maintenance of a CEHRT, without reimbursement from an EH or CAH, in lieu of using the hospital’s CEHRT.  An EP receiving a favorable individualized determination must then demonstrate MU to receive EHR incentive payments and avoid penalties.

MU Stage 2 Objectives and Measures

The Stage 1 core and menu objectives and associated measures for demonstrating MU require EPs to meet the measure (or qualify for an exclusion) for all 15 core objectives and five of 10 menu objectives (for a total of 20 objectives).  EHs and CAHs are required to meet 14 core objectives and five of 10 menu objectives (for a total of 19 objectives) in order to demonstrate Stage 1 MU.

The Stage 2 Rule requires EPs to meet the measure (or qualify for an exclusion) for 17 (instead of 15) core objectives and three of six (instead of five of 10) menu objectives (for a total of 20 objectives) in order to demonstrate Stage 2 MU.  EHs and CAHs must meet 16 (instead of 14) core objectives and three of six (instead of five of 10) menu objectives (for a total of 19 objectives) in order to demonstrate Stage 2 MU.

The Stage 2 Rule retains nearly all of the Stage 1 core and menu objectives with a few replacements and revisions.  Specifically, CMS replaced the “capability to exchange key clinical information among providers of care and patient authorized entities electronically” Stage 1 core objective with a more robust “transitions of care” Stage 2 core objective and associated measures that require the actual electronic exchange of summary of care records.

In addition to replacing the “capability to exchange key clinical information” objective for Stage 2, CMS deleted it from the Stage 1 objectives.  CMS noted that its elimination from the Stage 1 objectives recognizes that the significant confusion it caused and the challenges of interoperability between different EHR systems made it difficult for eligible providers to achieve it.

In addition, CMS replaced the "provide patients with an electronic copy of their health information” Stage 1 objective with a "provide patients with the ability to view online, download, and transmit their health information" Stage 2 core objective.

For the Stage 1 objectives retained in Stage 2, CMS has raised the corresponding measure threshold that eligible providers must achieve in order to promote progress from Stage 1 to Stage 2.  For example, the Stage 2 Rule requires eligible providers to record the smoking status for at least 80 percent of all unique patients 13 years of age or older, compared to the Stage 1 threshold of 50 percent of all such patients.

Batch Reporting of Meaningful Use Measure Data

The Stage 2 Rule authorizes a batch reporting process that permits (but does not require) physician groups to report each individual EP’s core and menu objective and measure data through a batch process, while maintaining individual assessments of whether an EP has demonstrated MU.  Attendant to this batch reporting process, CMS has articulated a file format whereby groups can submit core and menu objective and measure information for individual Medicare EPs (including the applicable stage of MU for the individual EP, and numerator, denominator, exclusion and yes/no data for each core and menu objective), as well as a process for uploading such batch files. 

CMS states that a Medicare EHR Incentive Group is any two or more EPs, each identified with a unique national provider identifier, associated with a group practice identified under one tax identification number (TIN) through the Provider Enrollment, Chain, and Ownership System (PECOS).  Any EP that successfully attests as part of one Medicare EHR Incentive Group will not be permitted to attest individually or as part of a batch report for another Medicare EHR Incentive Group.

Regardless of participation in batch reporting, EPs must individually meet all of the thresholds of the core and menu objectives and cannot use group averages or any other method of group demonstration.  Similarly, batch reporting does not affect incentive payments or payment adjustments, which are specific to individual EPs and not to Medicare EHR Incentive Groups. 

Medicare Payment Penalties

Beginning in 2015, the HITECH Act requires CMS to impose downward adjustments (i.e., penalties) in Medicare reimbursement to an eligible provider that fails to demonstrate MU during the applicable MU reporting period, unless CMS determines, on a case-by-case basis, that the eligible provider qualifies for a hardship exception.  The following subsections summarize the penalty provisions under the HITECH Act, as well as the reporting periods for avoiding such penalties and the Stage 2 hardship exceptions for each category of eligible providers.

Penalties for EPs

The Medicare Physician Fee Schedule (MPFS) amount payable to an EP who fails to demonstrate MU during the applicable reporting period will be reduced to 99 percent of the amount otherwise payable under the MPFS in 2015 (or 98 percent if the EP is not a successful electronic prescriber), 98 percent of the MPFS amount in 2016, and 97 percent of the MPFS amount in 2017 and each subsequent calendar year, unless the EP qualifies for a hardship exception.  In addition, CMS has the authority to further reduce the MPFS rates beginning in 2018 if the proportion of EPs who are meaningful EHR users is less than 75 percent.

Penalties for EHs

The annual market basket adjustment to the Inpatient Prospective Payment System payment rate for inpatient hospital services for an EH that fails to demonstrate MU during the applicable reporting period is reduced by one-quarter, one-half and three-quarters of the percentage increase otherwise applicable in FY 2015, FY 2016, FY 2017 and subsequent Medicare FYs, respectively, unless the EH qualifies for a hardship exception.

Penalties for CAHs

For cost reporting years beginning in FY 2015, if a CAH fails to demonstrate MU, the reasonable cost payment for inpatient services furnished by the CAH will be reduced from 101 percent of the CAH’s reasonable costs in providing CAH services to its inpatients to 100.66 percent, 100.33 percent and 100 percent in FY 2015, FY 2016, FY 2017 and each subsequent Medicare fiscal year, respectively, unless that CAH qualifies for a hardship exception.

Reporting Periods for Eligible Providers to Avoid Penalties

An eligible provider may avoid Medicare payment penalties for an adjustment year (which is CY 2015 or later for EPs, and FY 2015 or later for EHs and CAHs) by meeting the Stage 1 Criteria or Stage 2 Criteria, as applicable, during the reporting period and reporting (by the submission deadline) that the eligible provider was a successful meaningful EHR user during the reporting period.  Following are tables reproduced from the Stage 2 Rule showing the applicable reporting periods for each category of eligible provider by adjustment year.

The following table shows how an EP may avoid the payment penalties by demonstrating MU during the EHR reporting period two years prior to the payment adjustment year or for an EP demonstrating MU for the first time in the year prior to the payment adjustment year, a 90-day reporting period beginning no later than July 3 of the prior year.

Click here to view table.

The following table from the Stage 2 Rule shows how an EH may avoid the payment penalties by demonstrating MU during the EHR reporting period two years prior to the payment adjustment year or for an EH demonstrating MU for the first time in the year prior to the payment adjustment year, a 90-day reporting period beginning no later than April 2 of the prior year.

Click here to view table.

The following table from the Stage 2 Rule shows how a CAH may avoid the payment penalties by demonstrating MU during an EHR reporting period that is the same as the payment adjustment year or, for a CAH demonstrating MU for the first time in the payment adjustment year, a 90-day reporting period beginning no later than September 30 of such payment adjustment year.

Click here to view table.

Hardship Exceptions to Medicare Payment Penalties

The Stage 2 Rule establishes four hardship exceptions to the payment penalties for eligible providers based on (ii) the lack of availability of internet access or barriers to obtaining IT infrastructure; (ii) a time-limited exception for newly practicing EPs or new hospitals that will not otherwise be able to avoid payment adjustments; (iii) unforeseen circumstances such as natural disasters; and (iv) for EPs only, exceptions due to a combination of clinical features limiting a eligible provider's interaction with patients or, if the EP practices at multiple locations, lack of control over the availability of CEHRT at practice locations constituting 50 percent or more of their encounters.

The following table from the Stage 2 Rule shows the timing requirements for the four exceptions for EPs.

Click here to view table.

The following table from the Stage 2 Rule shows the timing requirements for the three exceptions for EHs.

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The following table from the Stage 2 Rule shows the timing requirements for the three exceptions for CAHs.

Click here to view table.

Medicaid Eligibility Expansion

EPs are eligible for incentive payments under the Medicaid EHR Incentive Program only if they meet certain additional eligibility requirements, including minimum Medicaid patient encounter volume thresholds intended to ensure that Medicaid funding is used to encourage the adoption and use of technology benefitting the Medicaid population.

Under the Stage 1 Rule, a Medicaid encounter occurs where Medicaid (or a section 1115 Medicaid demonstration project) paid for part or all of the service, or where Medicaid (or a section 1115 Medicaid demonstration project) paid all or part of the individual's premiums, copayments and/or cost-sharing.

The Stage 2 Rule expands the definition of “encounter” to include any service rendered on any one day to an individual enrolled in a Medicaid program.  This definition is intended to ensure that patients enrolled in a Medicaid program are counted, even if the Medicaid program did not pay for the service (because, for example, a third party payer paid for the item or service, or the service is not covered under Medicaid).  The Stage 2 Rule also expands the definition of a Medicaid patient encounter to include encounters with individuals enrolled in Title XXI-funded Medicaid expansion encounters (but not separate Children’s Health Insurance Programs), beginning with the 2013 payment year.  The cumulative effect of these changes should allow more EPs to qualify for the Medicaid EHR incentives (which are generally more generous than the Medicare incentives for EPs) under the Stage 2 Rule than under the Stage 1 Rule.

Conclusion and Next Steps

Eligible provider organizations should consider the following steps to respond to the changes to the EHR Incentive Programs included in the Stage 2 Rule:

  • Organizations that have not adopted CEHRT but want to earn incentives and avoid Medicare payment penalties should select CEHRT and make implementation plans with an eye on the first payment adjustment year coming in 2015.
  • Organizations that have implemented CEHRT certified under the Stage 1 EHR certification criteria should contact their EHR vendors to discuss timing for upgraded EHR technology meeting the 2014 Edition EHR Certification Criteria. 
  • Organizations that have already implemented CEHRT should determine when their EPs, EHs and CAHs must begin to meet the more demanding Stage 2 objectives and measures, and develop an implementation work plan that includes training for physicians and other affected personnel on the measure requirements.
  • Medical groups, hospitals and other organizations employing or retaining physicians currently classified as hospital-based physicians should consider whether they have a basis for submitting applications to receive individualized determinations that any physicians are not hospital-based, and, therefore eligible for incentive payments.