Navigating the Government s Final Rules for Earning Incentive Dollars Through Meaningful Use of E-Health Record Technology

Transcription

1 Navigating the Government s Final Rules for Earning Incentive Dollars Through Meaningful Use of E-Health Record Technology September 22, 2010

2 Introduction The Centers for Medicare & Medicaid Services (CMS) and the Office of the National Coordinator for Health Information Technology (ONC) 1 published on July 13, 2010 in final form the two coordinated sets of regulations that establish the requirements for eligible providers to earn Medicare and Medicaid incentive payments and to avoid significant payment penalties by demonstrating meaningful use of a certified electronic health record (EHR). The incentives and penalties were established by the Health Information Technology for Economic and Clinical Health Act (HITECH Act) as part of the federal government s initiative to promote and accelerate the adoption of electronic health records and ultimately a nationwide health information network. Eligible hospitals (EH or EHs) and eligible professionals (EP or EPs) earn the incentives in the form of enhanced Medicare and Medicaid reimbursement. Based on the number of providers that qualify, the federal expenditures could range from $9.7 to $27.4 billion, according to CMS. The regulations published by the ONC establish the final standards, implementation specifications and certification criteria for EHR technology to qualify as Certified EHR Technology (Final Certification Rule or Certification Rule) 2 to support meaningful use (Stage 1). The Final Certification Rule took effect August 27, The regulations published by CMS establish both the final criteria for demonstrating Stage 1 meaningful use of the Certified EHR Technology and the rules for calculation and payment of the HITECH Act s incentives to eligible providers under Medicare Parts A and B, Medicare Advantage organizations under Medicare Part C, and state Medicaid programs (Final Incentives Rule or Incentives Rule). 3 The Final Incentives Rule takes effect September 27, Following the structure of the Act itself, incentives for all eligible providers under the Final Incentives Rule are structured to encourage early adoption of EHR technology; thus, the incentives are higher in the earlier years, phase out after a specified number of years, and thereafter convert from reimbursement incentives to reimbursement penalties. Eligible providers may begin earning incentives for meaningful use of Certified EHR Technology in The final rules reflect HHS s review and consideration of more than 2,000 public comment letters it received in response to the interim final rule on certification of qualified EHR technology (Interim Final Certification Rule) and the Proposed Incentives Rule on the criteria for demonstrating meaningful use technology (Proposed Incentives Rule) published by ONC and CMS on January 13, Many of the comments had criticized the proposed criteria and certification requirements as too rigid and burdensome. As David Blumenthal, M.D., national coordinator for Health Information Technology, acknowledged, We tried to listen to comments because we want well-intended providers to become meaningful users. So we want the objectives to be ambitious, but achievable We heard that the Proposed Incentives Rules were too inflexible, that we had an all-or-nothing approach. So what we did was add some choice. 5 Indeed, the final rules have generally been received to date as more flexible and as such are likely to enable more eligible providers to earn federal dollars through meaningful use of certified EHR technology. Some of the key changes reflected in the final rules are as follows: Fewer Stage 1 meaningful use objectives: The Proposed Incentives Rule called for EHs and EPs to satisfy all of its specified objectives and criteria (25 for EPs and 23 for EHs). In the Final Certification Rule, the ONC adopts a core group of objectives (15 for EPs and 14 for EHs), including use of computerized provider order entry (CPOE) for medications and reporting on 15 clinical quality 1 CMS and ONC are both part of the U.S. Department of Health and Human Services (HHS). 2 Health Information Technology: Initial Set of Standards, Implementation Specifications, and Certification Criteria for Electronic Health Record Technology; Final Rule, 45 C.F.R. 170, available at 3 Medicare and Medicaid Programs; Electronic Health Record Incentive Program; Final Rule, 42 C.F.R. Parts 412, 413, 422 et al., available at 4 See HHS Establishes the Initial Pathway for Qualifying for HITECH Act Incentives Dollars for Meaningful Use of Certified Electronic Health Record Technology, February 4, 2010, available at 5 HHS Embraces Flexibility in Final MU Regs, InformationWeek, July 14, 2010, available at

3 measures, and a more flexible menu of 10 additional objectives from which an EP, EH or critical access hospital must select and successfully achieve five. Some objectives such as electronic billing or eligibility verification, which were previously required under the Proposed Incentives Rule, are not required for Stage 1 meaningful use. Certain measures used to assess whether an eligible provider has met the meaningful use criterion now have lower thresholds. For example, CPOE, initially required in 80 percent of all orders for EPs and 10 percent for EHs, is now required only for medication orders; in the Proposed Incentives Rule, EPs were required to submit at least 75 percent of all permissible prescriptions electronically. The Final Incentives Rule requires that only more than 40 percent of all permissible prescriptions be submitted electronically (although EPs who write fewer than 100 prescriptions during the reporting period are exempt). Expanded eligibility: Critical access hospitals (CAH or CAHs) will now be eligible to receive incentive payments under both Medicaid and Medicare. Registration for incentives: EPs and EHs can begin to register with CMS for the incentive program in January 2011 at one virtual location with payments to EHs identified by their individual CMS Certification Number (one payment per number policy). No grandfathering: Hospitals with currently installed EHRs will not be grandfathered and will need to upgrade to certified EHRs, install new certified EHRs, or undertake a self-developed certification of their installed system at their own expense before they can apply for incentives. Eligible providers should be aware that criteria the government chose not to include in Stage 1 meaningful use have simply been deferred to Stage 2 and Stage 3 meaningful use determinations. Therefore, plans to deploy EHR technology to achieve Stage 1 meaningful use should also include strategies to enable an eligible provider to achieve and maintain meaningful use under the criteria for Stage 2 and 3. This white paper will address in greater detail the following topics: Part 1: The Final Certification Rule s Stage 1 standards, implementation specifications and certification criteria for EHR technology to become Certified EHR Technology Part 2: The Final Incentives Rule s requirements for demonstrating Stage 1 meaningful use Part 3: The methodology for calculation and payment of EHR incentives under Medicare Parts A and B Part 4: The methodology for calculation and payment of EHR incentives under Medicare Part C (commonly known as the Medicare Advantage Program) Part 5: The methodology for calculation and payment of EHR incentives to qualified providers under state Medicaid programs Part 1: Final Certification Rule for Stage 1 The Final Certification Rule represents the first step in the government s incremental approach to adopting standards, implementation specifications, and certification criteria to enhance the interoperability, functionality, utility, and security of health IT and to support its meaningful use. The Final Certification Rule establishes the minimum required capabilities and related standards and implementation specifications that EHR technology will need to include in order to support the achievement of Stage 1 meaningful use by EPs and EHs under the Medicare and Medicaid EHR incentive programs.

4 Key Definitions Contained in the Final Certification Rule The Final Certification Rule uses the following defined terms in the standards, implementation specifications and certification criteria that establish the required capabilities for Certified EHR Technology: Qualified EHR means an electronic record of health-related information on an individual that: (1) includes patient demographic and clinical health information, such as medical history and problem lists; and (2) has the capacity: (i) to provide clinical decision support; (ii) to support physician order entry; (iii) to capture and query information relevant to health care quality; and (iv) to exchange electronic health information with, and integrate, such information from other sources. 6 EHR Module means any service, component, or combination thereof that can meet the requirements of at least one certification criterion adopted by the Secretary. 7 The ONC provided the following examples of EHR Modules in the interim final rule, and clarified that these examples may still be considered an EHR Module under the Final Rule as long as the technology provides a capability that could be tested and certified to at least one certification criterion: (1) an interface or other software program that provides the capability to exchange electronic health information; (2) an open source software program that enables individuals online access to certain health information maintained by EHR technology; (3) a clinical decision-support rules engine; (4) a software program used to submit public health information to public health authorities; and (5) a quality-measure reporting service or software program. ONC notes that the use of EHR Modules may enable an EP or EH to create a combination of products and services that collectively meets the definition of Certified EHR Technology (defined below). However, the EP or EH bears the responsibility of ensuring that the certified EHR Modules selected are capable of working together to support the achievement of meaningful use and are interoperable. Complete EHR means EHR technology that has been developed to meet, at a minimum, all applicable certification criteria adopted by the Secretary. 8 ONC clarified that the term Complete EHR is meant to encompass EHR technology that can perform all of the applicable capabilities required by certification criteria and to distinguish it from EHR technology that cannot perform those capabilities. 9 The use of the word applicable is intended to reflect the fact that some criteria are specific to EHR technology used in the ambulatory setting by EPs and other criteria are specific to EHR technology used by EHs in the inpatient setting. Certified EHR Technology means: (1) a Complete EHR that meets the requirements included in the definition of a Qualified EHR and has been tested and certified in accordance with the certification program established by the National Coordinator as having met all applicable certification criteria adopted by the Secretary; or (2) a combination of EHR Modules in which each constituent EHR Module of the combination has been tested and certified in accordance with the certification program established by the National Coordinator as having met all applicable certification criteria adopted by the Secretary, and the resultant combination also meets the requirements included in the definition of a Qualified EHR. 10 This revised definition explicitly provided for two distinct ways the definition can be met and to clarify the intent that the combination of EHR Modules would have to provide the capabilities necessary to meet the definition of a Qualified EHR and that each of the EHR Modules in the combination would have been tested and certified in accordance with the certification criteria applicable to each EHR Module. 11 The definition is intended to ensure consistency with the initial standards, implementation specifications and certification criteria set forth in the Final Certification Rule, and to allow eligible providers both the flexibility to adapt to innovations in a rapidly evolving industry and the ability to choose from a variety of product and service offerings ranging from subscription services, to vendor-based products, and to open source products. Examples of Certified EHR Technology, include: (1) a Complete EHR that is tested and certified to all applicable certification criteria; and (2) the combination of two or more certified EHR Modules that include all of the capabilities required by all certification criteria applicable to each of the modules. 12 ONC notes that in the 6 45 C.F.R Id. 8 Id Fed. Reg. at C.F.R Fed. Reg. at Fed. Reg. at 2043.

5 circumstance of combined modules it is the user s responsibility to determine whether the combination of the certified EHR Modules would meet all of the applicable certification criteria necessary to meet the definition of Certified EHR Technology. 13 In contrast, ONC offered the following examples of what would not meet the definition of Certified EHR Technology: (1) Complete EHRs that have not been tested and certified in accordance with the certification program established by the ONC, even though it may be claimed that such technology provides the capabilities required by adopted certification criteria; and (2) the combination of three certified EHR modules that do not include all of the capabilities required by all applicable certification criteria. For example, if three certified EHR Modules were purchased by an EP and none of them included the capability to electronically prescribe, the combination of the three modules would not meet the definition of Certified EHR Technology. Implementation specification means specific requirements or instructions for implementing a standard. 14 Standard means a technical, functional, or performance-based rule, condition, requirement, or specification that stipulates instructions, fields, codes, data, materials, characteristics, or actions. 15 Human readable format means a format that enables a human to read and easily comprehend the information presented to him or her regardless of the method of presentation. This definition was added to the Final Certification Rule to clarify certain standards and criteria for Certified EHR Technology. Stage 1 EHR Certification Criteria The certification criteria adopted by ONC are set forth in the table in Appendix A of this white paper. The criteria focus on and describe the required capabilities that EHR technology must include to qualify as Certified EHR Technology. Certain certification criteria apply generally, while certain certification criteria are applicable only to ambulatory settings, and still other certification criteria are applicable only to inpatient settings. In general, the set of criteria in the Final Certification Rule are intended to achieve the capabilities necessary to support the requirements for Stage 1 meaningful use. 16 Examples of certification criteria include enabling the following: CPOE for medications, laboratory tests, imaging and provider referrals; maintenance of a patient s problem list; and maintenance of a patient s medication allergy list. Stage 1 Standards and Implementation Specifications Implementation specifications provide specific configuration instructions and constraints for implementing a particular standard or set of standards. ONC notes that requiring providers to use functionalities that are certified will ensure the interoperability of information maintained in the EHR, as providers will be able to operate according to consistent standards. 17 ONC recognizes that certain types of standards, specifically those relating to code sets, must be maintained and frequently updated to serve their intended purpose effectively. For example, CPT codes will need to be updated to reflect the most recent changes in medical practice. To address this need, ONC establishes certain types of standards as a floor for certification. References to specific adopted standards that are preceded with the phrase at a minimum require a Complete EHR or EHR Module to comply with the version of the code set that has been adopted through incorporation by reference or any subsequently released version of the code set. The ONC also notes that, for many clinical quality measures, clearly defined electronic specifications are not yet available and that it expects to develop additional guidance at a later time. 18 CONTENT EXCHANGE STANDARDS, VOCABULARY STANDARDS, AND IMPLEMENTATION SPECIFICATIONS 13 Id. at Id. 15 Id C.F.R et. seq. 17 Id. at Id. at

6 Appendix B sets forth the content exchange standards and vocabulary standards adopted to support Stage 1 meaningful use and associated with Stage 1-related EHR certification criteria. Not all certification criteria adopted by the Final Certification Rule include associated standards and implementation specifications. Rather, only a limited number of Stage 1 certification criteria require Certified EHR Technology to be capable of using a specific vocabulary or code set and, in certain instances, these vocabularies and code sets are already required by other HHS regulations such as the HIPAA Transactions and Code Set Rule. The Final Certification Rule does not include candidate exchange and vocabulary standards to be adopted and required to support Stage 2 or Stage 3 meaningful use. The ONC notes that as meaningful users seek to utilize certified EHR technology for purposes of testing and subsequent submission (if the test was successful), the content exchange and vocabulary standards are the standards that should be utilized. The ONC leaves open the possibility for providers and public health agencies to work together to develop efficient, electronic submission of information, but notes that, for purposes of becoming a meaningful EHR user, only a single test and follow-up submission (if the test is successful) is required. 19 TRANSPORT STANDARDS The Final Certification Rule adopts Simple Object Access Protocol (SOAP) version 1.2 and Representational State Transfer (REST) to establish standard ways for systems to interact with each other. 20 SOAP is a protocol specification for exchanging structured information in the implementation of web services in computer networks. As noted in the Certification, ONC adopted SOAP because it is widely used and versatile enough to allow for the use of different transport protocols and is both platform and language independent. REST is a style of software architecture for distributed hypermedia systems (such as the internet). 21 Alignment with HIPAA Requirements The Final Certification Rule focuses on the capabilities of Certified EHR Technology and does not change HIPAA requirements, guarantee compliance with those requirements, or absolve a Covered Entity that adopts Certified EHR Technology from the requirement to comply with HIPAA standards. 22 In fact, ONC notes that the Final Certification Rule is not intended to conflict with or override HIPAA. For example, though one certification criteria is to provide patients with an electronic copy of their health information upon request, ONC notes that an EP, EH or CAH may withhold information from the electronic copy of a patient s health information in accordance with the HIPAA Privacy and Security Rule, access of individuals to protected health information. 23 PRIVACY AND SECURITY STANDARDS The ONC has aligned the EHR certification criteria to applicable HIPAA security rule requirements so that Certified EHR Technology may support the efforts of a HIPAA Covered Entity (Covered Entity) to comply with federal and state privacy and security laws. The ONC has adopted the associated electronic health information security standards set forth in Appendix C of this white paper that align with HIPAA and HITECH Act requirements. The privacy and security standards address: (1) general encryption and decryption of electronic health information; (2) encryption and decryption of electronic health information for exchange; (3) record actions related to electronic health information (e.g., access control and audit log); (4) verification that electronic health information has not been altered in transit; (5) authentication (to enable verification that a person or entity seeking access to electronic health information is the one claimed and is authorized to access such information); and (6) record treatment, payment and health care operations disclosures. HIPAA ELECTRONIC TRANSACTIONS AND CODE SET STANDARDS HHS previously adopted and modified transactions and code sets standards for HIPAA Covered Entities (Covered Entities), including EPs and EHs. Certified EHR Technology will enable EPs and EHs to qualify for incentive payments and comply with 19 Id. at C.F.R Fed. Reg. at Fed. Reg. at C.F.R

7 these transactions and code set standards as well as any timeframes for compliance. 24 The ONC s adoption of future standards and implementation specifications for Stage 2 and Stage 3 meaningful use will continue to be consistent with the adoption and modification of HIPAA transactions and code sets standards and their respective timeframes for compliance. CERTIFICATION CRITERION AND STANDARDS REGARDING ACCOUNTING OF DISCLOSURES The HITECH Act requires Covered Entities with EHRs to produce, upon an individual's request, an accounting of all disclosures of the individual s protected health information over a three-year period, including disclosures made for treatment, payment and health care operations. This expands current law, which limits accounting of disclosures requests to certain non-routine disclosures such as those for research. Covered Entities with EHRs as of January 1, 2009, must have the capacity to comply with this new requirement for disclosures made on and after January 1, The Secretary has the authority to set a later effective date for such Covered Entities, but the later date may not be after For Covered Entities that adopt EHRs after January 1, 2009, the Covered Entity must be able to provide for an accounting of disclosures made on or after the later of January 1, 2011, or the date that the Covered Entity acquires an electronic record. The Secretary has the authority to set a later date for Covered Entities acquiring EHRs after January 1, 2009, but the later date may not be later than The HITECH Act requires HHS to adopt a certification criterion and standard regarding technologies that allow for an accounting of these disclosures through an EHR and to promulgate regulations to identify the information that must be collected about each of the disclosures. The Final Certification Rule retains the certification criterion that requires the capability to record disclosures made for treatment, payment and health care operations in accordance with the specified standard. The standard described in Appendix C requires a recorded disclosure for treatment, payment or health care operations to include the date, time, patient identification (name or number), user identification (name or number) and a description of the disclosure. However, recognizing that significant technical and policy challenges remain unresolved, the ONC in the Final Certification Rule determined that the capability to account for disclosures should not be a condition of certification at this time. Thus, this capability was made optional. The ONC indicated it planned to work collaboratively with the Office for Civil Rights as it develops the regulatory policy related to this requirement and anticipates updating this certification criterion and the related standard in future rulemaking to reflect OCR s final policies. 25 Certification Bodies On June 24, 2010, the National Coordinator published the temporary EHR certification program final rule (Final Certification Program Rule), establishing the process by which the National Coordinator will select organizations to be ONC-Authorized Testing and Certification Bodies (ONC-ATCBs). The Final Certification Program Rule also establishes parameters under which the ONC-ATCBs will test and certify that EHR technology meets the technological capability, functionality and security requirements for supporting the achievement of meaningful use by EHs and EPs (collectively, eligible providers). 26 Under the Final Certification Program Rule, the National Coordinator will accept applications for ONC-ATCB status, which applications must demonstrate competency and ability to test and certify EHRs and/or EHR Modules. To qualify, an applicant will need to be able to both test and certify EHRs and/or EHR Modules For example, all Covered Entities are required to comply with ICD-10-CM and ICD-10-PSC on and after October 1, See HIPAA Administrative Simplification: Modifications to Medical Data Code Set Standards To Adopt ICD-10-CM and ICD-10- PCS, 74 Fed. Reg (January 16, 2009) (to be codified at 45 C.F.R. 162) Fed. Reg. at For further information regarding certification bodies and testing parameters, see Final Rule Establishes the Temporary Certification Program for EHR Technology, available at 27 Id.

8 Part 2: Final Incentives Rule for Stage 1 Meaningful Use Statutory Requirements To achieve the stated objectives of increased quality of patient care and heightened efficiency through the implementation of EHR technology, the HITECH Act requires that an EP must be a meaningful user 28 of Certified EHR Technology in order to receive reimbursement incentives and avoid reimbursement penalties. The Act specifies three requirements for meaningful use: Use of certified EHR technology in a meaningful manner That the certified EHR technology is connected in a manner that provides, in accordance with law and standards applicable to the exchange of information, for the electronic exchange of health information to promote the quality of health care That in using certified EHR technology, the provider submits to the Secretary information on clinical quality measures and other such measures as selected by the Secretary Phased Roll-Out of Meaningful Use The Final Incentives Rule seeks to balance the sometimes competing considerations of improving health care quality, encouraging widespread EHR adoption, promoting innovation, and avoiding imposing excessive or unnecessary burdens on health care providers while at the same time meeting the ambitious timetables set forth in the HITECH Act. 29 The Final Incentives Rule adopts the phased approach proposed in the Proposed Incentives Rule spanning three stages in order to balance these considerations. The Final Incentives Rule focuses on Stage 1 but elaborates on plans for Stage 2 and 3. Stage 2 and Stage 3 will be addressed in future rulemaking on a biennial basis. 30 Rulemaking for Stage 2 will likely occur by the end of 2011 and rulemaking for Stage 3 will likely occur by the end of The Stage 1 meaningful use criteria concentrate on: Electronically capturing health information in a structured format Using that information to track key clinical conditions and communicating that information to enable coordination of care Implementing clinical decision support tools to facilitate disease and medication management Using EHRs for reporting clinical quality measures and public health information 32 The hallmark of Stage 1 is to provide incentives to health care providers to build the EHR functionalities that will ultimately provide the foundation to support the full range of EHR objectives by the end of Stage 3. Stage 2 will expand on Stage 1 and will encourage the use of EHRs for continuous quality of care and an increasing proportion of data stored in a structured format. The Final Incentives Rule indicates that Stage 2 will be characterized by rigorous expectations for health information exchange. 33 Finally, while certain objectives remain optional for Stage 1, all objectives (including those that were optional for Stage 1) will become mandatory in Stage Stage 3, as the final stage, will focus on improving public health, including national high priority 28 HITECH Act 4101 and 4102 (to be codified at 42 U.S.C. 1395w-4 and 1395ww) Fed. Reg. at Id. 31 Id. 32 Id. 33 Id. 34 Id. at

9 conditions. 35 Depending on when a provider elects to begin implementing meaningful use of EHRs, the provider will establish as its base Stage 1, 2 or 3 meaningful use criteria. 36 A summary of these timing instructions is set forth in Table 1 below. 37 TABLE 1 STAGE OF MEANINGFUL USE CRITERIA BY PAYMENT YEAR First Payment Year Payment Year Stage 1 Stage 1 Stage 2 Stage 2 TBD 2012 Stage 1 Stage 1 Stage 2 TBD 2013 Stage 1 Stage 1 TBD 2014 Stage 1 TBD While the Proposed Incentives Rule had addressed meaningful use goals through 2015, the Final Incentives Rule omitted language discussing any possible considerations beyond 2014, which will be addressed in future rulemaking. 38 However, CMS intends that 2015 will be the year where all EPs, EHs and CAHs must achieve the same stage of meaningful use, in part because realizing the full potential of health information technology relies upon a critical mass of engaged users. Further, CMS anticipates that many of the technological barriers to EHR adoption faced by providers today will be resolved by Objectives and Associated Measures in the Final Incentives Rule The preamble to the Final Incentives Rule discusses extensively whether the originally proposed number of objectives and corresponding measures 40 are realistic, notes that comments were virtually unanimously opposed to requiring universal adoption of all of these objectives and measures simultaneously, 41 and recommended several different approaches that would better balance the many priorities. 42 CMS also received significant comments on both whether the percentage measure approach was the best approach for balancing diverse provider needs with broad-based standards and expectations, and whether the percentage measure prescribed was realistic and practical. CMS acknowledged that requiring EPs, EHs and CAHs to satisfy all of the objectives in Stage 1 would be too steep a climb. Accordingly, the Final Incentives Rule implements various modifications to the originally proposed objectives and measures, including: (1) reducing the number of objectives; 43 (2) lowering the reporting 35 Id. 36 Id. 37 Id. at Id. at Id. at The measure is the numerical calculation that the provider uses to demonstrate to CMS that the provider has met the objective. The majority of the measures are calculated on a percentage basis in order to ensure that differences in patient volume do not affect whether a provider meets each measure. As in the Proposed Incentives Rule, the Final Incentives Rule often includes detailed instructions for calculating the fractions that constitute a majority of the measures. Generally, the numerator of the fraction is the total number of the provider s unique patients whose information was recorded for purposes of the measure. The denominator is the total number of unique patients who fall under the measure. 41 Id. at Id. 43 Id. at

10 thresholds; 44 (3) omitting or adding a different objective in Stage 1; 45 (4) tagging an objective as eligible for exclusion under certain circumstances as non-applicable with the requisite attestation; 46 (5) making modifications to account for systemic limitations on health information technology capabilities; 47 (6) making modifications to refine and clarify the objective and/or associated measure; 48 and (7) making modifications to reduce the scope of the objective to ease implementation burdens. 49 However, the Final Incentives Rule requires that EPs, EHs and CAHs must meet at least one objective for each of the three dimensions of meaningful use set forth in the HITECH Act in order to ensure that an EP, EH or CAH is a meaningful user within the statutory intent and to avoid providing too much flexibility that might delay achieving critical mass of important information technology objectives. 50 Core Set Objectives vs. Menu Set Objectives Merely reducing the total number of objectives would not fully address comments about the burdensome and rigid nature of the objectives, since there are myriad variables between EPs, EHs and CAHs that might necessitate prioritizing one objective over another. Accordingly, the Final Incentives Rule establishes a list of core objectives and associated measures and a menu set of objectives with associated measures that apply to an EP, and another list of core objectives with associated measures and a menu set of objectives with associated measures that apply to an EH or CAH. To be a meaningful user, the EP must meet each core objective and five of the 10 menu set objectives (provided that one of the five is chosen from two specified public health objectives). Similarly, to be a meaningful user, the EH or CAH must meet each core objective and five of the 10 menu set objectives (one of which must be chosen from three specified public health objectives). 51 The Final Incentives Rule establishes the following core set of meaningful use objectives: TABLE 1 Core Set 52 1 Computerized provider order entry (CPOE) (only medication orders required for Stage 1) 2 Implement drug-to-drug and drug allergy interaction checks 3 E-Prescribing (eligible provider only) 44 See id. at (the Final Incentives Rule that lowers the reporting threshold from 75 percent to 40 percent for the threshold of permissible prescriptions written by the EP that are transmitted electronically). 45 See id. at (for the Final Incentives Rule adding the existence (but not content) of an advance directive for patients aged 65 or older); see also id. at (the Final Rule s decision to omit the proposed objective of electronic submission of claims to private and public insurers). 46 See id. at (allowing for a non-applicability exclusion for the objective of providing clinical summaries for patients following office visits for EPs who do not have office visits). 47 See id. at (the revision to the EH measure requiring the performance of at least one test of the EHR s capabilities to electronically submit lab results to public health agencies to account for the possibility that the public health agencies to which the EH or CAH submit have or do not have the capability to receive the information electronically (and therefore enable the test environment)). 48 See id. at (CMS s decision to split the objective of drug checks into separate objectives for clinical checks (drug/drug and drug/allergy) and for administrative checks (drug/formulary)). 49 See id. at (CMS s decision to adopt an incremental approach to CPOE by only requiring CPOE for medication orders, not medications, laboratory orders and diagnostic imaging). 50 Id. at Id. 52 Id.

11 Core Set 52 4 Record demographics 5 Maintain an up-to-date problem list 6 Maintain active medication list 7 Maintain active medication allergy list 8 Record and chart changes in vital signs 9 Record smoking status 10 Implement one clinical decision support rule 11 Report CQM as specified by the Secretary 12 Electronically exchange key clinical information 13 Provide patients with an electronic copy of their health information 14 Provide patients with an electronic copy of their discharge instructions (EH/CAH only) 15 Provide clinical summaries for patients for each office visit (EP only) 16 Protect electronic health information created or maintained by certified HER Applicability of Measure to Eligible Provider In addition, CMS received significant comments that not all of the core measures are applicable to all providers. Some of the measures may be beyond the scope of their licensed authority or outside the scope of their standard practice. For example, a chiropractor will not have prescribing authority. Although the potential gap between the objective and the provider s practice is most relevant for EPs, it may also be an issue for smaller or specialized EHs or CAHs. 53 CMS acknowledged that merely dividing the objectives into core set and menu set would not completely resolve the potential inapplicability because certain of the core measures may be among those that are not universally acceptable and because certain providers may have more than five menu set objectives that are not applicable. Accordingly, the Final Incentives Rule modifies each objective and measure to indicate when an EP, EH or CAH may report that the objective and associated measure is not applicable to its practice or hospital or that it performs an insufficient number of relevant actions to allow for a calculation of the specific meaningful use measure. The Final Incentives Rule specifies those objectives/measures for which these exclusions apply. 54 If the inapplicable measure is in the core set, the EP, EH or CAH must only meet the other core objectives. If the inapplicable measure is in the menu set, it is removed from consideration and, accordingly, the EP, EH or CAH would only need to meet four of the nine remaining menu set items Id. 54 Id. 55 Id. at

12 A table of the Stage 1 meaningful use objectives and their associated measures, sorted by core and menu set, can be found in Appendix E of this white paper. 56 A table of the Stage 1 meaningful use objectives and their associated measures, sorted by method of measure calculation, can be found in Appendix F. 57 Calculation of Measures The Final Incentives Rule also addressed concerns about the burdens of calculating and reporting the measures associated with each objective. Many commenters stated that the percentage formula system would burden providers with significant tracking and counting systems, often involving paper records, to establish denominators. Although sympathetic to these concerns, CMS indicated that it was not aware of any viable alternative to the percentage approach that effectively measured the relative use of EHR technology to a provider s total patient volume. 58 However, to reduce the administrative burden to the extent possible, the Final Incentives Rule focuses on those measures whose dominator is not based on all patients, but rather a subset of patients or actions. 59 For each measure, the Final Incentives Rule indicates whether the denominator is all unique patients or some subset of patients. The Final Incentives Rule sets a measurement threshold of 85 percent for those measures for which: (1) there is an existing standard of practice; (2) compliance with the measure is fundamentally within the provider s control; and (3) compliance with the objective relies solely on the capability of the EHR rather than on electronic exchange of information. 60 Where the objective does not meet this three-part test, the Final Incentives Rule sets the threshold percentage at 50 percent. 61 Moreover, the Final Incentives Rule limits the following objectives/measures to patients whose records are maintained in an EHR: Use of CPOE Generate and transmit e-prescriptions Record and chart changes in vital signs Record smoking status for patients 13 years or older Record advance directives for patients 65 years or older Incorporate clinical laboratory test results into EHR as structured data Provide patients with an electronic copy of their health information Provide patients with an electronic copy of their discharge instructions at time of discharge, upon request Provide clinical summaries for patients at each office visit Send reminders to patients per patient preference for preventive or follow-up care Perform medication reconciliation at relevant encounters at each transition of care Provide summary care record for each transition of care and referral 56 Id. at Id. at Id. 59 Id. at Id. at Id.

13 Clinical Quality Measures Consistent with the HITECH Act, to qualify as meaningful EHR user under the Final Incentives Rule, an EP must submit information on clinical quality measures to CMS. The HITECH Act indicates that preference should be given to clinical quality standards that have been previously endorsed by National Quality Forum (NQF). Accordingly, the Final Incentives Rule adopts quality measures endorsed by NQF, including NQF measures previously selected for the Physician Quality Reporting Initiative (PQRI) program. 62 The Final Incentives Rule divides the clinical quality measures into a number of categories, including the following: core measures applicable to all Medicare or Medicaid EPs; 63 alternative core measures applicable to all Medicare or Medicaid EPs; other (non-core/alternative core) measures applicable to all Medicare or Medicaid EPs; and measures relevant to EHs and CAHs. EPs are required to report on three core clinical quality measures and three additional non-core/alternative core clinical quality measures. 64 The core clinical quality measures focus on basic preventive care and patient screening, including considerations regarding tobacco use, blood pressure measurement and adult weight screening. 65 In contrast, EHs and CAHs are required to report on each of 15 clinical quality measures adopted by the Final Incentives Rule. 66 The clinical quality measures for EHs focus on operational issues such as efficiency, readmission rates and data related to iatrogenic-related medical treatment. 67 The Final Incentives Rule s requirements regarding clinical quality measures differ somewhat from the Proposed Incentives Rule. In particular, CMS adjusted the number of required reporting categories to reflect the changed categories discussed above. In addition, CMS identified a number of clinical quality measures that it did not adopt due to the fact that electronic specifications were not completed in time for the publication of the Final Incentives Rule. 68 The detailed electronic specifications of the clinical quality measures for EPs, EHs and CAHs are listed on CMS website at Reporting Methodology for Quality Measures For the 2011 payment year, 69 the Final Incentives Rule requires EPs to report quality measures through an attestation methodology to submit aggregated summary information. 70 The attestation process will require confirmation of the following, among other things: that the information submitted relates to all patients to whom the clinical quality measure applies and who are included in the certified EHR technology; that the information submitted was output from certified EHR technology; and relevant dates related to the information. 71 In the 2012 payment year, if CMS has the capacity to accept clinical quality measure data, eligible providers seeking incentive payments will report clinical quality measures electronically. Further, EPs must report 62 Id. at Id. at (Table 7). 64 Id. at Id. at (Table 7). 66 Id. at (Table 10). 67 Id. (explaining clinical quality measures for EHs such as median time for emergency arrival and departure, whether aspirin is prescribed at discharge, and the presence of urinary tract infections for intensive care unit patients). 68 Id. at (Table 5) and (Tables 8 and 9) (all noting clinical quality measures included in the Proposed Incentives Rule but not adopted by the Final Rule). 69 As discussed in Part 3 of this white paper, a payment year for EPs is a calendar year beginning in Id. at Id. (describing the elements required for attestation).

14 on clinical quality measures for all applicable patients, regardless of payor, even though the HITECH Act incentive payments are payable by Medicare, state Medicaid programs and Medicare Advantage organizations. 72 Part 3: EHR Incentives for Participants in the Medicare Fee-for-Service Program If an EP or EH demonstrates Stage 1 meaningful use of certified EHR Technology in accordance with requirements discussed in Parts 1 and 2, above, the provider may earn incentive payments, in the form of enhanced reimbursement, under the original Medicare fee-for-service program, commonly known as Medicare Parts A and B (Medicare FFS). 73 This Part of the white paper discusses the reimbursement methodology under the Final Incentives Rule for the Medicare FFS incentives. Parts 4 and 5 of the white paper, below, discuss the methodology under the Final Incentives Rule for the Medicare Part C (Medicare Advantage) and state Medicaid programs, respectively. Incentive Payments for Medicare FFS EPs EPs participating in Medicare FFS who are Meaningful EHR Users of Certified EHR Technology may receive incentive payments of an additional 75 percent of the Medicare allowable charge under the Medicare Physician Fee Schedule (MPFS) for covered professional services, for up to five years beginning as early as calendar year (CY) 2011, subject to an annual cap. 74 The annual cap may be higher under certain circumstances for professionals who practice in a Medicare health professional shortage area. MEDICARE EPS As required by the HITECH Act, 75 the Final Incentives Rule defines an EP for the Medicare FFS EHR incentives as including 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. 76 However, EPs that are hospitalbased may not receive incentives. 77 Consistent with the Continuing Extension Act of 2010, 78 which amended the HITECH Act s definition of hospital-based EPs, the Final Incentives Rule defines hospital-based EPs as EPs who provide 90 percent or more of their covered professional services in an inpatient and/or emergency room setting. 79 Whether the 90 percent test is met will depend on the place of service (POS) codes reported on the EP s claims for Medicare reimbursement. POS codes 21 (Inpatient Hospital) and 23 (Emergency Department) describe the two applicable hospital settings. 80 As required by the Continuing Extension Act of 2010, physicians and other EPs who provide their professional services in facilities that are hospital-based outpatient department locations described by POS code 22 (Outpatient Hospital) are eligible to receive Medicare and Medicaid incentives. 81 MAXIMUM ANNUAL INCENTIVE PAYMENTS 72 Id. at HITECH Act, 4101 and 4102 (to be codified at 42 U.S.C. 1395w-4 and 1395ww). 74 Id. at 4101 (to be codified at 42 U.S.C. 1395w-4(o)(1)(A)(i)). 75 Id. at 4101(a) (to be codified at 42 U.S.C. 1395w-4(o)(1)(C)(ii)) and 4201(a) (to be codified at 42 U.S.C. 1396b(t)(3)(D) Fed. Reg. at (to be codified at 42 C.F.R ). 77 Id. (to be codified at 42 C.F.R ); see also Id. (to be codified at 42 C.F.R ) (defining qualifying EP ). 78 Continuing Extension Act of 2010, Pub. L (April 15, 2010). For more information regarding the amendment to the definition of hospital-based EP, see our On The Subject, entitled, HITECH Definition of Hospital-Based EP Amended in Response to Industry Outcry at f985b060483c.cfm Fed. Reg. at (to be codified at 42 C.F.R ). 80 Id.; see also 75 Fed. Reg. at Continuing Extension Act of 2010, Pub. L (April 15, 2010).

15 The Final Incentives Rule finalizes the caps on annual Medicare FFS incentive payments to EPs. If the first year the EP becomes a Meaningful EHR User is 2011 or 2012, the EP can earn up to a total of $44,000 over the five-year incentive period, including an $18,000 maximum annual incentive payment in the first year. The maximum annual incentive payments are summarized in the table below: 82 MAXIMUM TOTAL AMOUNT OF EHR INCENTIVE PAYMENTS FOR A MEDICARE EP WHO DOES NOT PREDOMINANTLY FURNISH SERVICES IN AN HPSA Calendar year First CY in which the EP receives an incentive payment Subsequent Years 2011 $18, $12,000 $18, $8,000 $12,000 $15, $4,000 $8,000 $12,000 12, $2,000 $4,000 $8,000 $8,000 $ $2,000 $4,000 $4,000 $0 TOTAL $44,000 $44,000 $39,000 $24,000 $0 EPs who furnish more than 50 percent of Medicare covered professional services (based on quantity of services rather than allowed charges) in a geographic area designated as a health professional shortage area by HHS are subject to a 10 percent higher cap. The Final Incentives Rule clarifies that the determination of whether the 50 percent test is met is based on the percentage of covered professional services that are not part of the rural health clinic (RHC) package of services and are reimbursed under the MPFS. 83 PROCESS AND TIMING FOR INCENTIVE PAYMENTS To receive incentive payments, each EP must register in its first payment year on the EHR incentive program website at 84 Registration is expected to begin in January The Final Incentives Rule provides for payment to be made through a single payment contractor rather than the Part B Medicare administrative contractors (MACs; formerly known as Medicare carriers) as called for in the Proposed Incentives Rule. 85 Medicare will accumulate the allowed charges for each qualified EP s national provider identifier standard (NPI). The contractor makes payments on a rolling basis, in the form of a single, lump-sum, annual incentive payment, as soon as an EP successfully demonstrates meaningful use for the applicable reporting period and has earned the maximum annual incentive payment. The reporting period for an EP is any 90-day period in the first calendar year of meaningful use or the full calendar year for subsequent years Fed. Reg. at This table is Table 22 from the Proposed Incentives Rule Fed. Reg. at (to be codified at 42 C.F.R ). 84 Id. at (to be codified at 42 C.F.R (a)) Fed. Reg. at (to be codified at 42 C.F.R ).

16 The EP demonstrates meaningful use in CY 2011 by submitting an attestation and in CY 2012 and subsequent payment years by attestation and electronic reporting of clinical quality measures. In the attestation, the professional must do the following: attest that the professional used Certified EHR Technology and specify the technology; attest that the professional satisfied the required meaningful use objectives and associated measures; specify the EHR reporting period; and provide the result of each applicable measure for all patients seen during the EHR reporting period for which the selected measure is applicable. 86 CMS will make available a web-based tool for submission of meaningful use attestations. EPs may submit attestations for the 90-day EHR reporting period for CY 2011 as early as April 2011 and receive incentive payments as early as May The single payment contractor will make the payment to the EP or a single employer or other entity that is a valid reassignee under the Medicare reassignment rules. 87 After the single payment contractor disburses the payment, the EP or the EP s reassignee that receives the payment may allocate the incentive payments among valid reassignees (such as multiple part-time employers or contracting parties). Thus, physician groups, hospitals and other facilities that engage physicians and other EPs on a part-time basis should review current and template employment and professional service agreements and consider amending them to specify that the group or facility is entitled to receive all or part of the incentive payment, and specify procedures for any sharing of incentive payments with any other reassignees. When allocating incentive payments among reassignees, the EP and the reassignees must be mindful of their obligations under Stark Law, Anti-Kickback Statute and other fraud and abuse laws. PROGRAM ELECTION AND COORDINATION Professionals who meet the eligibility requirements for both the Medicare and Medicaid incentive programs must elect to receive payments from only one of the programs, but they may change their program election once from 2012 to PAYMENT ADJUSTMENTS BEGINNING CY 2015 The MPFS amount payable to EPs who are not Meaningful EHR Users will be reduced to 99 percent of the amount otherwise payable under the MPFS in 2015 (or 98 percent if the professional is not a successful electronic prescriber) 88, 98 percent of the MPFS amount in 2016 and 97 percent of the MPFS amount in 2017 and each subsequent calendar year, unless CMS exempts an EP due to a significant hardship. 89 The HITECH Act also authorizes CMS to further reduce the reimbursement rate beginning in 2018 if the proportion of EPs who are Meaningful EHR Users is less than 75 percent. 90 The Final Rule, like the Proposed Incentives Rule, does not define significant hardship. 91 Incentive Payments for EHs MEDICARE EHS A hospital that is a Meaningful EHR User is eligible for Medicare FFS incentives for up to four payment years. 92 A payment year for an EH is a Medicare fiscal year (FY) beginning as early as FY 2011 (i.e., October 1, 2010, through September 30, 2011). 93 A Medicare EH is a hospital located in one of the 50 states or the District of Columbia that participates in the Medicare Inpatient Prospective Payment System (IPPS). 94 Hospitals and distinct part hospital units excluded from IPPS, such as Fed. Reg. at (to be codified at 42 C.F.R (a)). 87 Id. at (to be codified at 42 C.F.R (f)). 88 For more information regarding the Medicare electronic prescribing incentive program, see our white paper entitled, Proposed Physician Fee Schedule Update Implements Key Reform Provisions at Fed. Reg. at (to be codified at 42 C.F.R (d)). 90 HITECH Act 4101(b) (to be codified at 42 U.S.C. 1395w-4(a)(7)(A)(iii)) Fed. Reg. at Id. at (to be codified at 42 C.F.R (b)). 93 Id. at (to be codified at 42 C.F.R ). 94 Id. at (to be codified at 42 C.F.R ); see also 42 U.S.C. 1395ww(d)(1)(B) (defining subsection (d) hospital).

17 psychiatric, rehabilitation, long-term care, children s, and cancer hospitals and units, are not eligible for incentives. 95 also eligible for Medicare FFS incentives under separate provisions discussed below. CAHs are INCENTIVE PAYMENT CALCULATION FOR EHS From Medicare FY 2011 through Medicare FY 2016, CMS will pay Medicare FFS EHR incentives to EHs that are Meaningful EHR Users of Certified EHR Technology during the EHR reporting period based on the proportion of discharges attributable to Medicare patients. 96 The EHR reporting period is any continuous 90-day period within the first payment year (i.e., a Medicare fiscal year) and the entire payment year thereafter. An EH that is a Meaningful EHR User may receive Medicare FFS incentive payments for up to four Medicare FYs. The formula is equal to the product of the following: (a) Initial Amount; (b) Medicare Share; and (c) Transition Factor. Each is defined as follows: The Initial Amount means the sum of $2,000,000 plus the Discharge-Related Amount for the hospital s cost reporting year. 97 The Discharge-Related Amount means the sum of the amount for each discharge during the cost reporting year up to the 23,000th discharge, as follows: (i) first through 1,149th discharge, $0; (ii) 1,150th through 23,000th discharge, $200; plus (iii) for any discharge greater than the 23,000th, $0. The Final Incentives Rule emphasizes that the HITECH Act restricts the discharges to be counted for purposes of determining the Discharge-Related Amount to discharges from the IPPSparticipating portion of the hospital and not distinct part psychiatric, rehabilitation or other units excluded from IPPS. CMS will finalize a revised cost report form in time for FY 2011, 98 that will direct providers to list only these discharges. The Medicare Share means the fraction, where: 99 The numerator is the sum of (i) inpatient-bed-days which are attributable to individuals with respect to whom payment may be made under Medicare Part A, including individuals enrolled in section 1876 Medicare cost plans; plus (ii) the number of inpatient-bed-days which are attributable to individuals who are enrolled with a Medicare Advantage organization. The denominator is the product determined by multiplying (i) the total number of acute care inpatient-bed-days; and (ii) the total amount of the hospital s charges during the cost reporting period, not including any charges that are attributable to charity care divided by the estimated total amount of the hospital s charges during the period. The inpatient-bed-day counts included in the Medicare Share fraction exclude inpatient-bed-days in excluded psychiatric, rehab or other units of the hospital, and nursery days, and includes only inpatient-bed-days in the acute care portion of the hospital that receives Medicare payment under the IPPS. 100 The Transition Factor is based on the incentive payment year: 1.0 for the first incentive payment year before FY 2014; 0.75 for the second payment year; 0.50 for the third payment year; 0.25 for the fourth payment year; and zero (0) for any succeeding payment year. 101 Hospitals that begin utilizing an EHR after FY 2013 have lower Transition Factors and consequently lower incentive payments than they would have received by becoming Meaningful EHR Users sooner. Hospitals for which the first payment year is after FY 2015 receive no incentive payments. Table 14 of the Final Rule, which is reproduced below, shows how the Transition Factor phases out incentive payments to EHs: Id. at (to be codified at 42 C.F.R ). 96 HITECH Act 4102(a); 75 Fed. Reg. at (to be codified at 42 C.F.R ) Fed. Reg. at (to be codified at 42 C.F.R (c)(3)). 98 CMS Form , Hospital and Hospital Health Care Complex Cost Report Fed. Reg. at (to be codified at 42 C.F.R (c)(4)). 100 Id. at (to be codified at 42 C.F.R (c)(4)) Fed. Reg. at (to be codified at 42 C.F.R (c)(5)). 102 Id. at

18 TABLE 14 TRANSITION FACTOR FOR MEDICARE FFS EHS Fiscal year Fiscal year that EH first receives the incentive payment PROCESS AND TIMING FOR INCENTIVE PAYMENTS To receive incentive payments, an EH must register in its first payment year on the EHR incentive program website at Registration is expected to begin in January The Final Incentives Rule provides that a single payment contractor will pay an EH that is a Meaningful EHR User a preliminary, estimated EHR incentive payment for a payment year based on hospital discharges and other relevant data from the hospital s most recently filed 12-month cost report. 104 Final payments will be determined at the time of settling the first cost report for the hospital cost reporting year that begins on or after the start of the applicable payment year (i.e., the Medicare FY), and settled on the basis of the hospital discharge and other data from the cost report. 105 An EH s first payment year is the first Medicare FY that it demonstrates that it is a Meaningful EHR User for the EHR reporting period for the payment year, while the second through fourth payment years are the three Medicare FYs immediately following the first payment year for such hospital (even if the hospital does not receive an incentive payment for one or more of those years). 106 The EHR reporting period is any continuous 90-day period for the hospital s first payment year and the entire Medicare FY for the second through fourth payment years. The EH demonstrates meaningful use in FY 2011 by submitting an attestation and in FY 2012 and subsequent payment years by attestation and electronic reporting of clinical quality measures. 107 In the attestation, the EH must do the following: attest that the hospital used Certified EHR Technology and specify the technology; attest that the hospital satisfied the required meaningful use objectives and associated measures; specify the EHR reporting period; and provide the result of each applicable measure for all patients admitted to an inpatient unit or emergency department of the hospital during the EHR reporting period for which the selected measure is applicable. 108 CMS will make available a web-based tool for submission of meaningful use attestations. EHs 103 Id. at (to be codified at 42 C.F.R (a)). 104 Id. at (to be codified at 42 C.F.R (c)(2)). 105 Id. at (to be codified at 42 C.F.R (c)(2)). 106 Id. at (to be codified at 42 C.F.R ). 107 Id. at (to be codified at 42 C.F.R (b)) Fed. Reg. at (to be codified at 42 C.F.R (b)).

19 may submit attestations for the 90-day EHR reporting period for CY 2011 as early as April 2011 and receive preliminary, estimated incentive payments as early as May The following graphic provides a timeline for the process: Timing January 2011 April 2011 May 2011 Settlement of first cost report for the hospital cost reporting year that begins on or after the start of the payment year Event EHs begin registration EHs may begin to submit meaningful use attestations (as soon as they demonstrate meaningful use for 90-day reporting period) Single payment contractor expected to begin making interim payments based on recently filed cost report Final incentive payment amount determined based on Medicare discharge, inpatient bed days and other data from cost report INCENTIVE PAYMENT ADJUSTMENTS EFFECTIVE FY 2015 The Final Incentives Rule finalizes the Proposed Incentives Rule s reduction in the annual market basket adjustment to the IPPS payment rate for inpatient hospital services for hospitals that are not Meaningful EHR Users by one-quarter, one-half and threequarters of the percentage increase otherwise applicable in FY 2015, FY 2016, and FY 2017 and subsequent Medicare FYs, respectively. 109 A hospital may be exempted from the payment reduction if CMS determines, on a case-by-case basis, that requiring the hospital to be a Meaningful EHR User would result in a significant hardship, such as the case of a hospital in a rural area without sufficient internet access. 110 Incentive Payments for Critical Access Hospitals INCENTIVE PAYMENT CALCULATION FOR CRITICAL ACCESS HOSPITALS CAHs that are Meaningful EHR Users may also receive incentive payments during an EHR reporting period for a CAH s cost reporting period, beginning after FY 2010 but before FY 2016, for up to four fiscal years. The EHR reporting period is a continuous 90-day period in the first payment year and the entire payment year for subsequent years. Consistent with the HITECH Act, 111 CMS proposes to pay EHR incentives to a CAH for a Medicare fiscal year equal to the product determined by multiplying the following two items: The CAH s reasonable costs incurred for the purchase of Certified EHR Technology (excluding any depreciation and interest expense) during the cost reporting year that begins in the applicable Medicare fiscal year The lesser of the following: 100%; and the Medicare Share (as defined above) percentage plus 20 percentage points Fed. Reg. at (to be codified at 42 C.F.R (d)(3)). 110 HITECH Act 4102(b)(1) (to be codified at 42 U.S.C. 1395ww(b)(3)(B)) (b)(2) (to be codified at 42 U.S.C. 1395(f)(1)) Fed. Reg. at (to be codified at 42 C.F.R )).

20 The EHR incentive payment is made in lieu of the payment for reasonable costs of the purchase of Certified EHR Technology (including depreciation and interest expense) that would have been otherwise made by Medicare under the reasonable cost reimbursement methodology for CAHs. The Final Incentives Rule provides the following example: 113 Example: A CAH first requests an incentive payment for its cost reporting period beginning on January 1, 2012, which is in FY The CAH incurred reasonable costs of $500,000 for the purchase of Certified EHR Technology in its previous cost reporting period beginning on January 1, This CAH is a Meaningful EHR User during the relevant EHR reporting period and thus qualifies for an incentive payment for FY (For illustrative purposes, this example assumes no salvage value of the assets acquired.) The CAH depreciated $100,000 of the costs of these items in the cost reporting period beginning on January 1, As a result, the amount used to compute the incentive payment will be the remaining $400,000 of undepreciated costs. The CAH's Medicare Share is 90 percent (its actual Medicare Share of 70 plus 20 percentage points). Therefore, the CAH's incentive payment for FY 2012 is $360,000 ($400,000 times 90 percent). This CAH's first payment year is FY 2012, and it can receive incentive payments through four consecutive payment years which, in this example, would be FYs 2012 through A CAH s Medicare contractor currently determines the CAH s reasonable cost for acquiring depreciable assets. CAHs should communicate with their Medicare contractors to determine the necessary documentation to support their reasonable costs incurred for the purchase of Certified EHR Technology and to determine if the items that they purchase are depreciable assets under Medicare principles or other accounting standards. 114 TIMING AND PROCESS FOR INCENTIVE PAYMENTS As with payment of the preliminary and final incentive payments to IPPS-participating acute care hospitals, the Final Incentives Rule provides that CMS will review data on a CAH s Medicare fee-for-service and managed care inpatient bed days, total inpatient bed-days, and charges for charity care from the CAH s most recently submitted 12-month cost report once the CAH demonstrates meaningful use, in order to determine the preliminary, estimated incentive payment. For purposes of determining final incentive payments, CMS will review the first 12-month cost reporting period that begins after the start of the payment year, in order to settle payments on the basis of the CAH s Medicare fee-for-service and managed care inpatient bed days, total inpatient bed-days, and charges for charity care data from that cost reporting period. A CAH must register during its first payment year and submit a meaningful use attestation in the same manner as IPPSparticipating acute care hospitals. The registration and attestation process is described above. INCENTIVE PAYMENT ADJUSTMENTS EFFECTIVE FY 2015 For cost reporting years beginning in FY 2015, if a CAH is not a qualifying CAH, the reasonable cost payment for inpatient services furnished by a CAH will be reduced from 101 percent of the CAH s reasonable costs in providing CAH services to its inpatients to , and 100 percent in FY 2015, FY 2016 and FY 2017 and each subsequent Medicare fiscal year, respectively. A CAH may be exempted from the payment reduction if CMS or the single payment contractor determines, on a case-by-case basis, that requiring the CAH to be a Meaningful EHR User would result in a significant hardship. 115 Part 4: Medicare Advantage EHR Incentive Program The Final Incentives Rule adopts the Medicare Advantage (MA) EHR Incentive Program largely as proposed and with only a few minor modifications, such as delaying the deadline for qualifying MA Organizations to identify themselves to CMS to reflect the release of the Final Incentives Rule in relation to the annual bidding cycle. The fundamental concepts of the MA EHR Program and MA Organizations potential strategic considerations appear to be consistent with those anticipated under the Proposed Incentives Rule. 113 Id. at Id. at (to be codified at 42 C.F.R ). 115 HITECH Act 4102(b)(2)(C) (to be codified at 42 U.S.C. 1395(f)(1)).