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The Health Information Technology for Economic and Clinical Health Act (HITECH Act) was enacted as part of the American Recovery and Reinvestment Act on February 17, 2009.  The HITECH Act is designed to improve the United States health care delivery system through the adoption and use of health information technology.  These provisions aim to create a nationwide electronic health system that is efficient, secure and private in an effort to improve health outcomes and lower the cost of healthcare.  To accomplish these goals, the federal government allotted $19.2 billion of funding to promote the adoption and meaningful use of interoperable health information technology and electronic health records (EHRs).

To fully implement the requirements of the HITECH Act, the Department of Health and Human Services (HHS) recently issued three final rules.  The first final rule, the “EHR Incentive Program Final Rule,” pertains to the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs.  These programs offer incentives to eligible professionals and hospitals that adopt and demonstrate the meaningful use of EHRs to improve the quality, safety, and effectiveness of health care.  Economic analysts estimate that the government will expend $9.7 billion to $27.4 billion in Medicare and Medicaid incentive payments over the next 10 years.[1]

Under the EHR incentive programs, eligible professionals can receive as much as $44,000 over a five-year period through Medicare and up to $63,750 over a six-year period through Medicaid.  Hospitals, on the other hand, can earn millions of dollars for implementing and being meaningful users of certified EHRs.  In addition to outlining the payments participants may receive, the final rule also established the meaningful use objectives and associated metrics that eligible participants must meet to qualify for incentive payments.

The remaining final rules address EHR technology.  “The Temporary Certification Program for Health Information Technology Final Rule” established a certification program and process to test and certify EHR technology.  In addition, the “Health Information Technology: Initial Set of Standards, Implementation Specifications, and Certification Criteria for Electronic Health Record Technology Final Rule” outlined the standards and certification requirements for EHR technology.  HHS has noted that although the regulations correspond to and complement the requirements under the HITECH Act’s Medicare and Medicaid Incentive Programs, the regulations apply to all health information and EHR technology.

This brief provides an overview of the HHS regulations concerning the Medicare and Medicaid EHR Incentive Programs, as well as the EHR technology standards and certification requirements as they relate to these programs.  Please note that although the HITECH Act is applicable to a variety of health care providers, this brief will focus on the laws and regulations related to hospitals.

Overview of the Medicare and Medicaid EHR Incentive Programs

Medicare

Under the Medicare EHR Incentive Program, incentive payments are available to eligible hospitals that demonstrate meaningful use of certified EHR technology.  An eligible hospital must be a critical access hospital or a subsection (d) hospital paid under the inpatient prospective payment system (i.e., an acute care hospital).[2]  In addition, a hospital must be located in 1 of the 50 states or the District of Columbia to participate in the program.

According to the HITECH Act, eligible hospitals that fulfill all program requirements can begin to receive incentive payments in federal fiscal year (FY) 2011.[3] The last year eligible hospitals can receive incentive payments is in FY 2016.  Furthermore, eligible hospitals can begin to participate in the Medicare EHR Incentive Program in any year from FY 2011 through FY 2015. It is important to note, however, that the HITECH Act and EHR Incentive Program Final Rule are designed to encourage early adopters of EHRs.  Eligible hospitals that choose to participate in the program starting in FY 2014 or later will receive lower incentive payments.  In addition, beginning in FY 2015, hospitals will be subject to reduced Medicare payments if they are not meaningful users of certified EHR technology.  Therefore, there is an advantage for hospitals to enroll in the Medicare EHR Incentive Program early, adopt certified EHRs, meet the definition of meaningful use and continue to be meaningful users of EHRs.  This will ensure maximum incentive payments under the EHR Incentive Program.

Medicaid

The EHR Incentive Program Final Rule also addresses requirements for the Medicaid EHR Incentive Program.  While this program is similar to the Medicare EHR Incentive Program, there are a few notable differences.  First, implementation of a Medicaid EHR Incentive Program is strictly voluntary.  In contrast to the federal government implementing and managing the Medicare EHR Incentive Program, states can choose whether or not to implement and manage a Medicaid EHR Incentive Program.  Consequently, it is possible that not all states will have a Medicaid EHR Incentive Program.

Second, more types of hospitals are eligible for incentive payments under the Medicaid EHR Incentive Program.  In states that implement an EHR Incentive Program, an eligible hospital is either an acute care inpatient hospital or a children’s hospital.  An acute care inpatient hospital is defined as a health care facility with an average length of stay of 25 days or less.  In addition, the hospital must have a Centers for Medicare & Medicaid Services (CMS) Certification Number in which the last four digits fall in the series 0001-0879 or 1300-1399.  Thus, an acute care hospital under the Medicaid EHR Incentive Program can include general short-term stay hospitals, cancer hospitals, and critical access hospitals.

Third, in order to qualify for Medicaid EHR incentive payments, the hospital must also meet a Medicaid patient volume requirement.  Specifically, at least 10 percent of the hospital’s patient volume must be Medicaid patients.  CMS has established two methods for calculating a hospital’s Medicaid patient volume.  State Medicaid Agencies can either select one of CMS’ methodologies or develop their own methodology.  If a State Medicaid Agencies creates their own methodology for calculating patient volume, it must be approved by CMS.  This minimum threshold, however, does not apply to children hospitals.

Fourth, under the Medicaid EHR Incentive Program, eligible hospitals can receive payments from FY 2011 to FY 2021; however, the last year a hospital can initiate participation in the program is FY 2016.  In addition, hospitals will not face lower payments if they are not meaningful users of EHRs.  This type of Medicaid fee schedule adjustment does not exist in the provisions for the Medicaid EHR Incentive Program.

Fifth, in their first year of participation in the program, eligible hospitals can qualify for incentive payments if they either: (1) adopt, implement, or upgrade to a certified EHR; or (2) demonstrate meaningful use of certified EHR.  This gives hospitals some latitude to demonstrate meaningful use of certified EHR.  Subsequent to the first year of participation, however, participants must demonstrate the meaningful use of certified EHR.

Medicare and Medicaid EHR Incentive Payments

Medicare Incentive Payments

Under the Medicare EHR Incentive Program, eligible hospitals can receive incentive payments for a maximum of 4 years beginning in FY 2011.  The last year eligible hospitals can receive an incentive payment is FY 2016.

The incentive payment for eligible hospitals is calculated by multiplying the following three factors:

  1. 1.     Initial Amount.  This factor is equal to the sum of a discharge-related amount and the $2 million base amount statutorily established under the HITECH Act.  The discharge-related amount is based on the total number of discharges of an eligible hospital.  If the total number of discharges is between 1 and 1, 149 or is greater than 23,000, the discharge-related amount is $0; however, if the total number of discharges of an eligible hospital is between 1,150 and 23,000, the discharge-related amount is $200.  Therefore, the Initial Amount is calculated as follows:
Discharges Formula

(Initial Amount = Base amount + Discharge – Related Amount)

Total Initial Amount
1 to 1, 149 Initial amount = $2,000,000 + ($0 x total number of discharges) $2,000,000
1,150 to 23,000 Initial amount = $2,000,000 + ($200 x total number of discharges) Between $2,000,000 and $6,370,400
Greater than 23,000 Initial amount = $2,000,000 + ($200 x[23,001-1149]) Limited by law to $6,370, 400

2. Medicare Share.  The Medicare Share is a fraction.  The numerator of this fraction is the number of acute care inpatient-bed-days for which the hospital received a Medicare Part A payment plus the number of acute care inpatient-bed-days for beneficiaries enrolled in Medicare Part C.  The denominator is the product of the total number of acute care inpatient-bed-days and the percentage of the hospital’s total charges that are not attributed to charity care.  Thus, the Medicare Share is calculated as follows:

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