Medicaid EHR Incentives – A Learning Experience

By now almost everybody that has any remote interest in Health Care is aware of the much publicized incentives made available to health care providers for the adoption and meaningful use of certified EHR technology. The most quoted number is $44,000 to be paid by CMS to Medicare physicians. Practically every EHR vendor website is adorned with a Flash banner “educating” doctors on this cash windfall, and practically every HIT detractor is warning that the incentives are just a pittance compared to the real costs of ownership of a certified EHR. Very rarely does anybody go into the intricacies of the available incentives for Medicaid providers, which are almost 50% higher than Medicare and involve clinicians providing care to our most vulnerable citizens. However, there is much to learn from the structure of the Medicaid incentives program.

The HITECH statute sets forth a “net” average allowable cost for purchasing and implementing an EHR at $25,000 for the first year and $10,000 for subsequent years. Of this “net” allowable cost, the Secretary of HHS is authorized to pay Medicaid Eligible Providers up to 85% in stimulus incentives for a total of 6 years. It appears that the Government is about to pay you 85% of your EHR costs for the next 6 years, which is a pretty good deal. Looks, however, can be deceiving. As any early adopter of EHR knows, the total cost of ownership for an EHR over 6 years is well over the “net” allowable of $75,000 set forth in the HITECH Act, and Congress knew that too. This is why the statute instructs the Secretary of HHS to determine the actual average allowable costs of EHR:

“(C) For the purposes of determining average allowable costs under this subsection, the Secretary shall study the average costs to Medicaid providers described in paragraph (2)(A) of purchase and initial implementation and upgrade of certified EHR technology described in paragraph (3)(C)(i) and the average costs to such providers of operations, maintenance, and use of such technology described in paragraph (3)(C)(ii). In determining such costs for such providers, the Secretary may utilize studies of such amounts submitted by States.”

The Secretary indeed researched and studied the actual costs of EHR adoption and, in the CMS final rule, came up with an average allowable cost for purchasing and implementing an EHR of $54,000 for the first year and $20,610 for subsequent years, putting the average cost of ownership for 6 years at $136,440 per Eligible Provider. This is closer to reality, although some would question if the Secretary brought into account loss of productivity while calculating these numbers. At this point, confusion sets in for most folks. If Congress already decided that they would pay no more than 85% of $75,000, why is the Secretary calculating the actual costs and showing us how inadequate the incentive payments really are? The answer lies in the little word “net”.

In the unlikely event that somebody, presumably the tooth fairy, gives you some money to buy an EHR, that amount of money must be deducted from the $54,000 for the first year, and your incentive amount is calculated as 85% of the remainder: First year incentive = ($54,000 – Cash gift for EHR)*85% -or- First year incentive = $25,000*85%, whichever one is smaller. The same logic applies to subsequent years. The only question now is what constitutes a cash gift for EHR technology. Well, the CMS final rule is pretty clear on that. First, State and local government contributions do not count. General grants for improvements do not count either. If you are employed by a Federally Qualified Health Center (FQHC) or Rural Health Clinic (RHC) or anybody else, and your employer purchases an EHR for you, that doesn’t count as a cash gift for EHR, and neither do any in-kind donations from vendors or other entities. Basically, unless someone not mentioned above hands you a wad of dollar bills wrapped in a note stating “This cash is exclusively for your EHR, doctor”, and that wad of dollar bills is greater than $29,000, your stimulus incentive will not be reduced.

You do have to show CMS that you paid for at least 15% of the "net" allowable EHR cost with your own money ($3,750 in the first year and $1,500 in subsequent years), but here is the beauty of the final rule: all those contributions from State, local governments, employers and in-kind donors, which did not count for calculating your “net” allowable cost, can be used to augment, and entirely substitute for, your out of pocket 15%. This is one of the most magnificent examples of bureaucracy at its very best, since when all rules and exclusions are counted, it seems that practically everybody will be eligible for the maximum incentive of $21,250 in the first year and $8,500 in subsequent years. It is worth noting that these amounts don’t cover even half of the Secretary’s estimated average EHR adoption costs.

How about Eligible Providers who are salaried employees, either in a cost-based FQHC or RHC, or any other fee-for-service entity? Most of these doctors assume that they have to assign their incentive payments to their employer, who provided them with the EHR. The CMS final rule clarifies that you can voluntarily assign your incentives to your employer, but you most certainly do not have to do so.

“We believe that, in accordance with 1903(t)(6)(A) of the Act, an EP could reassign payment to a TIN associated with his or her employer or the facility in which she or he works. …  Any reassignment of payment must be voluntary and we believe the decision as to whether an EP does reassign incentive payments to a specific TIN is an issue which EPs and these other parties should resolve.”

Reassignment of incentives to an employer, or any other entity promoting EHR technologies, is left to the physician and his/her employer. There are multiple strong warnings throughout the CMS final rule that such reassignment must be voluntary and the “States must guarantee that the assignment is voluntary”. For anybody contemplating creative arrangements that will reduce payments to employed physicians, in an FQHC for example, to compensate for EHR expenditures, CMS clarifies that “Incentive payments are payments designed to promote the adoption and meaningful use of certified EHR technology and are not payments for medical assistance provided in the FQHC. We do not have the authority under this program to provide that these funds be the basis for the State to reduce its per visit payment to the FQHC.”

In summary, if you are a Medicaid Eligible Provider in private practice, you can expect $63,750 from Medicaid over the next 6 years. If you are an employed Medicaid Eligible Provider, you should clarify with your employer what the expectations are. There is probably nothing regarding incentives in your contract, and while you could allow your employer to collect your incentives, nothing in the CMS final rule mandates that you do so, and quite the opposite is true. You may want to consider that an EHR will most likely reduce your productivity initially, and perhaps for longer than you expect. If you are practicing within a cost-based facility, your income will be adversely affected by the EHR adoption process, and it may make perfect sense to retain your incentive payments as partial compensation for loss of income, even if your employer paid for your EHR.