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.

Margalit Gur-Arie blogs frequently at her website, On Healthcare Technology. She was COO at GenesysMD (Purkinje), an HIT company focusing on web based EHR/PMS and billing services for physicians. Prior to GenesysMD, Margalit was Director of Product Management at Essence/Purkinje and HIT Consultant for SSM Healthcare, a large non-profit hospital organization.

12 replies »

  1. This message is to Mrs. White. It depends on the state that you live in,and several other factors that determine if your husband is eligible for Medicaid. Often times the spouses income is not taken but it is used in the overall calculations. Nonetheless, if your husband’s income is over $2022.00, in the state of New Jersey he would not be eligble for any type of community Medicaid program. The other issue is how much your assets such as financial instruments and secondary property and even whole life insurance policies are worth? You best bet is to call your local Medicaid office.
    Wayne Balfour MBA, MAS

  2. Does anyone have info on what happens to a wife’s income when husband has run out of Medicare funds and needs to go on Medicaid? My husband is 95 and I am 80. Thirty-five years ago I signed a pre-marital agreement. I thought this meant that each of us had separate finances. In the event that my husband’s health care costs use up all his savings, will everything I own be seized to cover his costs? Will we have to divorce in order to make him eligible for Medicaid help??

  3. That is very true, John, and I am happy to see that docs looking at EHRs are not concentrating on the meaningful use laundry list. There is always the basic question of whether the EHR is certified, but after that it is all about functionality that has very little to do with MU and very much to do with making the physician’s work as efficient as possible under the new circumstances.

  4. I’m sure that the efforts of you, Dr. Kibbe and many others will be of great benefit to providers. In fact, I’m really excited to see Dr. Kibbe in person next week in Las Vegas at a conference on Meaningful Use and EMR. He likely doesn’t know me, but I know of him.
    My personal opinion is that the stimulus money often creates the wrong motivation in a clinic. I personally believe in using the EMR stimulus as a bonus if everything goes well. However, the focus of the EMR selection and implementation should be based on the business needs and clinical workflow. Then, if that goes well and you are able to show meaningful use of a certified EHR in a reasonable way, great!! However, you won’t have compromised your business or your workflow in the process of chasing government handouts.

  5. John, my hope is that passionate physician advocates like Dr. Kibbe, will help the rural docs get some benefit from this bonanza. I am doing the best I can too (which is not nearly enough) since this is were the bulk of the money needs to go.
    I cannot in good conscience disagree with DonB either. Unlike Medicare, there are no penalties under Medicaid for taking the time to do things right.

  6. Perhaps waiting until 2011 to dive into the EHR implementation voyage might be a good idea. Waiting ’till next year yields more time to research the product/service offerings, time to undertake important work flow improvements, less fog and chaff surrounding reimbursement programs and no downside reduction in Medicare incentive schedule in 2011 vs 2010.
    Not racing into a decision and sloppy deployment results in a straighter line decision and deployment.

  7. Very interesting look at the Medicaid program. It’s fascinating to think about the EP telling them that they won’t give the money back to their facility. Although, I can imagine there will be a number of interesting conversations that happen around this. Well, that is if physicians realize this little known fact.

  8. This is important information and analysis that contributes to daily conversations I am having with AAFP members trying to make decisions about what to do. Thank you.

  9. Thank you for the suggestion, Wendell, but I won’t be setting up that account 🙂
    As to reimbursement, folks that work in FQHCs or RHCs don’t really get paid by visit type, so coding higher is of no immediate benefit to the physician.
    BobbyG, I do share your concern, and my advice to a physician eligible for both Medicare and Medicaid incentives, would be to go with Medicare even if it is significantly lower and more stringent in requirements, particularly in States with unusually strapped Medicaid programs.

  10. As usual interesting and valuable contribution from Margalit. The assignment of income by the provider is an important clause in the HITECH portion of the ARRA that likely no physicians are aware of.
    Those physicians who read this posting by Margalit please remit a portion of any money received from the federal government to Margalit who will shortly set up an account for that purpose.
    “You may want to consider that an EHR will most likely reduce your productivity initially, and perhaps for longer than you expect.”
    Unfortunately I have to disagree on this point. I suspect that Margalit wants to counter the average EMR system salesperson’s assertion that EMR/PM implementation will generate more or less immediate and substantial financial returns on investment, but this statement is not true.
    In other words implementation of a good system can easily be productivity-neutral or productivity-enhancing. Poor software (easily avoidable) or more likely a poor implementation will be productivity-decreasing, but that has nothing to do with the value of the software itself or its appropriate use.
    Second, until reimbursement rates are tightened by CMS, the revenue boost from better documentation alone that permits an increase in the relevant CPT code for office visits from say 99203 to 99204 can add 5%-10% or so to average revenue for a practice. That goes directly to income. This is uncorrelated to productivity-enhancement or any other potential financial or non-financial benefit.

  11. Page 581, Meaningful Use Final Rule:
    “Unlike Medicare, Medicaid has no statutory implementation date for making EHR incentive payments.”
    Pages 714-715:
    “This program is voluntary for States and States offer the incentives at their option. The State role in the incentive program is essentially to administer the Medicaid incentive program. While this entails certain procedural responsibilities, these do not involve substantial State expense. In general, each State Medicaid Agency that participates in the incentive program will be required to invest in systems and
    technology to comply – States will have to identify and educate providers, evaluate their attestations and pay the incentive. However, the Federal government will fund 90 percent of the State’s related administrative costs, providing controls on the total State outlay.”
    My REC is recruiting a lot of providers who are coming in on the Medicaid side. If my state opts out, we are going to look rather bad to a lot of docs. Our state (NV) is wrangling over a 3 billion dollars budget deficit. Having to come up with even 10% of “reasonable administrative expenses” is an expressed concern at Nevada DHHS. All I get from my Sups are bland, vague assurances that NV Medicaid will be on board. Imagine my anxiety.

  12. Not to waste time, very few if any will meet the forever changing hoops, and will never see a dime. Go try to collect from the Feds and prove your case. Forget it. Best to wait and do not buy.
    Medicare had a best practice program with incentives for “good” care as they defined it. Nearly all practices met the criteria but only a few received the “bonus”.