CMS and ONC Release Long-Awaited Rules Defining "Meaningful Use" and Certification Standards for Electronic Health Records and Implementing the Medicare and Medicaid Payment Incentives

06 January 2010 Publication
Authors: Chanley T. Howell James R. Kalyvas Shirley P. Morrigan Robert D. Sevell

Legal News Alert: Health Care

On December 30, 2009, the Centers for Medicare & Medicaid Services (CMS) posted a proposed rule (Meaningful Use Rule) that defines the "meaningful use" of electronic health records (EHR) and implements the Medicare and Medicaid EHR Incentive Program. The Office of the National Coordinator for Health Information Technology (ONC) also posted its interim final rule that sets forth the initial set of standards, implementation specifications, and certification criteria for EHR technology (Standards Rule).

These rules implement the provisions of the American Recovery and Reinvestment Act of 2009 (ARRA) that provide incentive payments to eligible professionals (EPs) and eligible hospitals that participate in the Medicare and/or Medicaid programs, based on the adoption and meaningful use of certified EHR technology. The Meaningful Use Rule addresses how providers use certified EHR technology to demonstrate meaningful use and obtain Medicare and Medicaid incentive payments, whereas the Standards Rule addresses the requirements for establishing "certified EHR technology."

Both rules are available for viewing in a draft format at the Federal Register ( and will be published in the Federal Register on January 13, 2010. Because the Standards Rule is an interim final rule, it will become effective 30 days after final publication. It is expected to become effective on February 12, 2010, assuming publication actually occurs on January 13, 2010. With regard to the Meaningful Use Rule, CMS stated, "We anticipate that we will not publish a final [Meaningful Use] rule until after March 2010, with the final rule effective 60 days after its publication." Accordingly, the exact effective date of the Meaningful Use Rule is unknown at this point.

The Rules have been keenly anticipated by the health care industry as a precursor to qualifying for incentive payments under Medicare and Medicaid. EPs can receive Medicare incentives of up to $44,000 per EP and Medicaid incentives of up to $63,750 per EP. The amount available to hospitals varies based on the size and Medicare or Medicaid patient volume of the hospital, with average Medicare hospital incentives ranging from $6 million to $7 million for mid-sized hospitals, according to industry estimates. Although not yet final, the Standard Rule goes a long way toward clarifying the requirements for meaningful use of certified EHR technology.

Providers can now better evaluate their current technology to determine gaps between such technology and the technology required to show meaningful use. Similarly, IT vendors and professional service providers should now be in a better position to assist providers in becoming meaningful users of certified EHR technology. Because Medicare incentive payments can begin as early as 2011 (for EHR reporting periods commencing October 2010 in the case of eligible hospitals and January 2011 for EPs) and will diminish over time through 2015, 2010 will be a critical year for most hospitals and EPs who desire to maximize their ability to obtain Medicare incentive payments. There is no statutory deadline for the Medicaid incentive payments; thus, the states have considerable discretion as to when incentives may be implemented. Medicaid EPs and eligible hospitals must adopt EHR no later than 2016 to maximize their incentive payments under the Medicaid program.

The Meaningful Use Rule

The Meaningful Use Rule establishes: (1) the initial meaningful use criteria that a provider must meet to qualify for the incentive payment; (2) how the incentive payment amounts will be calculated; (3) payment adjustments (downward adjustment percentages) under Medicare for providers that fail to meaningfully use certified EHR technology by 2015; and (4) other program participation requirements. Under the Meaningful Use Rule, CMS proposes common definitions under the EHR incentive programs for the Medicare Fee-for-Service (FFS), Medicare Advantage (MA), and Medicaid. Key provisions of the Meaningful Use Rule are highlighted below.

Meaningful Use

Under the Meaningful Use Rule, CMS proposes using a phased approach to facilitate the introduction of increasingly robust criteria for meaningful use. There are three stages of meaningful use criteria proposed. The initial meaningful use criteria (governing Medicare incentive payments for 2011 and 2012) are referred to as "Stage 1" (See Table 2: Stage 1 Criteria for Meaningful Use at CMS will update the meaningful use criteria periodically, with Stage 2 criteria being proposed by the end of 2011 (governing meaningful use for Medicare incentive payments for 2013 – 2014), and Stage 3 criteria being proposed by the end of 2013 (governing meaningful use for Medicare incentive payments for 2015).

The progression from Stage 1 through Stage 3 is accelerated for Medicare providers that adopt certified EHR technology after 2011. The longer a provider waits to implement EHR technology, the quicker it will have to progress from Stage 1 to Stage 3 in order to receive incentive payments. In light of the accelerated criteria for determining meaningful use in later years of the incentive program and the diminishing amount of incentive payments available, Medicare providers that have not yet developed an EHR strategy and implementation plan and assessed overall costs based on various timing scenarios should initiate that process as soon as possible.

For Medicaid providers that adopt, implement, or upgrade certified EHR technology in their first payment year, the meaningful use objectives and associated measures of Stage 1 criteria apply beginning with the second payment year. Eligible hospitals that satisfy the requirements for meaningful use under Medicare and are otherwise eligible for the Medicaid incentive payments will be deemed meaningful EHR users for purposes of Medicaid incentives.

The Stage 1 criteria for EPs and hospitals are based on the recommendations of the Health Information Technology (HIT) Policy Committee, which were set forth in a matrix released in August 2009, but contain some modifications to reduce the number of objectives and further specify the measures (See Table 2: Stage 1 Criteria for Meaningful Use at Each objective and measure must be satisfied by an EP, as determined by unique National Provider Number (NPI), or eligible hospital or Critical Access Hospital (CAH), as determined by CMS Certification Number (CCN).

For the first year of eligibility,providers can demonstrate that they satisfy the meaningful use objectives through attestation. The initial year to show meaningful use for Medicare incentives begins October 1, 2010 for hospitals and January 1, 2011 for EPs. During the initial year, providers can demonstrate meaningful use during any continuous 90-day period. In subsequent years, however, the meaningful use must be present for the entire year.

For payment years beginning in 2012 and thereafter, clinical quality measures must be electronically reported to CMS or the states, while the other objectives may be satisfied by attestation. CMS proposes that providers submit attestation (which certifies compliance) through a secure mechanism such as through claims-based reporting or an online portal. Providers can, through a one-time attestation following the completion of the EHR reporting period for a given payment year, identify the certified EHR technology they are utilizing and the results of their performance on all the measures associated with the objectives of meaningful use. CMS will issue further instructions on the specifics for submitting attestation through established outreach venues. Providers must keep documentation supporting their demonstration of meaningful use for 10 years.

Comments Requested Regarding Meaningful Use

CMS requests comments on whether further specificity is required on the types of orders encompassed within computerized provider order entry (CPOE), whether certain providers may have difficulty meeting some of the objectives as well as how to determine whether an objective and/or its associated measure is appropriate for different provider types or specialists. CMS also seeks comments on the inclusion or exclusion of clinical quality measures set forth in the Meaningful Use Rule and its approach to selecting clinical quality measures. CMS has a stated goal of using quality measures that are consistent with the Physician Quality Reporting Initiative (PQRI) and Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) programs to encourage EPs and eligible hospitals to use EHRs as the mechanism to report PQRI and RHQDAPU measures.

Calculations of Medicare Incentive Payments

Under the Medicare incentive payment provisions, CMS has proposed definitions and the sources of data that will be used for calculating the Medicare incentive payments for EPs and eligible hospitals. It also addresses incentive payments for CAHs. Key provisions for general acute care and children’s hospitals are discussed below.


EPs are eligible for incentive payments based on a percentage of their covered professional services, up to an annual ceiling. For EPs who provide services in more than one setting, the payment will not be apportioned among the practice settings. EPs are permitted to reassign their incentive payments to their employer or to an entity with which they have a contractual arrangement; however, the EP must choose a single Tax Identification Number (TIN) under which to receive the entire amount of the EHR incentive payment. In addition, Medicare EPs who receive payments under the E-Prescribing Incentive Program authorized by Medicare Improvement for Patients and Providers Act of 2008 (MIPAA) are ineligible to receive a Medicare incentive payment for that same year.

"Hospital-based" EPs are ineligible for Medicare incentives. To be considered a hospital-based EP, the EP must provide "substantially all" of his or her covered professional services in a hospital setting. CMS proposes a very broad definition of "hospital setting," which encompasses all hospital inpatient and outpatient settings, including all settings that meet the definition of the main provider, department of a provider, or of having provider-based status. CMS defines "substantially all" as furnishing at least 90 percent of covered professional services in a hospital setting, either inpatient or outpatient. The place of service codes on physicians’ claims will be used to determine whether an EP furnishes substantially all of their professional services in a hospital setting and is, therefore, hospital-based. For EPs to receive the bonus for predominantly furnishing services in Health Professional Shortage Areas (HPSA), EPs must provide more than 50 percent of their covered services in a HPSA.

Eligible Hospitals

Incentive payments for hospitals are based on the hospitals’ Medicare share (volume). CMS will use data on the hospital's Medicare cost report, including fee-for-service and managed care inpatient bed days, total inpatient bed-days, and charges for charity care in determining the hospital’s Medicare share. The incentive payments decrease over time through the use of a transition factor. A hospital that first becomes a meaningful user in 2011, 2012, or 2013, will be entitled to four years of incentive payments based on the statutory formula — 100 percent in year one; 75 percent in year two; 50 percent in year three and 25 percent in year four (See Table 25, Transition Factor for Medicare FFS Eligible Hospitals at Hospitals adopting EHR technology after 2013 will be subject to reduced incentive payments, and hospitals adopting after 2015 will be subject to penalties in the form of reductions in Medicare payments.

Comments Requested Regarding Incentive Payments

With regard to the Medicare incentive payment provisions, CMS seeks comment as to: (1) whether EPs are using qualified EHRs of the hospital in ambulatory care settings, (2) alternative approaches to defining hospital settings, (3) the charity care financial criteria established by each hospital, the collection of charity care data on Medicare Cost Report Worksheet S-10, Hospital Uncompensated and Indigent Care Data, and whether proxies for charity care may be developed with other data available to CMS, and (4) the implementation of payment adjustments, the details of which will be proposed in subsequent rule making (including the possible circumstances under which an EP would qualify for a significant hardship exception).

Calculation of Medicaid Incentive Payments

Under the provisions of the Meaningful Use Rule specific to the Medicaid program, CMS has adopted the standard definitions for the Medicare incentive payment program, with certain limited exceptions. The Medicaid provisions also elaborate on the state process for administration of Medicaid payment incentives.


Hospital-based EPs are defined consistent with Medicare. However, Medicaid EPs practicing predominantly in Rural Health Clinics (RHC) or Federally Qualified Health Centers (FQHC) are not subject to the hospital-based exclusion. For EPs who practice predominantly at an FQHC or an RHC, a minimum of 50 percent of total patient encounters over a period of six months must occur at an FQHC or RHC.

Eligible Hospitals

Eligible hospitals include acute-care hospitals and children’s hospitals. "Acute care hospitals" are defined as general acute-care hospitals where the average length of patient stay is 25 days or less with CCN numbers with the last four digits in the 0001 – 0879 series. This definition reflects CMS’ belief that ARRA intended to exclude long-term acute care hospitals from the Medicaid incentive program. In addition, only separately certified "children’s hospitals" with CCNs that have the last four digits in the 3300 – 3399 series and predominantly treat individuals under 21 years of age are eligible for Medicaid EHR incentive payments.

Qualification as a Medicaid Provider

CMS believes that the Meaningful Use Rule uses a flexible methodology to calculate the Medicaid patient volume threshold to allow the highest number of Medicaid providers to qualify as EPs or eligible hospitals for the Medicaid EHR incentive program. The Medicaid patient volume threshold is calculated based on any 90-day period in the preceding calendar year. States are permitted to request CMS approval of alternative approaches to the established timeframe for measuring patient volume.

Coordination of Payments

The Meaningful Use Rule emphasizes coordination between the Medicare and Medicaid EHR Incentive Payment Programs. EPs must choose whether to receive Medicare or Medicaid payments, but they may change their program election for payments beginning prior to 2015. Eligible hospitals may receive both Medicare and Medicaid payments. Similar to the Medicare requirements, EPs who receive Medicaid incentives must choose a single TIN under which to receive incentive payments. Annually, EPs and eligible hospitals must choose one state from which to receive incentive payments.

Incentive Payments

Unlike Medicare, Medicaid has no statutory implementation date for the commencement of EHR incentive payments. Medicaid incentive payments may begin as early as 2011. However, Medicaid EPs and hospitals must adopt EHRs by 2016 to receive the maximum incentive payments. EHR incentive payments to Medicaid eligible hospitals will be calculated based on their Medicaid share (similar to the method of calculating a hospital’s Medicare share) and may not exceed certain statutory caps. Medicaid incentive payments to EPs may not exceed $21,250 for the first year and $8,500 for each of the subsequent five years. Under the Meaningful Use Rule, early adopters, or Medicaid EPs who have already achieved meaningful use of EHR in the first incentive payment year, will receive maximum payments for the full six-year time period.

State Process for Administering Medicaid Incentives

States are responsible for administering incentive EHR payments under the Medicaid program. To receive Federal Financial Participation for administering the incentive program, states must develop a State Medicaid Health Information Technology Plan (SMHP) that describes the state's current and future HIT activities in support of the Medicaid EHR incentive program, a HIT Planning Advance Planning Document, and a HIT Implementation Advance Planning Document. States must obtain prior written approval of required plans and certain implementation activities in support of the Medicaid EHR incentive program to encourage the adoption and use of certified EHR technology. CMS proposes to allow states to initiate implementation of these payments to Medicaid EPs and hospitals after promulgation of the final Meaningful Use Rule if they successfully demonstrate to CMS that they are ready to make timely and accurate payments through the SMHP.

Comments Requested Regarding Incentive Payments

CMS is soliciting comment on the proposed definitions of "children's hospital" as it applies to the Medicaid EHR incentive program. CMS also requests comments on an alternative approach to limit the incentive payment for Medicaid EPs who have already adopted, implemented, or upgraded certified EHR technology, which would limit incentive payments to a five-year period with a maximum payment of $8,500 per year.

The Standards Rule

The Meaningful Use Rule discussed above addresses how CMS expects providers to demonstrate the adoption and meaningful use of certified EHR technology so that they can qualify for incentive payments. The Standards Rule proposed by ONC, also published on December 30, 2009 addresses the requirements for the EHR technology to become "certified."

The Standards Rule recognizes that EHR technology may be a "Complete EHR" (a system that provides all certification functionality) or the combination of multiple EHR Modules (which provide a component or components of certification functionality). ONC notes that the use of EHR Modules may enable an EP or eligible hospital to create a combination of products and services that, taken together, meets the definition of certified EHR technology. However, ONC further notes that this approach carries with it a responsibility on the part of the EP or eligible hospital to perform additional diligence to ensure that the certified EHR Modules selected are capable of working together to support the achievement of meaningful use.

If EHR Modules are used, the provider must be able to effectively use them together to demonstrate meaningful use. For example, two certified EHR Modules may provide the capabilities necessary to meet the definition of certified EHR technology, but they may not integrate well with each other or with the other EHR technology to which they were added. As a result, EPs and hospitals that elect to adopt and implement certified EHR Modules should take care to ensure that the certified EHR Modules they select are interoperable and can properly perform in their expected operational environment. ONC provides a table (based on the Criteria for Meaningful Use table in the Meaningful Use Rule) that describes the standards criteria required to support each meaningful use objective in the Meaningful Use Rule (See Table 1 — Certification Criteria at

For example, the Meaningful Use Rule requires use of CPOE. The Standards Rule requires the EHR technology to enable users to store and manage certain types of orders (e.g., medications, laboratory, and radiology/imaging are three of the 11 different order types required for hospitals). The Standards Rule tracks the Meaningful Use Rule and provides the required technological functionality to enable and support meaningful use.

The standards are organized into the four categories recommended by the HIT Standards Committee:

  • Vocabulary Standards (i.e., standardized nomenclatures and code sets used to describe clinical problems and procedures, medications, and allergies)
  • Content Exchange Standards (i.e., standards used to share clinical information such as clinical summaries, prescriptions, and structured electronic documents)
  • Transport Standards (i.e., standards used to establish a common, predictable, secure communication protocol between systems)
  • Privacy and Security Standards (e.g., authentication, access control, and transmission security) that relate to and span across all of the other types of standards

The Standards Rule provides the certification criteria (functionality) that will be required for EHR technology (either a complete system or a separate module) to be deemed "certified EHR technology" under the Health Information Technology for Economic and Clinical Health (HITECH) Act. Providers must utilize that technology in order to demonstrate "meaningful use of certified EHR technology," in accordance with the requirements of the Meaningful Use Rule. ONC notes that the standards and certification criteria will evolve over time, as stages of meaningful use evolve in future regulations, technology evolves, and the industry adopts versions of standards most compatible with meaningful use.

While the Standards Rule focuses on standards that comprise a certified EHR, the actual process and procedure by which those systems will be certified, including the identification of certifying organizations, will be the subject of an additional notice of proposed rulemaking by ONC later in 2010.


With the publication of these two Rules, EPs and hospitals are now better able to assess the current and planned status of their EHR technology infrastructure and software and whether it will support eligibility for Medicare and Medicaid incentive payments under the HITECH Act. There are a number of practical consequences as a result of the Rules: (1) incentive payments begin for meaningful use in 2011, (2) the aggregate amount of incentive payments available to a provider is reduced over time, (3) late adopters will have a shorter period of time to achieve all three stages of meaningful use, (4) IT vendors and professionals will likely be stretched thin due to the significant demand resulting from the incentive programs, and (5) the significant amount of time required to implement or enhance an EHR system (e.g., in excess of a full year for large and/or complex systems). Therefore, EHR strategies, implementation plans, and overall EHR cost assessments based on various timing scenarios should be evaluated as soon as possible to optimize the ability to obtain incentive payments and minimize total EHR infrastructure and implementation costs.

1 Table 1 references Table 2A ( and Table 2B (

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If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individuals:

Leeann M. Habte
Los Angeles, California

Chanley T. Howell
Jacksonville, Florida

James R. Kalyvas
Los Angeles, California

Shirley P. Morrigan
Los Angeles, California

Richard K. Rifenbark
Los Angeles, California

Robert D. Sevell
Los Angeles, California