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

19 July 2010 Publication
Authors: Chanley T. Howell James R. Kalyvas Robert D. Sevell

Legal News Alert: Health Care

For nearly a year and a half since the enactment of the American Recovery and Reinvestment Act of 2009 (ARRA), health care providers have been awaiting final clarification of requirements to obtain incentive payments from the government for implementing electronic health record (EHR) technology. The wait is now over, and to the delight of most in the health care industry, the government has made the requirements more flexible and attainable.

On July 13, 2010, CMS issued the final rule defining the meaningful use of EHR (Meaningful Use Rule), and the Office of the National Coordinator for Health Information Technology (ONC) issued the final rule setting forth the standards and certification criteria for establishing “certified EHR technology” (Certification Standards Rule). Both rules are available for viewing in draft format at the Federal Register ( and will be published in the Federal Register on July 28, 2010.

The final rules implement the EHR incentive program requirements under the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH Act), the health care information technology provisions enacted as part of ARRA. Under the EHR incentive program, Medicare and Medicaid incentive payments totaling as much as $27 billion from 2011 to 2021 will be available for payment to eligible professionals (EPs) and eligible hospitals for the “meaningful use of certified EHR technology.”

Passed during the worst days of the financial crisis that began in 2008, the HITECH Act provisions are designed to serve the dual goals of improving health care through increased efficiencies and improved care decisions, while also stimulating economic recovery. Health care providers have been anxiously awaiting the final rules so they can maximize their ability to obtain incentive payments commencing next year.

EPs who qualify for Medicare incentives can receive up to $44,000 per EP over a five-year period, while EPs who meet Medicaid patient volume requirements and qualify for Medicaid incentives can receive incentives of up to $63,750 per EP over six years. (EPs who qualify for both incentive programs must choose one.) The amount available to hospitals varies, based on the size and Medicare or Medicaid patient volumes of the hospital, with average Medicare hospital incentives ranging from $6 million to $7 million for mid-sized hospitals, according to industry estimates.

The final Meaningful Use Rule and Certification Standards Rule, together with the final temporary certification program rule recently published on June 24, 2010 (Temporary Certification Program Rule), which clarifies how organizations can be approved as certifying entities, are the long-awaited last steps in clarifying how providers can achieve meaningful use of certified EHR technology and qualify for incentive payments.

Meaningful Use Rule

The Meaningful Use Rule provides for a phased approach to implementing the meaningful use criteria, with the initial meaningful use criteria (required to qualify for incentive payments in 2011 and 2012, the first two years of the program) being referred to as Stage 1, and additional updates of the Stage 2 and Stage 3 meaningful use criteria to be provided through future rulemaking on a periodic basis.

Stage 1 Meaningful Use Objectives — No Longer All or Nothing

One of the most significant — and welcomed — changes in the final Meaningful Use Rule is the division of the Stage 1 meaningful use objectives into a required “core set” and an optional “menu set.” The change was made in response to public comments that the requirement of achieving all the objectives in the proposed meaningful use rule (which was published earlier this year on January 13, 2010) used an all-or-nothing approach and was too ambitious. CMS responded:

… we agree that requiring that EPs, eligible hospitals, and [critical access hospitals] CAHs satisfy all of the objectives and their associated measures in order to be considered a meaningful EHR user would impose too great a burden and would result in an unacceptably low number of EPs, eligible hospitals, and CAHs being able to qualify as meaningful EHR users in the first two years of the program.

Therefore, the two-track approach of a core set and menu set in the final rule is intended to provide EPs and eligible hospitals the flexibility of determining which menu set objectives to implement first in Stage 1, while still adhering to the requirements of the HITECH Act and ensuring that a core set of meaningful use objectives are met.

The proposed Meaningful Use Rule initially required 100 percent achievement of 25 objectives for EPs and 23 objectives for eligible hospitals. In contrast, the final rule requires the achievement of (a) 15 core set objectives for EPs and 14 core set objectives for eligible hospitals, and (b) five additional objectives of the provider’s choice out of a menu set of 10 additional objectives, with the other five additional objectives being deferred to Stage 2 (See Table 2: Stage 1 Meaningful Use Objectives and Associated Measures Sorted by Core and Menu Set available at

Reporting of Clinical Quality Measures

The final Meaningful Use Rule makes significant changes to the clinical quality measures that must be reported by EPs and eligible hospitals in order to demonstrate meaningful use.

  • Reporting by Eligible Hospitals. Under the proposed rule, eligible hospitals were required to report on more than 50 clinical quality measures in order to demonstrate meaningful use. In response to many comments recommending that CMS reduce the number of clinical quality measures, and the fact that the electronic specifications associated with some of the proposed measures are yet to be fully developed, in the final rule CMS limited the required clinical quality measures to those with established electronic specifications as of the date of publication of the final rule. As a result, the number of reportable clinical quality measures required for eligible hospitals decreased from over 50 under the proposed rule, to the 15 clinical quality measures listed at Table 10: Clinical Quality Measures for Submission by Eligible Hospitals and CAHs for Payment Year 2011-2012. In addition, in response to requests for clarification of reporting requirements for Medicare eligible hospitals also seeking to participate in the Medicaid incentive program, the final Meaningful Use Rule provides that hospitals reporting on all 15 clinical quality measures will qualify for both Medicare and Medicaid submission requirements for clinical quality measures.
  • Reporting by EPs. Under the proposed rule, EPs were required to report on three core clinical quality measures and certain specialty measures. The final Meaningful Use Rule requires EPs to report on a total of six clinical quality measures using certified EHR technology: (a) three core measures (or if one or more of the core measures is not applicable, up to three alternate core measures) listed on Table 7: Measure Group: Core for All EPs, Medicare and Medicaid and (b) 3 additional measures listed on Table 6: Clinical Quality Measures for Submission by Medicare or Medicaid EPs for the 2011 and 2012 Payment Year.

ARRA provides that CMS may not require electronic reporting of information related to clinical quality measures unless CMS has the capacity to accept such information electronically. As stated in the proposed rule and affirmed in the final Meaningful Use Rule, CMS does not anticipate completing the steps necessary to receive clinical quality data electronically for the 2011 payment year. In the interim, Medicare EPs and eligible hospitals will use an attestation methodology to submit summary information to CMS in 2011, rather than electronic submission. CMS anticipates that it will be able to receive electronically submitted clinical quality data for the calendar year 2012 payment year. If CMS is not ready to receive the data in 2012, CMS will continue to require and rely on the attestation methodology.

Additional Highlights of the Meaningful Use Rule

Additional highlights of the Meaningful Use Rule include the following:

  • Ambulatory Hospital-Based Physicians. To implement the changes to the HITECH Act resulting from the Continuing Extension Act of 2010, the definition of “hospital-based EP” was changed to clarify that EPs practicing in ambulatory settings (e.g., outpatient centers and clinics) are eligible to qualify for incentive payments, even if they are based within a hospital setting. The proposed rule excluded EPs who provide 90 percent of their Medicare (or Medicaid) professional services in inpatient or outpatient settings, as defined by the following place of service (POS) codes for HIPAA standard transactions: 21 (Inpatient Hospital), 22 (Outpatient Hospital), 23 ( Emergency Room). Under the final rule, only hospital-based physicians who provide more than 90 percent of their covered professional services in inpatient or emergency room settings, as defined by POS codes 21 and 23, are ineligible for the EP based incentives.
  • Eligible Hospitals Identified by CMS Certification Number (CCN). The final rule confirms the requirement in the proposed rule that eligible hospitals will be identified based on their individual CCN and that payments will continue to be based on the CCN rather than location. Hospital systems with multi-campus hospitals that share a single CCN were opposed to this requirement because they would receive only one base payment and would be more likely to reach the discharge cap. While there are good arguments that basing hospital EHR incentive payments on the CCN unfairly penalizes some multi-hospital organizations that share the same CCN, CMS, in the final rule, rejected comments to this effect. Thus, absent legislative action, it is unlikely that this provision will change.
  • Definition of “Encounter” for the Medicaid Patient Volume Threshold. The term encounter is defined to include services furnished to individuals where the services or the premiums, co-payments, or cost-sharing are paid for in part or in whole by Medicaid or a Medicaid demonstration project under Section 1115 of the Social Security Act. To qualify for Medicaid incentive payments, EPs and hospitals must demonstrate that they serve a certain volume of Medicaid patients. This broad definition of an encounter makes it more likely that providers who serve significant numbers of Medicaid and needy individuals will meet the Medicaid patient volume threshold to qualify for Medicaid incentive payments.
  • CAH Eligibility for Medicaid Incentives. The final rule amends the definition of acute care hospital for purposes of the Medicaid EHR incentive payment program to encompass CAHs that meet the Medicaid patient volume criteria. The final rule continues to exclude long-term care and pediatric rehabilitation and psychiatric hospitals from the Medicaid definition of acute care hospitals.
  • Definition of Discharges and Inpatient Bed Days for the Medicare Hospital Incentive Payment Calculation. The final rule clarifies that the discharges to be counted for determining the discharge-related amount and the inpatient bed day count for calculation of the Medicare Share are limited to discharges and inpatient bed days from the acute care portion of the hospital, and does not include nursery discharges, discharges from non-Prospective Payment System (PPS) areas of a hospital, or swing beds when the swing bed is used to furnish skilled nursing facility care.
  • Distinction Between Medicare and Medicaid Payment Years. The final rule clarifies that Medicare EPs and eligible hospitals who qualify for incentive payments must also qualify in each subsequent year in order to receive the maximum incentive payments (i.e., an EP who qualifies for the incentive payment in 2012 must also qualify for the incentive payments in each of the following four years in order to obtain the maximum amount of incentive payments). In contrast, Medicaid EPs and eligible hospitals may generally qualify for Medicaid incentive payments in non-consecutive years (i.e., an EP may qualify in 2012, skip a year, and then still be eligible for five additional payment years). However, for Medicaid hospitals, starting in 2016, incentive payments must be made every year in order to continue participation in the program.
  • Application of Group Practice and Clinic-Level Patient Volume Data to EPs. In an effort to ease the administrative burden on group practices and clinics (and their EPs), the final rule permits group practices and clinics to determine whether their EPs satisfy the Medicaid patient volume requirement through use of group or clinic-level patient volume data (as opposed to calculating Medicaid patient volume for each EP) if the following requirements are met: (1) the clinic or group practice’s patient volume is appropriate as a patient volume methodology calculation for the EP (i.e., the EP must actually treat Medicaid patients and not simply take advantage of the group or clinic’s Medicaid patient volumes), (2) there is an auditable data source to support the patient volume determination, and (3) all of the EPs in the group or clinic must use the same methodology for the payment year.
  • Reassignment of EP Incentive Payments to an Employer or Other Entity. The final rule reiterates that EPs are permitted to reassign their incentive payments to their employer or other entity with which they have a valid contractual arrangement allowing the employer or entity to bill for the EP’s services. Any such reassignment must be consistent with applicable laws, rules, and regulations, including those related to fraud, waste, and abuse. EPs and their employer or other applicable entity should review their contractual arrangements to determine whether their contract provides for the reassignment of the incentive payments, or whether a contract amendment is necessary to effect a reassignment.
  • Effect of In-Kind Donations of EHR on EPs’ Medicaid Incentive Payments. Under the Medicaid incentive program, EPs are required to “net” their receipt of payments from any source that is directly attributable to payment for certified EHR or support services in a manner that could reduce their Medicaid incentive payments. (The only exception is that payments from state or local governments are not required to be netted). In the final rule, CMS recommends that states consider in-kind donations of EHR such as those made by hospitals to physicians pursuant to the Stark exception and Anti-Kickback Statute safe harbor for EHR donations as not constituting “payments” that would decrease an EP's Medicaid incentives.
  • Computerized Provider Order Entry (CPOE). The final rule relaxes the CPOE objective in the proposed rule, requiring that CPOE be used for only “medication” orders, instead of all orders (e.g., laboratory, diagnostic imaging). In addition, the corresponding CPOE measure requires that more than 30 percent of patients with medication orders have at least one (1) medication order entered using CPOE for both EPs and eligible hospitals, instead of requiring that EPs use CPOE for at least 80 percent of all orders and eligible hospitals use CPOE for at least 10 percent of all orders, as provided in the proposed rule.
  • Clinical Decision Support. The final rule requires the implementation of one (1) clinical decision support rule as a meaningful use objective, instead of five (5) clinical decision support rules as provided in the proposed rule. Although there were several comments that the term “clinical decision support” required additional clarification, CMS retained the following broad description it provided in the proposed rule: “HIT functionality that builds upon the foundation of an EHR to provide persons involved in care processes with general and person-specific information, intelligently filtered and organized, at appropriate times, to enhance health and health care.” However, CMS did agree with commenters that the implementation requirement should be reduced from five to one, and that providers should be focused on properly implementing a single clinical decision support rule during Stage 1.
  • E-Prescriptions (eRx). The final rule requires that more than 40 percent of all permissible prescriptions written by an EP be transmitted electronically using certified EHR technology, instead of at least 75 percent as provided in the proposed rule.

Certification Standards Rule

The ONC indicated that the final Certification Standards Rule is very similar to the interim final certification standards rule published earlier this year on January 13, 2010 (see Standards and Certifications Criteria Final Rule: Frequently Asked Questions), with the final Certification Standards Rule clarifying or revising the initial set of standards, implementation specifications, and certification criteria, in response to public comments and based on changes to the final Meaningful Use Rule.

This is good news for health care providers, as finalization of the rules provides more certainty to EHR technology vendors. With the completion of the Certification Standards Rule, EHR system vendors can now evaluate their technology to determine if it includes the required technological capabilities to be certified and support the achievement of the Stage 1 meaningful use objectives. Further, with the recent release of the final Temporary Certification Program Rule, organizations have started the process of becoming an ONC-Authorized Testing and Certification Body (ONC-ATCB). As it is expected that the first authorized ONC-ATCBs will be approved before the end of summer and EHR system vendors will immediately begin submitting their systems to such ONC-ATCBs for certification thereafter, certified EHR systems are expected to be available in the fall of 2010.


Many health care providers have been waiting to start (or continue with existing plans) to implement EHR systems. With the finalization of the applicable rules, the path is now cleared to start (or complete) implementation of EHR systems. The relaxed requirements in the final Meaningful Use Rule make it easier for the provider to achieve the Stage 1 meaningful use objectives and qualify for incentive payments as early as next year. In addition, for Medicare providers, registration for the Medicare EHR incentive program will begin in January 2011, and Medicare incentive payments are expected to begin in May 2011. As to Medicaid providers, CMS provides that “States are determining their own deadlines for launching their Medicaid EHR Incentive programs but are required to make timely payments, per the CMS final rule. CMS expects that the majority of States will have launched their programs by the summer of 2011.” 

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this Alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Conway S. Cho
Los Angeles, California

M. Leeann Habte
Los Angeles, California

Chanley T. Howell
Jacksonville, Florida

James R. Kalyvas
Los Angeles, California

Maureen F. Kwiecinski
Milwaukee, Wisconsin

Richard K. Rifenbark
Los Angeles, California

R. Michael Scarano, Jr.
San Diego, California

Robert D. Sevell
Los Angeles, California

Related Services