CMS Releases Final Stage 2 "Meaningful Use" Regulations for the Medicare and Medicaid Electronic Health Records Incentive Programs

18 September 2012 Publication
Authors: James R. Kalyvas

Legal News Alert: Health Care

On September 4, 2012, the Centers for Medicare and Medicaid Services (CMS) published final regulations (Final Regulations) establishing the Stage 2 meaningful use criteria for the Medicare and Medicaid Electronic Health Records (EHR) Incentive Programs (EHR Incentive Programs). Among other things, these Final Regulations delay the onset of the Stage 2 meaningful use criteria, amend certain of the Stage 1 meaningful use criteria, implement Medicare payment adjustments beginning in 2015 based on the prior year’s data, and expand eligibility for the Medicaid EHR Incentive Program. In light of these changes, providers would be well advised to evaluate their current EHR adoption and implementation strategies.

The EHR Incentive Programs, which were enacted as part of the American Recovery and Reinvestment Act of 2009, are estimated to transfer approximately $20 billion in EHR incentive payments to eligible professionals (EPs), eligible hospitals, critical access hospitals (CAHs), and Medicare Advantage organizations that make “meaningful use of certified EHR technology” between 2011 and 2021. 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 EHR Incentive Programs must choose one.) The amount available to hospitals varies based on several factors, including the size and Medicare or Medicaid patient volumes of the hospital, but begins with a $2 million base payment. More than $3.2 billion in Medicare payments and $3.1 billion in Medicaid payments have already been made to providers since the start of the EHR Incentive Programs in 2011.

The Stage 2 meaningful use objectives generally have higher thresholds than the Stage 1 requirements and therefore are more difficult to meet. However, in response to comments to the proposed Stage 2 regulations, CMS has incorporated a number of other changes to the EHR Incentive Program regulations that are intended make participation in the EHR Incentive Programs more achievable for providers.

Meaningful Use

A central component of the EHR Incentive Programs is the requirement that eligible hospitals and EPs make meaningful use of certified EHR technology. The EHR Incentive Programs utilize a phased approach to implementing the meaningful use criteria in which the criteria are released in at least three “stages.”

Stage 1

The Stage 1 meaningful use criteria, released on July 28, 2010, require achievement of 15 “core” objectives and five of 10 “menu” objectives for EPs. Eligible hospitals are required to satisfy 14 core objectives, and five of 10 menu objectives. According to CMS, the goal of the Stage 1 criteria is to set a baseline for electronic data capture and information sharing.

While the Final Regulations primarily address the Stage 2 requirements, they make several revisions to the Stage 1 requirements, including the Stage 1 objectives for computerized physician order entry, electronic prescribing, and recording and charting vital signs. The Final Regulations also specify that beginning in 2014, meeting an exclusion for a Stage 1 menu set objective does not count toward the number of menu set objectives that EPs must satisfy if there are other menu objectives they can meet. These changes and their effective dates are summarized in the Table 4 of the Final Regulations

Stage 2

The final Stage 2 meaningful use criteria endeavor to build upon the goals of Stage 1 by focusing on “continuous quality improvement at the point of care and the exchange of information in the most structured format possible.” Under Stage 2, EPs must meet 17 core objectives and three of six menu objectives, while hospitals must meet 16 core objectives and three of six menu objectives. Almost all of the Stage 1 core and menu objectives have been incorporated into Stage 2. The Stage 2 meaningful use criteria and associated measures are summarized in Table B5 of the Final Regulations

To give hospitals and EPs (and EHR vendors) additional time to prepare for Stage 2, the Final Regulations delay the effective date of Stage 2 from 2013 to 2014 for those providers who initially achieved Stage 1 meaningful use in 2011. As additional relief for providers, the Final Regulations also permit providers who are beyond their first year of meaningful use to attest to meaningful use in 2014 (which is the first year in which a provider could be required to meet Stage 2 meaningful use) based on a three-month quarter reporting period. This three-month quarter reporting period in 2014 also applies to providers who are still in Stage 1. CMS summarizes the implementation schedule in Table 3 of the Final Regulations

Group Reporting Option

The Final Regulations provide that Medicare EPs within a single group practice may report core and menu objective meaningful use data through a “batch” file process in lieu of individual Medicare EP attestation through the CMS Attestation Web site. Using this batch reporting process, medical groups can submit core and menu objective information for individual EPs (including the stage of meaningful use the individual EP is in, numerator, denominator, exclusion, and yes/no information for each core and menu objective). The purpose of the group reporting option is to provide administrative relief to group practices that have large numbers of EPs who attest to meaningful use. However, each EP will still have to meet the required meaningful use thresholds independently (i.e., CMS is not permitting EPs to meet the required meaningful use thresholds through the use of a group average or any other method of group demonstration). States also have the option of offering batch reporting of meaningful use data for Medicaid EPs. CMS indicates that the batch reporting process will be established no later than January 1, 2014.

For purposes of the group reporting option, CMS defines a Medicare EHR Incentive Group as two or more EPs, each identified with a unique National Provider Identifier (NPI) associated with a group practice identified under one tax identification number (TIN) through the Provider Enrollment, Chain, and Ownership System (PECOS).

Clinical Quality Measures (CQMs)

Another important requirement of the EHR Incentive Programs is the submission of CQMs by EPs and hospitals. The Stage 1 regulations require EPs to report on six CQMs and hospitals to report on 15 CQMs. In the Final Regulations, CMS seeks to align the CQMs with the quality reporting requirements of other CMS and national quality measurement programs, such as the Physician Quality Reporting System (PQRS), the Medicare Shared Savings Program (MSSP), and the Medicare Hospital Inpatient Quality Reporting Program. The Final Regulations also describe electronic reporting options for the submission of the CQMs by Medicare EPs and hospitals, which include submission through CMS-designated portals and existing quality reporting systems. For Medicaid EPs and hospitals, states are responsible for designating an electronic submission process for CQMs.

Consistent with the changes to the 2014 reporting period for meaningful use, the Final Regulations also modify the reporting period in 2014 for CQMs to permit providers who are beyond their first year of meaningful use to report CQMs based on a three-month quarter reporting period.

CQMs for EPs

Beginning with CY 2014, the Final Regulations require EPs to satisfy nine of 64 CQMs, including at least one CQM from three health care policy domains listed in Table 8 of the Final Regulations. This is a reduction of three CQMs from the Stage 2 proposed regulations. These CQMs will apply to all EPs for EHR reporting periods in CY 2014 and 2015 (and potentially subsequent years), regardless of whether an EP is in Stage 1 or Stage 2 of meaningful use.

After consideration of the comments submitted in response to the Stage 2 proposed regulations, CMS finalized two reporting mechanisms for CQMs. In the first, EPs would report nine CQMs covering three domains using a CMS-designated electronic transmission method. Under the second reporting option, Medicare EPs who participate the Medicare EHR Incentive Program and the PQRS will satisfy the CQM reporting requirement by reporting PQRS CQMs through their EHR. EPs who utilize this option will be subject to the reporting period for the PQRS, which may be different from the EHR reporting period.

For CY 2014 and subsequent years, CMS finalized a “group reporting option,” in which EPs within a single group practice may report CQM data on a group-wide level as opposed to an individual basis. This is similar to the ability of Medicaid EPs to aggregate Medicaid patient volumes at a group or clinic level, and reflects CMS’s recognition of the administrative challenges involved in collecting and reporting data in large medical practices. CMS created two group reporting options for this reporting requirement. Under the first reporting option, Medicare EPs participating in the MSSP and the testing of the Pioneer Accountable Care Organization model who use certified EHR to submit ACO measures under the MSSP will be deemed to satisfy the CQM reporting requirement. Under the second reporting option, Medicare EPs who satisfactorily report PQRS clinical quality measures using certified EHR under the PQRS Group Practice Reporting Option will satisfy CQM reporting. Although these reporting methods are only available for Medicare EPs, states have the option to allow group reporting by updating their State Medicaid Health Information Technology (HIT) Plans.

CQMs for Hospitals

Beginning with FY 2014, hospitals will be required to satisfy 16 CQMs from a menu of 29 CQMs, including at least one CQM from three health care policy domains in Table 10 of the Final Regulations. This is a reduction of eight CQMs from the Stage 2 proposed regulations. These CQMs apply to all hospitals beginning in FY 2014, regardless of whether a hospital is in Stage 1 or Stage 2 of meaningful use. The Final Regulations permit hospitals to submit CQMs either through a CMS-designated transmission method using EHR or through an infrastructure similar to the 2012 Medicare EHR Incentive Program Electronic Reporting Pilot for Eligible Hospitals and CAHs. Reporting mechanisms under the Medicaid EHR Incentive Program will be determined by each state.

Additional Highlights of the Final Regulations

Additional highlights of the Final Regulations include the following:

Medicare Payment Adjustments

The Final Regulations adopted the proposed process in which Medicare payment adjustments will be determined by an EHR reporting period prior to the payment adjustment year 2015. If hospitals and EPs (other than hospital-based EPs) do not demonstrate meaningful use of certified EHR technology on or before this reporting period, CMS implements penalties in the form of adjustments to Medicare payments. To avoid payment adjustments, hospitals and EPs must demonstrate meaningful use in 2013 or, if in 2014, by July 1, 2014 for hospitals or October 1, 2014 for EPs. These timelines are shown in Table 13 and Table 16 of the Final Regulations. For those EPs who opt to receive Medicaid incentives, “adoption, implementation, or upgrade” (AIU) of certified EHR technology, for which incentives are paid in Payment Year 1, is insufficient to avoid Medicare payment adjustments. However, attestation to state Medicaid agencies of satisfaction of Stage 1 will be accepted in order to avoid the Medicare penalty.

After seeking public input, CMS finalized four categories of hardship exceptions to the Medicare payment adjustment for EPs: (1) insufficient Internet availability and insurmountable barriers to obtaining information technology infrastructure; (2) a time-limited exception for newly practicing EPs or hospitals that would not otherwise be able to avoid payment adjustments; (3) unforeseen circumstances such as natural disasters (handled on a case-by-case basis); and (4) scope of practice exception for EPs with primary specialties in anesthesiology, radiology, and pathology who lack face-to-face interactions or follow-up with patients or lack control over the availability of certified EHR at their practice location. Hospitals may obtain hardships exceptions under the first three categories described above. CMS also has established the application dates and EHR reporting periods for which a hardship exception must be demonstrated, as shown in Table 14 and Table 17 of the Final Regulations. 

With respect to hospitals that change ownership, CMS also clarifies that the Medicare payment adjustments are tied to the hospital CMS Certification Number (CCN). By way of example, if Hospital A meets meaningful use and merges into Hospital B, and Hospital B keeps the CCN but is not a meaningful user of certified EHR technology, then payment penalty adjustments would apply beginning in 2015.

Appeal Rights

The Stage 1 regulations established requirements for states to create appeals processes under the Medicaid EHR Incentive Program, but did not establish an appeal process for Medicare EHR Incentive Program.

In the Proposed Regulations, CMS proposed a process for eligibility appeals, meaningful use appeals, and incentive payment appeals for Medicare EPs, eligible hospitals, CAHs, qualifying Medicare Advantage organizations on behalf of an EP, and for qualifying MA-affiliated hospitals to file an appeal in the Medicare fee-for-service EHR Incentive Program. After review of the public comments, CMS determined that the administrative review process was primarily procedural and did not need to be specified in regulation. CMS believes that the informal reconsideration procedure could be specified in agency guidance and noted that it will be included on the CMS Web site.

Revisions and Clarification to the Medicaid EHR Incentive Payment Program

The Final Regulations also provide additional flexibility in methods for qualification for and calculation of Medicaid EHR incentive payments in order to expand eligibility for the Medicaid EHR Incentive Program.

Definition of Adopt, Implement, and Upgrade (AIU)

CMS added clarifying language to clarify that to qualify for an AIU payment, a provider must adopt, implement, or upgrade to certified EHR technology that would allow that provider to qualify as a meaningful user.

Calculation of Medicaid Patient Volume

To qualify for Medicaid EHR incentive payments, EPs and hospitals must meet Medicaid or needy patient volume thresholds of 30 percent for EPs and 10 percent for hospitals. To provide more flexibility in meeting these thresholds, the Final Regulations include in the definition of a Medicaid “encounter” all encounters for individuals enrolled in a Medicaid program (even if a third party ultimately pays for some or all of the costs of services furnished) and Medicaid encounters attributable to Title XXI-funded State Children’s Health Insurance Program (SCHIP) expansion populations (but not those attributable to separate state-funded CHIP programs).

CMS also has provided flexibility with respect the look-back period for Medicaid payment volume. Under the Final Regulations, EPs would have the option of calculating patient volumes based on any continuous 90-day period in the 12 months preceding attestation, or the prior calendar year, as is currently allowed.

Lastly, CMS clarified that if a patient is seen by multiple EPs on a given day, it is permissible to count the encounter in each of the EP’s patient volume calculations.


CMS finalized its policy to include as eligible hospitals an additional 12 children’s hospitals that do not have CCNs. Despite satisfying other eligibility criteria, these particular hospitals do not have a CCN because they do not bill Medicare for hospital services.

For purposes of calculating hospital incentive payments, CMS also gives hospitals the flexibility to use cost reports for the most recent continuous 12-month period for which data is available prior to the payment year.

Finally, the Final Regulations clarify existing policy that the count of Medicaid discharges and bed days would include only those days that would count as inpatient bed days for Medicare purposes under section 1886(n)(2)(D) of the Social Security Act.


CMS also finalized technical changes to implement section 205(e) of the Medicare and Medicaid Extenders Act of 2010 (Extenders Act) (Pub. L. 111-309), enacted on December 15, 2010. Prior to the Extenders Act, Medicaid EPs who wanted to participate in the Medicaid EHR Incentive Program were required to provide documentation of certain costs related to acquiring and implementing certified EHR technology. The Extenders Act provided that an EP has met this responsibility as long as the incentive payment is not in excess of 85 percent of the net average allowable cost ($21,250 for first-year payments). Consequently, the documentation is no longer needed.

CMS also makes certain technical changes to ensure that Medicaid funding is used to encourage the adoption and use of technology specifically for care of Medicaid patients. Specifically, CMS requires that at least one of the clinical locations that an EP uses to calculate Medicaid volumes have certified EHR technology for the payment year in which the EP is attesting to AIU.


With the publication of Final Regulations, providers and EHR vendors should evaluate their current technology and implementation strategies to address the Stage 2 meaningful use requirements. Providers also should carefully review the other changes to the Incentive Programs, such as the progression of the stages of meaningful use, the addition of new CQMs, and expansion of Medicaid eligibility. These changes potentially impact the ability of EPs and hospitals to qualify for EHR incentive payments and therefore may require adjustments to EHR strategies, implementation plans, and cost assessments.

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:

M. Leeann Habte
Los Angeles, California

James R. Kalyvas
Los Angeles, California

Richard K. Rifenbark
Los Angeles, California

R. Michael Scarano, Jr.
San Diego, California

David R. Albertson
Los Angeles, California

Alexandre C. Nisenbaum
Los Angeles, California

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