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CAH Assets Qualifying for EHR Incentives

The Centers for Medicare & Medicaid Services (CMS) has made some very restrictive interpretations of what costs are eligible for electronic health records (EHR) incentive payments for critical access hospitals (CAHs). These interpretations could seriously limit CAH options for obtaining, financing and paying for a viable EHR system and limit the incentive payments Medicare will pay.

The problems revolve around the language in Section 1814(l)(3)(C) of the Social Security Act. This section describes EHR costs as cost “for the purchase of certified EHR technology to which purchase depreciation (excluding interest) would apply” if payment was made under normal CAH payment rules. CMS is using a very literal definition of “purchase” and “EHR technology.”

To be allowed for the incentive payment, per CMS, a CAH must buy the asset. It cannot be leased, as noted in the FAQ on CMS’ EHR webpage. Even a capital lease will not make the asset eligible for the incentive payment. This severely limits a CAH’s options for financing the technology needed to implement an EHR system. Many CAHs will be forced to use less favorable financing options and incur additional interest expense—which would not be eligible for the incentive payment—to acquire the needed assets.

CMS also is limiting the cost of the EHR asset to the purchase price of the asset itself. Items such as installation, shipping, equipment testing, building modifications needed to accommodate the new equipment and any other cost normally capitalized under generally accepted accounting principles as part of the asset will not qualify as an EHR cost.

The CMS interpretation of what qualifies as cost for incentive payment is extremely restrictive. To become a meaningful user, a hospital must incur a large amount of cost to implement and maintain a certified EHR system. For a CAH, however, CMS will not pay an incentive on the cost the hospital must incur to make the system functional. All of these CMS interpretations mean it will be paying the incentive bonus on just a small fraction of the cost of implementing an EHR system in a CAH. This will leave many CAHs struggling to figure out how to pay for the system.

Discussions with CMS on its interpretation are ongoing with several organizations, although CMS has not changed its position.

Contact your BKD advisor for guidance on how your hospital might be affected by this CMS interpretation and to discuss possible options for limiting the impact. We also encourage you to contact your local hospital association and let that group know how this matter will affect your EHR allowable capital asset amounts.

This post was written by:

Craig, a director in BKD's Tulsa office, has more than 30 years of experience in health care. He focuses on cost report preparation, analysis of new and existing Medicare regulations, appeal and settlement issues and compliance issues for a variety of health care facilities. Craig is also a member of the firm's Regulatory Advisory Committee.

2 Responses to “CAH Assets Qualifying for EHR Incentives”

  1. avatar Paul Dzurinda says:

    Hi Craig – I was wondering if you have any updates relative to your article above? Have you heard anything further from anyone – CMS, FIs, etc?

    Who would be a good contact at CMS to discuss this issue with?

    Thank you

  2. avatar S. Craig Steen says:

    At this point we have heard nothing additional related to this. I have not been directly involved in contacting CMS and I do not know who the right perosn at CMS to contact is. If I do find something out I will let you know.


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  • Karen Vance says:
    This would be under §484.18 of the Conditions of Participation describing regulations for the Plan of Care. Below is the Standard that addresses your issue: "§484.18(b) - Agency professional staff promptly alert the physician to any changes that suggest a need to alter the plan of care." From the State Operations Manual (guidance for state surveyors) "The
    February 24, 2011 on Webinars

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