Getting Stimulus Funds for Electronic Medical Record Systems

New Jersey Law Journal Volume 196, No. 8, Index 501 May 25, 2009


By Jonathan Bick

Bick is of counsel to Brach Eichler of Roseland and is an adjunct professor of Internet law at Pace Law School and Rutgers Law School. He is also the author of 101 Things You Need To Know About Internet Law [Random House 2000].

Technology has afforded an increase in productivity and an improvement in accuracy in the medical industry. The single greatest inhibitor to taking advantage of technology is the requirement for an initial investment and, in the medical records technology area, this could be significant. However, the federal government has recently offered a solution to this difficulty in the form of public funding. Software vendors and hospitals may be able to help physician groups get access to stimulus funds.

For decades, hospitals and other medical service providers have been enticed by the prospect of establishing electronic health record systems to improve the efficiency of their medical care and reduce medical errors. Automating the health record process has the potential to provide a host of benefits, most notably by reducing medical errors. For example, as many as 98,000 Americans each year are prescribed medications that they have an allergy to. Electronic medical record systems could significantly reduce this number. A much-cited 2005 Rand Corp. study of the use of medical record automation found that a saving of $77 billion annually could be realized. However, it is widely believed that the cost of implementing electronic health records systems is responsible for low adoption rates.

Such systems are ideally capable of creating, maintaining, transmitting and receiving electronic health records for their patients. From the beginning, the medical health care industry has stated that some sort of financial assistance or incentive to purchase and implement the software would allow them to tie together all medical records into an electronic health record system. The economic recovery bill seems to be the start to the answer to their requests.
The American Recovery and Reinvestment Act of 2009 ('Act') contains a measure that includes approximately $20 billion to modernize medical records program and specifically authorizes expenditures to improve electronic medical records. The health measures are part of a sweeping $825 billion bill that Congress hopes will help lift the nation out of economic recession. This act allocates $44,000 in payments to medical practices that adopt a certified Electronic Medical Record (EMR) system. The EMR system is also known as Electronic Health Records (EHR).

The act also allows hospitals that have qualifying systems to receive base payments of $2 million each, with payments adjusted up or down based on their number of patient discharges and how many Medicare and Medicaid patients they treat. The act calls for the Department of Health and Human Services to promulgate payment rules, certification standards or definitions of key terms such as 'meaningful use,' by the end of 2009. Thus, the terms of precisely how hospitals and other providers will qualify under the act are now being finalized.

To qualify for the $44,000 payment, physicians must implement and use a certified EMR in a meaningful way before January 1, 2011. Assuming they qualify, payments will arrive over five years. The first-year payment is $18,000, followed by $12,000, $8,000, $4,000, and finally $2,000.

The $44,000 payment is actually worth more than the nominally stated payment because physicians that do not adopt certified EMR systems will be penalized through a reduction in Medicare payments by one percent for the first year, followed by two and three percent reductions in subsequent years. In particular, the act also calls for health care organizations that have not adopted EMR systems by 2015 to be penalized. They will lose one percent of the Medicare/Medicaid reimbursements they would otherwise receive. That penalty increases to two percent deducted in 2016 and three percent in 2017 and afterwards.

The act which offers the $44,000 incentive payment does not explicitly state what constitutes a 'certified' EMR system. The act does not have language which links EMR system use with success measurements, goals or outcomes to improve quality and/or reduce costs. The act requires Medicare and Medicaid physicians to use 'qualified' EMR systems and to employ them in 'meaningful ways' to qualify for the incentives. Traditionally, certification simply means substantial compliance. For the purposes of EMR, substantial compliance means implementing one of a variety of widely advertised EMR software systems, such as GE's. Such software systems typically have a startup cost of $7,500 but some cost as much as $100,000.

In addition to the startup cost there are other ongoing costs associated with any software system, such as maintenance fees. These are usually about 15 percent of the purchase price and are due annually. Training and implementation may also cost money.
In short, failure to apply for the $44,000 incentive fee may be tantamount to leaving money on the table. This is particularly true when some EMR system vendors are willing to assist their customers collect the incentive payment.

Medical practices that adopt an EMR system should contractually require their EMR system vendors to assist the practice in collecting the incentive payments. Medical practices that adopt a EMR system should also have the EMR system vendors warrant that the EMR system will qualify the practice for the incentive payment.

Since time is of the essence for the avoidance of penalties through a reduction in Medicare payments, the contract for the EMR system should address the implementation of the EMR system in a meaningful way. Since quantifiable amount of money may be forfeited in the event of a delaying implementation of an EMR system, Vendor indemnification and/or penalty clauses should be considered.

Alternatively, the medical practice might consider securing an insurance policy to compensate it, in the event of the assessment of penalties through a reduction in Medicare payments. Since the penalty is easily quantified, insurance firms offering business interruption insurance are normally willing to offer a policy to address the adverse effects of a delayed software implementation.

Since federal anti-kickback rules that had prohibited hospitals from providing any direct financial support to physicians' offices to buy EMR systems have been eased, medical practices should also consider asking hospitals for help in providing funding for electronic medical records. Many hospitals work collaboratively with physician practices and have typically have more advanced EMR resources than most physician group, so are likely to be willing and able to help their physicians get EMRs.

Hospitals may help physician groups in other ways. In particular, by reducing the uncertainty as to which system the physicians should select to avoid wasting the stimulus payment. Horror stories abound which result from the implementation of an incompatible EMR system and having to start over again.

Hospitals associated with physician groups may help overcome another barrier to the proper use of the stimulus money -- and that is to help them understand how to take advantage of an EMR system. Hospitals typically lead physician groups in the successful implementation of EMR systems, so hospitals can show physician groups how EMR can make their practices more efficient.