On September 1, 2009, CMS issued a letter to State Medicaid Directors to provide initial guidance on state administration of the incentive payments for eligible Medicaid providers who adopt and become meaningful users of electronic health records. These incentives were authorized by the American Recovery and Reinvestment Act (ARRA), specifically section 4201 titled Health Information Technology for Economic and Clinical Health (HITECH). Under the ARRA, HHS is authorized to reimburse states 100% of the incentives paid to eligible providers, and 90% of the state’s planning and implementation expenses incurred to administer the Medicaid incentive program.  The criteria that states must meet, as set forth in this initial guidance, illustrates that states should act promptly to engage in certain, significant planning activities in order to ensure that the ARRA Medicaid incentives can be made available in a timely manner to eligible Medicaid providers in the state.

The letter provides guidance in five key areas:

1) Purpose of the ARRA incentives. Here, CMS points out ARRA’s goal to encourage adoption and meaningful use of EHRs. CMS also points out that, while the incentive payments to eligible providers are expected to be used for the adoption of EHRs, they are not a direct reimbursement for EHR expense.

2) Incentive payment implementation timeline. CMS will determine when each state is ready to make incentive payments. Several activities must occur before states will be able to make these incentive payments to eligible providers, including:

• HHS Secretary’s adoption of an initial set of standards, specifications and certification criteria for “certified EHR technology;”
• HHS Secretary’s determination of payment limits on the average allowable costs to be reimbursed to eligible providers;
• CMS determination of state’s responsibility to track “meaningful use” and state’s assurance that it can track such use consistent with federal rules;
• CMS issuance of guidance on how to make certified EHR technology compatible with state and federal administrative management systems.

3) Receiving the 90% federal financial participation (FFP) match. States can begin to receive the 90% FFP match before they receive the 100% match for eligible provider incentive payments. To qualify for the 90% FFP match, states must meet, to the satisfaction of the HHS Secretary, three criteria:

• The state must use the funds to administer the incentive payments, including tracking meaningful use;
• The state must conduct adequate oversight of administrative, including tracking meaningful use with attestations and reporting mechanisms;
• The state must pursue initiatives to encourage certified EHR adoption to promote health care quality and the exchange of health care information under Medicaid in compliance with applicable laws and regulations governing such exchange, and must ensure privacy and security of data provided to data exchange partners;

Importantly, each state must plan to: a) receive prior approval of those HIT planning activities relevant to the state’s eligibility for the 90% FFP match; and b) develop a State Medicaid HIT Plan (SMHP) that describes the State’s Medicaid incentive plan, how it will integrate current and planned Medicaid HIT assets, and how the plan will fit within the State’s HIT/HIE roadmap.  The SMHP should demonstrate how the State is analyzing and planning for how EHR technology will, over time, enhance quality and health care outcomes, reduce overall health care costs, and integrate with existing resources to meet these goals. The letter includes four enclosures (A, B, C, and D) that provide further details regarding these activities and regarding CMS coordination with the Office of National Coordinator (ONC) to ensure a coordinated state strategy for planning activities.

4) CMS oversight and funding for state initial planning activities. States can receive the 90% FFP match for certain planning activities (as opposed to implementation activities) with prior approval by CMS. Planning activities that may qualify are described on Enclosure E to the letter.  Importantly, states must ensure that their funding requests are directly tied to the two goals of promotion of health care quality and health information exchange through the use of certified EHR technology. The letter says that ONC representatives will review state plans to ensure support of a unified approach to information exchange. States are strongly encouraged to contact their Regional Office (RO) for planning templates, which CMS believes will enhance communication between the state and their RO.

5) Additional resources. Finally, CMS points to additional resources for states to consult, including information about grant programs to assist with creating and encouraging interoperable HIEs and EHRs, resources available from the National Resource Center for Health Information and Technology established by the Agency for Healthcare Research and Quality (AHRQ).

CMS makes clear that ARRA is not solely about HIT but rather about “improving health care quality and leveraging a wide range of stakeholders and resources, existing and projected, to achieve this goal through the exchange of health information.”  The letter and its enclosures are posted on the CMS HIT website.