In December 2010, Congress passed the Medicare and Medicaid Extenders Act of 2010. Along with a variety of other changes, Congress modified one of the inputs in calculating the incentive amount under the Medicaid EHR Incentive Program, specifically the Net Average Allowable Cost calculation.
In the original enactment of the ARRA, the Medicaid EHR Incentive Payments were based on a formula which required that the Secretary of HHS determine the average allowable cost for certified EHR technology, and allow eligible professionals to collect incentive payments in an amount not to exceed 85% of the net average allowable cost, or $21,250 (in the first year or $8,500 in subsequent years) whichever amount is smaller. Determining the net average allowable cost, per the HHS Final Rule, was not an easy feat. HHS determined that the average allowable cost for certified EHR technology for the first year was $54,000 and therefore a provider was allowed to collect up to $29,000 of cash gifts towards the certified EHR technology without seeing a reduction in their EHR Incentive Payment. The Net Average Allowable Cost was calculated as follows:
1st Year Incentive = ($54,000 – cash gift for EHR) * 85% or $21,250 (whichever is smaller)
2nd-6th Year Incentive = ($20,610 – cash gift for EHR) * 85% or $8,500 (whichever is smaller)
Providers were also responsible for showing that they have contributed at least 15% of the net average allowable cost to the purchase or utilization of certified EHR technology. The Final Rule created a detailed description of what items may be included and excluded from the 15% calculation, as well as any gifts for EHR technology.
Congress has since changed these complicated calculations, making it easier on eligible professionals.
The new change recently passed by Congress relating to the incentive calculation is the assumption that the provider has expended at least 15% of the net average allowable cost provided that the EHR Incentive Payment to the provider is not in excess of the 85% of the net average allowable cost. In other words, Congress will now assume that as long as the Medicaid EHR Incentive Payment does not exceed $21,250 in the first year and $8,500 thereafter, the eligible professional is assumed to have paid the remaining 15% and is therefore eligible for the entire Medicaid EHR Incentive amount.
These changes are still subject to HHS releasing new rules interpreting Congress’s enactment and accordingly modifying the Final Rule issued this summer. However, in light of Congress’s intent it appears that the change will ease the confusion on how to compute the net average allowable cost and to determine whether a Medicaid provider has adequately paid for certified EHR technology.