September 2011 Volume 8 Number 1

Electronic Health Records Incentive Programs: The Issue of Assignment

By Abigail Wong Grigsby, Hooper, Lundy & Bookman, Los Angeles, CA

AuthorThe Health Information Technology for Clinical Health Act of 2009 (“HITECH Act”) created the Medicare and Medicaid Electronic Health Records (“EHR”) Incentive Programs, which provide funding in the form of “incentive payments” to healthcare providers that successfully demonstrate the “meaningful use” of certified EHR technology.1

Providers are required to meet a series of measures and thresholds on an annual basis in order to qualify for incentive payments.2 Hospitals may participate in both the Medicare and Medicaid incentive programs, whereas “eligible professionals” or “EPs” must choose to participate in either the Medicare incentive program or the Medicaid incentive program, with the opportunity to switch between programs once before 2015.3

This article will cover the basics of EHR assignment, a contractual mechanism by which a hospital may - through an agreement with the EP- obtain the assignment of the incentive payments that would otherwise go directly to eligible professionals working for the hospital and seeing patients of the hospital outside of the inpatient setting.4 In this way, assignment is a good option for hospitals seeking to recoup part of the significant costs associated with implementing an EHR system.

When Assignment May Be Appropriate

Many hospitals have already devoted significant amounts of time to selecting, purchasing, and installing certified EHR technology in order to qualify for incentive payments as a hospital. If a hospital also provides certified EHR technology to any non-hospital based EPs, for example through the installation of certified ambulatory EHR technology in its outpatient or community clinics, the hospital may be able to seek assignment of the EPs’ incentive payments.

As a practical matter, if the hospital incurs the entire cost of installing EHR technology, and assists the individual EP with demonstrating meaningful use each year, the hospital and the EP may feel that assignment is an appropriate way for the hospital to recoup some of the costs associated with equipping its clinics and physicians with certified EHR technology. As assignment is voluntary, however, some EPs may simply not wish to enter into assignment agreements, opting instead to keep some or all of the EHR incentive payments, particularly where the EP has a contentious relationship with the hospital or where the EP feels that he or she is losing money based on decreased productivity while the EHR system is being implemented.

Issues for Hospitals to Consider when Contemplating Assignment

If a hospital wishes to approach its EPs about the issue of assignment, the hospital should consider the following questions:

Question 1: What must the hospital do to qualify EPs for incentive payments?

By now, many hospitals have already consulted with their legal counsel to determine whether they can qualify as a hospital for incentive payments under the Medicare and/or Medicaid incentive programs.5 If so, the next step is typically for the hospital to discuss EHR with its technical support personnel and with the physicians and other healthcare professionals who will be using the EHR to provide services to hospital patients. Hospitals should purchase technology that has been (or will be) certified by the Office of the National Coordinator for Health Information Technology.6

A hospital that cannot qualify for the incentive payments as a hospital can still implement EHR technology for its individual providers and then attempt to obtain the assignment of the EHR incentive payments that would otherwise go directly to the EPs.

Question 2: Do the physicians or other health professionals that are using the hospital’s EHR technology qualify for either incentive program?

As explained above, EPs must choose between participating in the Medicare incentive program and the Medicaid incentive program. Because EPs have a one-time option to change from one program to the other before 2015, any assignment agreement should be flexible enough to address both programs.7

The incentive programs for individuals apply only to non-hospital based healthcare professionals. A “hospital-based” professional provides 90 percent or more of his or her covered professional services in either an inpatient hospital setting (Place of Service 21) or an emergency room (Place of Service 23).8

In addition, to qualify for the Medicare incentive program, the physician must be paid under the Physician Fee Schedule, and be a doctor of medicine, osteopathy, dental surgery, dental medicine, podiatry, optometry or chiropractor who is legally authorized to practice his or her profession under state law.9 An EP who demonstrates meaningful use under the Medicare program can potentially receive up to a total of $44,000 in incentive payments.10 The Medicare incentive payments are based on charges, and are calculated by taking 75 percent of the estimated allowed charges for professional services furnished by the EP during the payment year.11

To qualify for the Medicaid incentive program, the EP must not be hospital based12, and can be either a physician or a non-physician practitioner (dentist, certified nurse-midwife, nurse practitioner, or a physician assistant if the PA is practicing in a PA-led rural health clinic or federally qualified health clinic), and have at least 30 percent Medicaid volume.13 An EP who demonstrates meaningful use under the Medicaid incentive program can potentially receive up to a total of $63,750.14 The Medicaid incentive payments are based on costs, which are defined as Year 1 costs associated with the purchase and initial implementation or upgrade of certified EHR technology and support services, including training, as necessary for adoption and initial operation; and costs after Year 1 associated with operation, maintenance, and use of certified EHR technology.15 The incentive payments are equal to 85 percent of the net average allowable costs.16

It is not yet clear how each state will choose to calculate "costs" and whether those costs will only include costs to the EP, or costs to the entity that provided the EP with the technology.17 Accordingly, before the hospital and EP agree that the EP will participate in the Medicaid incentive program, a legal analysis of the relevant state EHR rules is advisable.

Question 3: Is Assignment of the Incentive Payments to the Hospital Legally Permitted?

Under the Medicare incentive program, an EP may assign his or her incentive payment to an employer or entity with which the EP has a valid contractual arrangement allowing the entity to bill for the EP’s services.18 Assignment may be made to an entity that bills under group and physician numbers as part of that entity’s management services, even where the physicians are independent contractors, as long as the entity meets the applicable regulatory requirements, meaning that the entity furnishes billing and collection services to the EP and:

a.) The entity receives the payment under an agency agreement with the EP,

b.) The entity’s compensation is not related in any way to the dollar amounts billed or collected,

c.) The entity’s compensation is not dependent upon the actual collection of payment,

d.) The entity acts under payment disposition instructions that the EP may modify or revoke at any time, and

e.) The entity, in receiving the payment, acts only on behalf of the EP.19

Accordingly, a legal analysis should be done to ensure that a contractual arrangement that fulfills these requirements already is or will be in place. The parties can agree to such an arrangement as part of the assignment language related to the EHR incentive payments.

Under the Medicaid incentive program, an EP may reassign incentive payments to “an entity promoting the adoption of certified EHR technology.” This term is defined as:

State-designated entities that are promoting the adoption of certified EHR technology by enabling oversight of the business, operational and legal issues involved in the adoption and implementation of certified EHR technology or by enabling the exchange and use of electronic clinical and administrative data between participating providers, in a secure manner, including maintaining the physical and organizational relationship integral to the adoption of certified EHR technology by eligible providers.20

States must establish methods of designating such entities. No more than five percent of the incentive payment may be retained by the entity for costs not related to certified EHR technology, or the support services including maintenance and training that is for, or is necessary for, the operation of the technology.21

Additional Considerations

In both the Medicare and Medicaid programs, assignment must be voluntary and may be made only to one entity.22 In other words, EPs are not required to assign their incentive payments to the hospital, even if the hospital provides them with EHR technology.23 In addition, the assignment must be compliant with the applicable Medicare laws, rules, and regulations, including, without limitation, those related to fraud, waste, and abuse.

Functionally, the assignment process can begin as early as when an EP first enrolls in the incentive programs via the CMS website, at which time the EP can enter the employer or taxpayer identification number that will receive the EP’s EHR incentive payment.24

Suggested Assignment Language

Assignment language can take several forms. If there is already a contract in place, such as an employment or independent contractor agreement between the hospital and EP, the assignment language can become an amendment to that contract. If a contract is about to be executed, the assignment language can become part of the body of the contract itself, or an exhibit to the contract. Or, if the parties prefer to handle EHR issues outside of an existing contract, the assignment language can take the form of a freestanding agreement between the hospital and the EP.

At a minimum, the assignment language should address the following issues:

(1) If the EP designates the hospital’s TIN, the entire incentive payment will go to the hospital. If the parties wish to work out any sharing or subsequent distribution of the incentive payment, the assignment language should address this.

(2) The parties may agree that the hospital will furnish the documentation necessary for the EP to establish meaningful use each year.

(3) The parties may also wish to agree that the EP will consult with the hospital prior to enrollment in order to determine which incentive program will yield the higher possible payments.

(4) The assignment language should state, accurately, whether the hospital expects to be designated as an “entity promoting the adoption of certified EHR technology.”25

(5) The contract should state, accurately, whether there is or will be a valid contractual arrangement allowing the hospital to bill for the EP’s services.26

(6) The parties may wish to specify that the EP will submit all of the required forms and certifications for obtaining the incentive payments. The hospital may agree to assist the EP with completing and submitting those forms, and even assist the EP with the initial enrollment process, during which time the EP will designate the hospital’s TIN.

(7) The term of the assignment provisions should be addressed, particularly if the assignment language is contained in an exhibit or amendment to an existing contract. If the duration of the incentive program will extend beyond the expiration date of the original contract, care should be taken to articulate clear terms for the assignment language.


As each hospital selects, purchases, and installs EHR technology, it will incur significant costs. Assignment, where possible, is an excellent opportunity for hospitals to recoup some of these costs. Accordingly, as each hospital plans the implementation of its EHR program, it should consider the feasibility and appropriateness of assignment, and discuss the issues articulated above with its legal counsel, physician staff members, and technology experts.


75 Federal Register (“Fed. Reg.”) 44314, 44315-44316 (July 28, 2010).

2 42 Code of Federal Regulations (“C.F.R.”) §§ 495.6, 495.8.

42 C.F.R. § 495.10(e)(2).


42 C.F.R. § 495.10(f).


The eligibility requirements for hospitals are set forth for the Medicare program at 42 C.F.R. § 495.102, and additional requirements for the Medicaid program are set forth at 42 C.F.R. § 495.304(e).


Information about the certified EHR technology is available on the ONC website at:


42 C.F.R. § 495.10(e)(2).


42 C.F.R. § 495.4; 75 Fed. Reg. at 4442; “Medicare & Medicaid EHR Incentive Program: Basics for Eligible Professionals, July 14, 2011 National Provider Call” Slide 3, available here: Place of service codes are set forth in the Medicare Claims Processing Manual. POS 21 is an Inpatient Hospital, which is defined as a “facility, other than psychiatric, which primarily provides diagnostic, therapeutic (both surgical and nonsurgical), and rehabilitation services by, or under, the supervision of physicians to patients admitted for a variety of medical conditions.” POS 23 is an Emergency Room – Hospital, which is defined as a “portion of a hospital where emergency diagnosis and treatment of illness or injury is provided.” Medicare Claims Processing Manual, Chapter 26, Section 10.5. On the CMS-1500 claims form, the POS code is entered into Field 24B. Id. at Section 10.4.


42 C.F.R. § 495.100.


42 C.F.R. § 495.102(b).


42 C.F.R. § 495.102(a)(1). The Medicare “allowed charge” is the lesser of the actual charge or the Medicare physician fee schedule amount. 75 Fed. Reg. at 44442. The “estimated allowed charges” are based on claims submitted no later than 2 months after the end of the payment year. 42 C.F.R. § 495.102(a)(2); 75 Fed. Reg. at 44442-44443. If EP has multiple practices, allowed charges are determined based on claims submitted for EP’s covered professional services across all such practices. See 42 C.F.R. § 495.102(a)(2).


States will make the determination based on an EP’s Medicaid claims data from the prior fiscal or calendar year. EPs will be notified of hospital-based status “no later than early in each payment year.” 75 Fed. Reg. at 44441-44442. This requirement does not apply to EPs practicing predominantly in an FQHC or RHC. “Predominantly” occurs when the clinical location for over 50% of the EP’s total patient encounters over a period of 6 months occurs in an FQHC or RHC. 42 C.F.R. §§ 495.304(d), 495.302.


42 C.F.R. § 495.304(b) and (c). There are two exceptions to the volume requirement. First, pediatricians need only a 20% Medicaid volume. 42 C.F.R. § 495.304(c)(2). Second, eligible professionals practicing in a Federally Qualified Health Center or a Rural Health Center must have a 30% volume of “needy individuals,” which are defined as those meeting any of the following three criteria: (i) receiving medical assistance under Medicaid or Children’s Health Insurance Program (CHIP), (ii) furnished uncompensated care by the provider, or (iii) furnished services at no cost or reduced cost based on a sliding scale determined by the individual’s ability to pay. 42 C.F.R. §§ 495.304(c)(3), 495.302.


42 C.F.R. § 495.102.


42 United States Code (“U.S.C.”) § 1396b(t)(3)(C)(i).


42 C.F.R. § 495.310(a).


The 85% figure is derived from statute. Per 42 U.S.C. § 1396b(t)(6)(B), CMS will pay no more than 85% of the net allowable costs, and the provider will be responsible for the remaining 15%. CMS indicated in the EHR Final Rule that states should consider costs to the entity providing the technology when calculating the EP's 15% responsibility. As an example, CMS stated that if an EP is an employee of an FQHC and the FQHC provides the technology, it is "assumed" that the employer contributed the 15% of net allowable costs on behalf of the employee. 75 Fed. Reg. at 44493-44494. It is not clear whether CMS would treat an FQHC differently from a hospital for these purposes. Although the Federal Register language implies that an employer's provision of EHR technology may count toward net allowable costs, it is not clear whether the costs to that employer will count in the initial calculation of costs that forms the basis of the EP Medicaid incentive payment formula. That is a decision that CMS appears to have left up to each individual state.


42 C.F.R. § 495.10(f)(1).


42 C.F.R. §§ 424.73, 495.10(f).


42 C.F.R. § 495.302.


42 C.F.R. § 495.310(k).


42 C.F.R. §§ 495.10(f)(3); 495.332(c)(9)(ii).


42 C.F.R. § 495.10(f), 495.332(c)(9)(ii).


CMS EHR Incentive Programs: Attestation, available here:


42 C.F.R. § 495.302.

26 42 C.F.R. § 495.10(f)(1).

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