EMR / EHR Incentives: Federal & State, and Available Tax Deductions

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In the United States, the federal government has established several incentives, penalties, and tax deductions related to the purchase and use of Electronic Medical Records (EMR) systems.

The Electronic Health Record (EHR) Incentive Programs, now known as the Medicare and Medicaid Promoting Interoperability Programs, were established to encourage eligible professionals (EPs), eligible hospitals, and critical access hospitals (CAHs) to adopt, implement, upgrade, and demonstrate meaningful use of certified electronic health record technology (CEHRT).

Participating in the Electronic Health Record (EHR) Incentive Program, now known as the Medicare and Medicaid Promoting Interoperability Programs, offers several benefits to healthcare providers:

  1. Financial Incentives: The program provides financial incentives to eligible professionals who demonstrate meaningful use of certified EHR technology. Eligible professionals can receive up to $44,000 for 5 years under the Medicare EHR Incentive Program and up to $63,750 during the 6 years that they choose to participate in the Medicaid EHR Incentive Program.
  2. Improved Patient Care: The use of EHRs can lead to a reduction in medical errors, improved availability of patient medical records and data, reminders and alerts, clinical decision support, and e-prescribing/refill automation. These improvements can enhance the quality of patient care.
  3. Cost Savings: EHRs can help medical practices prevent medical errors, cut unnecessary costs, limit paperwork, and improve the quality of healthcare across the nation.
  4. Increased Efficiency: Certified EHR technology includes the ability to calculate the numerators and denominators for all of the objectives based on the patient information entered as part of everyday workflow. This can streamline processes and increase efficiency in healthcare delivery.
  5. Interoperability: The program promotes and prioritizes interoperability and exchange of health care information, which can improve care coordination and patient outcomes.
  6. Patient Engagement: EHRs provide patients with the ability to view, download, and transmit their health information, which can increase patient engagement in their own healthcare.
  7. Standardization and Accessibility: EHR systems allow for better standardization and accessibility of important patient information, which can enhance communication and collaboration among healthcare providers.

These benefits are subject to the healthcare provider’s ability to demonstrate meaningful use of the EHR system and meet the specific requirements of the program.

Specific Incentives: The federal government offers substantial financial incentives to physicians who adopt EMR systems. Physicians with at least 30% of their patients covered by Medicare or Medicaid can receive significant financial incentives, with Medicaid-covered physicians eligible for up to $63,750. However, to earn these incentives, physicians must demonstrate “meaningful use” of the EMR system. The American Recovery and Reinvestment Act (ARRA) and the Health Information Technology for Economic and Clinical Health (HITECH) Act also provide incentive payments to promote information technology throughout the healthcare community.

Penalties: Penalties exist for non-compliance with certain regulations related to EMR use. The Office of Inspector General (OIG) can impose penalties of up to $1 million per violation for information blocking. Penalties also exist for HIPAA violations, with civil monetary penalties ranging depending on the level of negligence. Physicians who fail to participate in the Meaningful Use (MU) program will receive reduced Medicare payments. If providers fail to implement a Computerized Physician Order Entry (CPOE) system, the penalty can rise up to 3% over subsequent years.

Tax Deductions: Buying Electronic Medical Records (EMR) software can provide several tax benefits for healthcare providers. One of the primary benefits comes from Section 179 of the IRS Tax Code, which allows businesses, including medical practices, to deduct the full purchase price of qualified equipment, technology, and software from their taxes within the same tax year, rather than requiring that the purchase be depreciated over time. This can result in a larger tax benefit immediately, freeing up additional cash flow to continue investing in the practice.

EMR systems qualify for Section 179 deductions, allowing healthcare providers to deduct the full purchase price of these systems immediately. This can substantially improve near-term cash flow. However, the status of Section 179 deductibility can be complex and may vary year by year, so it’s recommended to consult with an accredited tax professional to fully evaluate these issues.

In addition to federal incentives, many states offer grants or tax credits for EMR systems. These state-specific payments can vary widely and are often geared towards reimbursing training and setup costs.

Moreover, the cost of EHR software is fully tax deductible, whether you purchase the software with a one-time payment or pay a monthly fee.

In 2022, the maximum Section 179 expense deduction was $1,080,000. However, starting in 2023, Bonus Depreciation, which allows for additional deductions, will begin to phase out, reducing to 80% for qualifying assets placed into service in 2023.

It’s important to note that to qualify for a Section 179 tax deduction, the equipment or software must be purchased and placed into service within the same tax year.

Please note that tax laws and regulations can be complex and change frequently, so it’s always recommended to consult with a tax professional to understand the specific benefits that may apply to your situation.

In summary, the U.S. government provides incentives to encourage the adoption of EMR systems, imposes penalties for non-compliance with certain regulations, and offers tax deductions for qualifying purchases. However, these incentives, penalties, and deductions are subject to specific conditions and requirements, and healthcare providers need to understand these details to fully benefit from these provisions.

What are the specific features of an ehr system that providers must utilize to participate in the ehr incentive program?

To receive incentive payments, providers must meet specific requirements, including:

  • Use of certified EHR in a meaningful manner, such as e-prescribing.
  • Use of certified EHR technology for electronic exchange of health information to improve the quality of health care.
  • Use of certified EHR technology to submit clinical quality measures (CQM) and other specified requirements.

To participate in the EHR Incentive Program, providers must utilize specific features of an Electronic Health Record (EHR) system essential for meeting the criteria of “meaningful use.” These features, part of the certified EHR technology (CEHRT), include:

  1. Computerized Provider Order Entry (CPOE): This allows providers to enter medication, laboratory, and radiology orders electronically.
  2. E-Prescribing (eRx): The system must be capable of electronically sending prescriptions to pharmacies.
  3. Drug-Drug and Drug-Allergy Interaction Checks: The EHR must perform safety checks for potential medication interactions and allergies.
  4. Maintain Up-to-Date Problem Lists: Providers must keep an active and current list of patient diagnoses within the EHR.
  5. Maintain Active Medication Lists: An accurate and continually updated list of all medications that a patient is taking must be maintained.
  6. Maintain Active Medication Allergy Lists: The EHR must keep a record of all medication allergies that a patient has.
  7. Record Demographics: The system should capture and maintain demographic information such as age, gender, race, ethnicity, and preferred language.
  8. Record and Chart Changes in Vital Signs: The EHR should document and display changes in vital signs over time.
  9. Record Smoking Status: For patients 13 years or older, the smoking status should be recorded.
  10. Implement Clinical Decision Support: The EHR should provide clinical decision support to improve performance on high-priority health conditions.
  11. Provide Patients with the Ability to View, Download, and Transmit Their Health Information: Patients should have electronic access to their health information.

These features are designed to improve quality, safety, and efficiency, and reduce health disparities in patient care. They also aim to engage patients and families in their healthcare, improve care coordination, and ensure adequate privacy and security protections for personal health information.

Providers must use CEHRT to capture, exchange, and report specific clinical data and quality measures. The technology must be certified by the U.S. Department of Health and Human Services (HHS) to ensure it meets the necessary standards.

It’s important to note that these requirements are part of the broader Meaningful Use program, which has evolved and may have different stages with additional criteria to meet. Providers should stay updated with the latest requirements from CMS to ensure compliance and eligibility for incentive payments.

Difference between HITECH Act and the current EHR Incentive Program

The Health Information Technology for Economic and Clinical Health (HITECH) Act and the current Electronic Health Record (EHR) Incentive Program, now known as the Medicare Promoting Interoperability Program in 2024, are both aimed at promoting the adoption and meaningful use of EHRs in the United States, but they differ in specific aspects, timelines, and their evolution.

The HITECH Act, enacted in 2009, allocated over $35 billion in incentives to promote and expand the adoption and use of EHRs by eligible hospitals and healthcare professionals. It introduced a five-year timeline from 2011, with three phase-in stages, each with its own set of measures for providers to adopt and demonstrate “meaningful use” of the technology to improve patient care quality, safety, and efficiency. The Act also expanded the HIPAA Security Rule’s reach to Business Associates of Covered Entities and introduced stricter penalties for HIPAA compliance failures.

In contrast, the current EHR Incentive Program, now the Medicare Promoting Interoperability Program, continues to encourage Health Information Technology (HIT) adoption with the primary goal of improving healthcare quality, safety, and efficiency. The Medicaid Promoting Interoperability Program ended in 2022. This program has undergone changes over time, including alterations in requirements and measures. Notably, the meaningful use incentive program was integrated into the Merit-Based Incentive Payment System starting January 1, 2017.

In summary, while both the HITECH Act and the current EHR Incentive Program are focused on promoting EHR adoption and meaningful use, they differ in their specific provisions, timelines, and development stages. The HITECH Act was the initial driver and funder for EHR adoption, whereas the current EHR Incentive Program furthers these objectives with updated requirements and measures.

Previous Federal and State EMR Incentive Programs Overview

The American Recovery and Reinvestment Act of 2009 (ARRA) initiated federally funded payments for healthcare providers using Electronic Medical Record (EMR) systems under Medicare or Medicaid programs. These payments were contingent upon the “meaningful use” of an EMR system accredited by a recognized certification authority.

Medicare Program Incentives Under ARRA

  • Providers could receive up to the lesser of 75% of Medicare Part B claims or $44,000 over five years, predominantly in the first two years.
  • Payments were not related to the EMR system’s purchase price.
  • Compliance with ongoing Meaningful Use rules, set by the Centers for Medicare & Medicaid Services (CMS), was mandatory.
  • The maximum grant decreased for installations and applications for Medicare EMR funds post-2012.

Medicaid Program Incentives Under ARRA

  • Providers were eligible for up to the lesser of 85% of the EMR purchase cost or $63,750 over six years.
  • First-year maximum payment was $25,000; subsequent years offered up to $10,000.
  • Unlike Medicare, up to $21,250 of Medicaid payments were available for purchase reimbursement, regardless of use.
  • Applications for Medicaid funds were processed through individual states and territories.

Transition and Choice Between Programs

  • Providers qualifying for both programs needed to carefully model potential payments under each.
  • A one-time switch between programs was permitted before 2015, after receiving the first incentive payment.
  • Many professionals maximized incentives through the Medicaid EHR Incentive Program.

Tax Considerations

  • US Tax Code provisions, including Section 179 and Bonus Depreciation, allowed immediate deduction of the full purchase price of EMR systems on business tax returns.
  • This area of tax law was complex, particularly due to uncertainties surrounding Section 179 deductibility post-2011.

State-Specific Incentives

  • Additional state-specific payments, generally lower than federal payments, were available and varied widely.
  • These often covered training and setup costs.
  • Interactions between federal taxable income and state tax liabilities necessitated careful examination with a tax professional.

Meaningful Use Stages

  • The concept of “meaningful use” was phased in stages, with each stage having specific requirements.
  • As of January 2012, Stage Two regulations were not formalized, with a compliance deadline set for the end of 2014.