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Average Allowable EHR Costs Section 1903(t)(4)(C) of the Act gives the Secretary the authority to determine average allowable costs. Specifically, the Secretary is directed to study the average costs associated with the purchase, initial implementation, and upgrade of certified EHR technology, including support services, and integral related training. The Secretary also is directed to study the average costs of operating, maintaining, and using certified EHR technology. The statute permits the Secretary to use studies submitted by the States. We conducted a literature review of recent studies on EHR technology to determine the average allowable cost of implementing and using such technology. We reviewed the results from four recent, comprehensive studies. Specifically, HHS' Office of the Assistant Secretary for Planning and Evaluation commissioned a study by Moshman Associates, Inc., Booz Allen Hamilton, in September 2006 – Assessing the Economics of EMR Adoption and Successful Implementation in Physical Small Practice Settings In this study, EHRs consisted of a core group of functions that, in various permutations, are often associated with an electronic medical record and frequently include the capacity to: capture and display clinical notes, display laboratory results, display diagnostic imaging results or reports, order drugs or diagnostic tests, and generate reports2. The study found that EHR adoption is influenced by a variety of factors, including hardware costs, software costs, the costs of implementation and training, and costs associated with productivity that occur in the early stages of implementation. While there are challenges in making cost comparisons across different studies and across different functionalities (that is, EMRs versus EHRs), the costs per physician ranged between $33,000 and $50,000. In reviewing Market Watch, The Value of Electronic Health Records in Community Health Centers: Policy Implications by Robert H. Miller and Christopher E. West, the cost and benefits of electronic health records is reported in six community health centers (CHCs) that serve disadvantaged patients4. Robert Miller and Christopher West report that initial EHR costs per full-time-equivalent (FTE) billing provider averaged almost $54,000, with much variation across CHCs and within each cost category, including hardware, software, installation, training, etc. and ongoing costs per FTE provider, per year, averaged $20,6105. 2 Moshman Associates, Inc., Booz Allen Hamilton, in September 2006 – Assessing the Economics of EMRAdoption and Successful Implementation in Physical Small Practice Settings p.40. 3 Moshman Associates Inc., Booz, Allen, Hamilton, p. 50. 4 Market Watch, The Value of Electronic Health Records in Community Health Centers: Policy Implications by Robert H. Miller and Christopher E. West, page 206. 5 Market Watch, The Value of Electronic Health Records in Community Health Centers: Policy Implications by Robert H. Miller and Christopher E. West, page 208.

A Congressional Budget Office (CBO) Paper: Evidence on the Costs and Benefits of Health Information Technology from May 2008 indicates that estimating the total cost of implementing HIT systems in office-based medical practices is complicated by differences in the types and available features of the systems now being sold, as well as differences in characteristics of the practices that adopt them. The CBO paper goes further to say that few detailed studies available report that total costs for officebased EHRs are about $25,000 - $45,000 per physician6 and estimates for annual costs for operating and maintaining the system, which include software licensing fees, technical support, and updating and replacing used equipment range between $3,000 to $9,000 per physician per year7. An article written by the Agency for Healthcare Research and Quality (AHRQ), Research Activities, September 2005, Health Information Technology, adoption rates of electronic health records are low among physician groups -- indicates that the average purchase and implementation cost of an EHR was


$32,606 per FTE physician. The article indicates that maintenance costs were an additional $1,500 per physician, per month and smaller practices had the highest implementation costs per physician at $37,2048. In conducting a review of the data, we determined that the studies demonstrate a cross-sectional view of small and large practices and community health centers. There was adequate data to support a depiction of costs across multiple provider types. - CBO Paper, Evidence on the Costs and Benefits of Health Information Technology, May 2008, page 17 -CBO Paper, Evidence on the Costs and Benefits of Health Information Technology, May 2008, page 18 - Agency for Healthcare Research and Quality, Research Activities, September 2005, Health Information Technology, Adoption rates of electronic health records are low among physician groups To summarize, we determined that the average costs of EHRs vary greatly because of the size and type of provider practices, the differences in available features of systems, and the additional costs associated with licensing, support, training, and maintenance. However, based on the information reviewed, we determined that the average costs for initial EHR systems currently can range from $25,000 to $54,000 in the implementation year, per professional. Since the average costs of EHR technology in the first year can be as much as $54,000 and no less than $25,000, and since we believe the costs of such technology will be increasing we are proposing to set the average allowable cost at $54,000. We believe that to establish this average allowable cost at the high end of the range is reasonable since the data we reviewed is based on certification standards that may not be appropriate moving forward. Specifically, since the ONC will be establishing new certification standards for EHR technology in the coming months, we believe the average cost of certified EHR technology incorporating the new standards will be higher than the current costs of EHR technology . It is our assumption that making improvements to incorporate the new certification standards into current EHR technology will be costly. Thus, we believe that establishing the average allowable cost at $54,000 is reasonable per physician. Additionally, our analysis determined that the range for subsequent incentive payment year costs for most providers will fall into a large range, based on a number of factors. On one end of the range, costs related to maintenance could be as low as $3,000 to $9,000 per provider, where other studies state that maintenance will be as high as $18,000 to $20,610 per provider. Given the expectations in the ONC interim final rule for system performance, interoperability, and the health measures data discussed in this proposed rule that CMS and the States will need to collect from professionals, we believe that the costs for maintaining certified EHR technology will also be on the higher end of the range at $20,610. Net Average Allowable Costs As required by section 1903(t)(3)(E) of the Act, in order to determine “net” average allowable costs, average allowable costs for each provider must be adjusted in order to subtract any payment that is made to Medicaid EPs and is directly attributable to payment for certified EHR technology or support services of such technology. The only exception to this requirement is that payments from State or local governments do not reduce the average allowable costs. The resulting figure is the “net” average allowable cost, that is, average allowable cost minus payments from other sources (other than State or local governments). The statute indicates that EPs may receive 85 percent of a maximum net average allowable cost in the first year of $25,000 and a maximum net average allowable cost of $10,000 in subsequent years. This would mean that, as required by the statute, the net average allowable costs are capped at these amounts. Since we have proposed that the average allowable cost is $54,000 in the first year, EPs could receive as much as $29,000 in funding from sources (other than from State or local governments) as contributions to the certified EHR technology and the incentive payment would still be based on 85 percent of the maximum net average allowable cost of $25,000 (or $21,250). This is appropriate since $54,000 (the average allowable cost) minus $29,000 (contributing sources of funding from other than


State or local governments) equals $25,000. Since $25,000 is equal to the level of the maximum net average allowable cost or capped amount discussed above, providers could receive 85 percent of $25,000 or $21,250 in year one as a Medicaid incentive payment. The same logic would hold true for subsequent years. Specifically, if in the following years an eligible professional received as much as $10,610 in contributing funds from sources other than State or local governments, the maximum incentive payment of $8,500 would be unaffected in such subsequent years. This result is due to the fact that the average allowable costs of $20,610 for maintaining EHR technology minus the $10,610 received would still equal $10,000, the maximum net average allowable costs permitted under the statute. In reviewing whether a reduction in the net average allowable cost was warranted based on other contributions to EHR technology, we considered the situation of EPs who may have been provided with the actual certified EHR technology, as well as training, support services, and other services that would promote the implementation and meaningful use of such technology. In some cases, we do not believe the contribution would reduce average allowable costs at all. For example, an FQHC or RHC has provided technology to its staff EPs to use, we do not believe that such technology provision would be considered a “payment” from another source that would reduce average allowable costs. Moreover, we believe the situations in which an EP has been provided with the actual technology, support service, or training from another source are extremely limited in light of the statutory prohibitions on “kickbacks” at Section 1128B(b) of the Act.


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