Monday, July 23, 2012

Medicare Meaningful Use Incentives: A Confusing Minefield for Critical Access

Joe Wivoda, Chief Information Officer

Critical access hospitals (CAH) need to be aware of what is eligible for Medicare Meaningful Use incentives, and it can be confusing. Sure, we need to purchase a certified electronic health records (EHR), but the incentives for Medicare specify that CAHs can get a portion of the "reasonable costs" of acquiring certified technology. There are several catches (just read the FAQ 10163 and you will see what I mean). Here are some very important considerations when signing a contract for an EHR, whether from a vendor or a larger hospital system offering a great deal on their system.

A Right To Use Agreement is the most common contract for an EHR, at least historically. This type of agreement is similar to what you get when you purchase office software, such as from Microsoft. Surprisingly, you do not technically "own" the software in this case (or any that I will talk about). You merely have a right to use the software. These agreements generally also state that you lose that right to use the software if you quit paying the annual support and maintenance fees. One of the secrets in the software industry (not just health care) is that vendors make money on the maintenance agreement, not necessarily the licensing agreement. This is why vendors will usually negotiate aggressively on the licensing fee, but not on the maintenance. Even though you don't own the software, the right to use licensing agreement fees (not the maintenance fees - those are non-capital) are usually a capital expense and thus eligible for CAH Meaningful Use incentives from Medicare.

If you choose to lease the software over a period of time, then things get a little more tricky. Thankfully, the Centers for Medicare and Medicaid Services (CMS) recently clarified what is a qualified expense in FAQ 10722. Leasing can make sense if the hospital can not afford the licensing fees up front. Many vendors offer leasing packages as an option when that final contract is delivered. However, an Operating Lease is not depreciable, and therefore not eligible for Meaningful Use incentives. Capital Leases are eligible expenses, and it is important that you understand the difference. One of the four following conditions must be met for the purchase to be a capital lease:
  • The lease transfers title of the facilities or equipment to the lessee during the lease term,
  • The lease contains a bargain purchase option,
  • The lease term is 75 percent or more of the useful life of the facilities or equipment. This provision is not applicable if the lease begins in the last 25 percent of the useful life of the facilities or equipment, or
  • The present value of the minimum lease payments (that is, payments to be made during the lease term, including bargain purchase option, guaranteed residual value, or penalties for failure to renew) equal 90 percent or more of the fair market value of the leased property. This provision is not applicable if the lease begins in the last 25 percent of the useful life of the facilities or equipment. The present value is computed using the lessee's incremental borrowing rate, unless the interest rate implicit in the lease is known and is less than the lessee's incremental borrowing rate, in which case, the interest rate implicit in the lease is used.
I am not an accountant. Or a CPA. Or a CFO. Or a Medicare Administrative Contractor (MAC). I suggest you talk to one of them to be certain!

"Cloud Computing" is a trend in Information Technology (I hate the term "cloud computing" by the way - it sounds too magical). Software as a Service (SaaS) is another term for this type of software delivery. Basically, the equipment is housed somewhere besides your facility, in a secured data center. This type of "software delivery" is becoming more common now that high-speed Internet is more readily available. Is this type of agreement eligible for incentive dollars? Think about it: You don't own the hardware, or the software, and you usually pay a monthly fee to use it. That is a clear operating expense, not depreciable, and not eligible for Meaningful Use incentives under the Medicare rules for CAHs. These agreements often make sense: They are a reasonable expense, the implementation costs are usually low or nonexistent (since there is little customization allowed), the hospital does not need to worry about backups or having a Unix geek (like me) on staff, etc. These reasons may offset the value of the incentives, actually! Also, some vendors are structuring the agreements so that you CAN receive some incentives. If you are considering entering into this kind of agreement, ask questions about whether you can still receive Medicare incentives. Also ask about security, reliability, support, and a million other things that should be in another post...

Finally, all of these contract concerns apply when you are entering into an agreement with a larger hospital system. The key is whether or not the expenses are depreciable, and as a CIO, that is a term that I struggle to understand. Feel free to look at 42 CFR 413, or the Federal Accounting Standards Board (FASB) rules. For me, it's easier to understand the Theory of Special Relativity, but thanks to the CMS Frequently Asked Questions site I think I am starting to get it...

1 comment:

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