A Meaningful Ruse?
Revised April 20,2010

Background and Basics

At the risk of being a called a Cassandra, or at best a contrarian, I will attempt to explain
why the federal government's HITECH Act and Meaningful Use (MU) incentive program is a
wolf in sheep’s clothing and why the better response for a provider would be to run, don’t
walk, from this wolf.

First let’s review the basics. When a hospital or physician’s practice purchases and
implements an electronic medical record (EMR) or Computerized Physician Order Entry
(CPOE) before 2011 and files with the federal Department of Health and Human Services
(DH&HS) the yet to be developed regulatory documentation to declare their meaningful
use (MU), then starting in 2011 that provider will be potentially eligible for an MU bonus
payment. For physician practices that could amount to a total of $44,000 over three years.
For hospitals, depending on the number of discharges, somewhere between $2million to
$3.8 million total.  These incentive amounts are to be paid over three stages, or years,
starting in 2011.

On the other hand if a provider does not implement an EMR or CPOE, or purchases and
implements a system but cannot show meaningful use, then a penalty will be incurred on
Medicare payments in years 2015 thru 2017. This penalty will be in the form of a reduction
to the legislated increase in Medicare payments for that year. Note this is not a reduction
in overall Medicare payments, but a reduction on the yearly Medicare inflationary
adjustment factor. The first year the penalty is a 33% reduction of the adjustment, the
second 66%, the third 100%, or in effect, you will get no adjustment at all.

Before I explain why I believe there is a wolf at your door let me say I am a believer in the
benefits of EMRs and CPOEs. There can be significant benefits in both, but not unless they
are incorporate a sound work flow re-engineering processes prior to installation.
Unfortunately there are very few if any MUs that are workflow focused.

Who’s that knocking at my door?

There are at least four reasons why I believe your facility may never see an MU bonus.

1) MUs are by DH&HS' own admission a moving target.
As stated in the Interim Final Rule (IFR) published in
the Federal Register, December 30, 2009, on page 314,
“We expect to issue definitions of meaningful use on a
bi-annual basis beginning in 2011”
.  Hence, MUs will
evolve over time. That will allow DH&HS to make them as
easy or as onerous as they choose. How can you predict you will hit a moving
target that you can’t even describe today? And if you believe the Feds may try
to make it ‘easier’ to foster participation, read on.

2) If you hit all but one MU, will you get the full bonus, or 95%, or 50%? Nobody knows
and the question is not addressed in any IFR or other documents. I am willing to
wager you will get nothing, and my reasoning follows.

3) The federal government has stated they are funding the HITECH program with
$34 million for MU bonuses. They also have stated repeatedly they expect to save
over $200 billion to help fund the new national health plan. That’s about a seven to
one expected payback in only a few years. When was the last time you had a seven
to one ROI on any IT project over three years? If the feds do not see the 7 to 1
payback in time how many providers do you think will get to cash an MU check?

4) Our government is under extreme pressure to cut the federal deficit. In the
President’s recent State of the Union Address he stated he will freeze the
government budget for ‘non-essential’ items to save $250 billion, to alleviate the
trillions of dollars in deficits predicted by the OMB. Essential is currently defined
as Social Security payments, interest payments on debt, entitlement programs,
Medicare benefits, and the defense budget. These taken together make up over
80% of the total government expenditures. So the freeze has to come from
‘non-essential’ departments and programs. Medicare payments to providers
are not considered part of Medicare benefits, they come under the DH&HS /CMS
department operating budget. So, although the benefits to the seniors will
not be reduced, the payments to the providers are fair game.

And therein lies the wolf.

                                  I noted earlier that if you fail to purchase and install an
                                  EMR / CPOE you will be penalized by a reduction in the
                                  increase in Medicare inflationary adjustment in future
                                  years.  Based on the above reasons, I believe there will

be little or no adjustment increase in future years. If you don’t think this will happen look
at what congress and DH&HS had allocated for the adjustment ‘increase’ in 2010 for
physician Medicare payments. DH&HS wants to apply a -21% adjustment for physician
payments, yes, that’s minus twenty-one percent. To get the AMA on board with the national
health initiative the Administration and Congress was going to delay this adjustment, but
now even that agreement is up in the air. Now it is to hit in June 2010.

On the hospital side of the world look at what the Medicare adjustment increases have
been over the last five years. The most they have been is 2% and averaged around 1% ,
(and as of April 2010 CMS has said it will be -.1%, yes that's minus one tenth of one
percent!). If you run those numbers for a typical 200 bed community hospital with a
Medicare utilization percent of 50%, a one percent increase amounts to about $300,000,
hence reduce it by a third and you will miss out on $100,000 that year. Again, and that’s
assuming there is any increase at all in future years, which based on April's announcement
that is not likely.

Lastly, let history be your guide. I have worked in the healthcare world for thirty-five years,
as a CFO, CIO and multitude of other roles. As a CFO I saw Medicare renege on many case
mix adjustments, TEFRA adjustments, and DRG adjustments. All in the name of national
budget deficits, and health care cost controls. At one point they set up a Medicare
Payment Advisory Committee, then disbanded it when the Committee disagreed with to
many DH&HS adjustment policies. I doubt the future will be much different, in fact probably

So, run the numbers again, in future years if the Medicare adjustment increase is ‘zero’ –
because the feds and DH&HS say we can’t afford an increase due to overall deficits and
budget freezes, then reducing the zero adjustment increase by 33% will incur how many
penalty dollars?

What’s a good Shepard to do?

The bottom line is there is no need to ‘horse-in’ a new EMR/ CPOE regardless of what
vendors say. Secondly ‘horsing’ in a system as complex and far reaching as EMR/CPOE
and hitting the expected glitches along the way is going to cost you far more than any
Medicare adjustment penalty.

My advice…take your time, do it right and install components that will give you the most
ROI the fastest…and watch out for the wolves.

Epilogue (s)...
On June 23, 2010 John Glaser, Ph.d who is the CIO of Partners Helathcare in Boston and
was a senior adviser to National Coordinator David Blumenthal, M.D., shaping HITECH's
Meaningful Use rules, was interviewed by the Motely Fool Investment newsletter. When
asked about meaningful use he said:

" It kind of depends on how many hospitals and doctors' offices you thought should be able to
qualify for the incentives in 2011 and 2012.  I think there was a lot of belief that a majority of
them should, but that was never congressional intent. The intent was that a minority, maybe a
significant minority, would qualify. Part of it is that expectations are out of line."

On 7/08/2010 CMS announced:
The Centers for Medicare & Medicaid Services has issued a proposed rule imposing a 0.25
percentage point reduction to the fee schedule increase factor for outpatient hospital services.

July 2010
Health Care Finance News publishes this story...
"Fifty-two senators have pressed the federal government to prevent a 2.9 percent Medicare cut to
hospitals in the proposed fiscal year 2011 Inpatient Prospective Payment System (IPPS) regulation."

May 2012
Congress decides to cut Medicare payments by 2% for 2013

So... again, if you do not meet meaningful use criteria, which most providers won't per the  
Glaser interview, you get a reduction in the Medicare payment adjustment.

Let's see that'll be:
-.33 times -.029 =  +.000957 increase!  Or is it, +.66 times -.029 = -.01914 (decrease)

Seems to me either way you come out better without rushing into a risky multi-million
dollar investment.

March 2013
Due to the federal deficit and sequestor legislation the MU bonus pool will be reduced by at least 2%,
per CMS

By: Frank Poggio
The Kelzon Group
July  2010
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