Over the past week or so, we’ve seen a couple interpretations of the Final Rule on the topic of calculation of Stimulus benefit to Critical Access Hospitals (CAHs). Even across well-regarded professional organizations, these interpretations are sometimes in conflict, so we engaged Choua Vang, of Godfrey & Khan to help out. (Godfrey & Kahn is a large, well respected law firm in Milwaukee, WI).

Choua did a rigorous job of scouring the 800+ pages of Final Rule to answer the following key questions:

1. The ARRA provides Medicare incentive payments for “subsection D” hospitals for the meaningful use of certified EHR technology under a base-plus-discharge formula specified in the law. Are CAHs “subsection D” hospitals, and therefore eligible for Medicare incentive payments under this formula?

**Choua**: *CAHs do not qualify as "subsection (d) hospitals" under the ARRA. However, CAHs are eligible for Medicare incentive payments for the meaningful use of certified EHR technology under a provision in the ARRA that is specific to CAHs.*

**Final Rule Reference Pages: 75 Fed. Reg. 44,314 at 44,460- 44,461 (July 28, 2010)**

2. What formula is used to calculate Medicare incentive payments for CAHs? Don’t CAHs already get their costs reimbursed?

**Choua**: *The applicable formula for calculating the Medicare incentive payment for CAHs is the product of (1) the "reasonable cost” incurred for the purchase of certified EHR technology, in that cost reporting period (including any similarly incurred costs from previous cost reporting periods to the extent they have not been fully depreciated as of the cost reporting period involved) and (2) the CAHs Medicare share, which equals the Medicare share as computed for qualifying “subsection (d) hospitals”, plus 20 percentage points.*

*In establishing this formula, the ARRA amended two provisions in the laws governing general Medicare payments to CAHs. First is the additional 20 points referred to above. This is added to the hospital’s Medicare percentage when applying against reasonable cost of EHR, giving the hospital extra reimbursement. Second, the costs associated with qualified EHR expenditures do not need to be capitalized, but can be expensed in the year incurred, effectively accelerating reimbursement. In fact, hospitals can even include unamortized depreciation for qualified EHR expenditures from prior years, as part of their first year reimbursement. This ARRA amendment gets CAHs their funding faster, and with an extra 20 percentage points added to their Medicare Patient mix (relative to EHR). *

*This formula will be used in place of payment at 101% of reasonable costs typically applied under the cost-based reimbursement principles for CAHs. In other words, no other formula for calculating Medicare incentive payments for the meaningful use of certified EHR technology will apply in the case of a CAH.*

**Final Rule Reference Pages: 75 Fed. Reg. at 44,461 – 44,462**

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3. Are CAHs eligible for Medicaid incentive payments?

**Choua**: *Yes. The ARRA provides for Medicaid incentive payments for hospitals that qualify as an “acute care hospital.” In the proposed rule, the definition of “acute care hospital” excluded CAHs. In the Final Rule, CMS confirmed that CAHs should also qualify as “acute care hospitals.” CMS accomplishes this by amending the definition of "acute care hospital" to include hospitals with CCNs in the range of 1300-1399, which are assigned to CAHs.*

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4. What formula is used to calculate Medicaid incentive payments to CAHs?

Medicaid incentive payments are calculated using a “discharge based” formula, based on a $2,000,000 Base amount (with additional $200 for each discharge above 1,150 and up to 23,000), factored against the hospitals Medicaid percentage (which must be 10% or greater), and an annual “transition factor” for each of four years. The Transition factor gives hospitals 100% of this calculation in year 1, 75% in year 2, 50% in year 3 and 25% in year 4.

This formula is used for CAHs as well as all other hospitals qualifying as an “acute care hospital” under the Medicaid incentive program.

**Final Rule Reference Pages: 75 Fed. Reg. at 44.579 – 44,580**

5. The ARRA stated that hospitals could be eligible for both Medicare and Medicaid incentive payments. Is this true for CAHs as well?

**Choua**: Yes, like other acute care hospitals, CAHs may be eligible for both Medicare and Medicaid incentive payments for the meaningful use of certified EHR technology, provided the CAH meets all of the requirements under each incentive program.

**Final Rule Reference Pages: 75 Fed. Reg. at 44,484**

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This should give you a definitive view. In essence, CAH hospitals could potentially receive two types of reimbursement – a cost-based payment from Medicare, and a “discharge based” payment from Medicaid.

Click this link to download a spreadsheet tool we built that models these predictions for you. And let us know what you think!

Jay Fisher | @JayRFisher

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