Accounting for
Electronic Health
Record Payments
July 25, 2012
Draffin & Tucker, LLP
229-883-7878
Accounting for EHR Payments
• American Recovery and Reinvestment Act
of 2009
• Established incentive payments to eligible
Hospitals and Professionals to implement
“Meaningful Use” by 2014
• Incentives paid through
Medicare and Medicaid
programs
• Payments differ by program
• Payments differ by provider type
• Inventive payments generally based on
services or costs related to meeting
“Meaningful Use” measures (through 3 stages)
• Requires significant capital investment
Accounting for EHR Payments
• HFMA Issue Analysis Paper
released in December 2011
• Focus is accounting for
Medicare EHR incentive
payments to acute-care
inpatient hospitals that are
paid under the IPPS
• Provisions of the incentive
program are different for
CAHs and EPs
Accounting for EHR Payments
Gain Contingency Model
vs.
Grant Accounting Model
o Registrants – Gain Contingency Model
o Non-registrants – choose a model as a
matter of accounting policy
Accounting for EHR Payments
Gain Contingency Model
• Identify the contingencies that must be satisfied
prior to recognizing revenue.
• Receipt of the payment occurs only if the hospital is
successful in complying with the “Meaningful Use”
criteria during the entire reporting period.
• 90 consecutive days in 1st payment year
• 365 consecutive days in each of 2nd through 4th
payment years
• Don’t recognize income until the hospital has
complied with the “Meaningful Use” criteria for the
full EHR reporting period.
Accounting for EHR Payments
Gain Contingency Model – Discharge
Condition
• Formula utilizes discharges occurring during cost
report year that begins in EHR reporting period.
• Reporting period is based on federal fiscal year
(FFY) which ends September 30th .
• Unless the entity’s fiscal year is the same as the FFY,
a portion of the discharges used will occur after the
EHR reporting period ends.
• Those discharges would be considered an
uncertainty that must be resolved prior to
recognition of income.
Accounting for EHR Payments
Illustration of application of gain contingency
model
Accounting for EHR Payments
Grant Accounting Model
• Primary condition is to be meaningfully using EHR
technology
• Income not recognized until there is reasonable
assurance the entity will
• Comply with the payment conditions
• Receive the payment
• Cliff Recognition – not reasonably assured
• After EHR reporting period has ended
• Recognized all at once
• Ratable Recognition – reasonably assured
• Recognized ratably over the EHR reporting period
Accounting for EHR Payments
Illustration of application of grant accounting model
Accounting for EHR Payments
Reasonable Assurance
• Matter of Judgment
•
•
•
•
Is the hospital’s EHR system new?
Has the hospital implemented CPOE?
How reliable is data entry?
Is the hospital doing the bare minimum?
• Management must adequately support, through
appropriate documentation, the point at which
reasonable assurance was obtained that the
hospital met or will meet the meaningful use
requirements.
Accounting for EHR Payments
Cost Reports Utilized for FFY 2011 Medicare
Incentive Payments
Payment
Date
Beg. of
1st Pymt
Year
End of 1st
Pymt
Year
Hospital
FYE
Beg. of C/R
Period On or
After 1st
Day of Pymt
Year
05/01/11
10/01/10
09/30/11
Mar.
04/01/11
03/31/12
03/31/10
08/31/10
05/01/11
10/01/10
09/30/11
June
07/01/11
06/30/12
06/30/10
11/30/10
05/01/11
10/01/10
09/30/11
Sept.
10/01/10
09/30/11
09/30/10
02/28/11
05/01/11
10/01/10
09/30/11
Dec.
01/01/11
12/31/11
12/31/09
05/31/10
C/R Used
for Final
Payment
C/R Used
for Prelim.
Payment
Due Date
of Latest
Filed C/R
Accounting for EHR Payments
Statement of Operations Presentation
• Nongovernmental
• Identified as other revenue(separately from patient
service revenue)
• Typically reported as operating revenue
• Governmental
• Identified as other revenue in operating revenue
section (separately from patient service revenue)
Accounting for EHR Payments
Required Disclosures
• The recognition policy applied to the incentive
payment
• Method of recognition (cliff or ratable)
• Location of income in the statement of operations
• General description of the incentive program
• Nature of payments
• How payments are calculated
• Attestation process
• Income recognized is an estimate
• Material changes in payment estimates
• Subject to audit by federal government or its
designee
Accounting for EHR Payments
Example Financial Statement Disclosure:
The Health Information Technology for Economic and Clinical Health Act
(the HITECH Act) was enacted into law on February 17, 2009 as part of
the American Recovery and Reinvestment Act of 2009 (ARRA). The
HITECH Act includes provisions designed to increase the use of Electronic
Health Records (EHR) by both physicians and hospitals. Beginning with
federal fiscal year 2011 and extending through federal fiscal year 2016,
eligible hospitals participating in the Medicare and Medicaid programs
are eligible for reimbursement incentives based on successfully
demonstrating meaningful use of its certified EHR technology.
Conversely, those hospitals that do not successfully demonstrate
meaningful use of EHR technology are subject to reductions in Medicare
reimbursements beginning in FY 2015. On July 13, 2010 the Department
of Health and Human Services (DHHS) released final meaningful use
regulations. Meaningful use criteria are divided into three distinct stages:
I, II and III. The final rules specify the initial criteria for physicians and
eligible hospitals necessary to qualify for incentive payments;
calculation of the incentive payment amounts; payment adjustments
under Medicare for covered professional services and inpatient hospital
services; eligible hospitals failing to demonstrate meaningful use of
certified EHR technology; and other program participation requirements.
Accounting for EHR Payments
Example Financial Statement Disclosure
(continued):
The final rule set the earliest interim payment date for the
incentive payment at May 2011. The first year of the Medicare
portion of the program is defined as the federal government
fiscal year October 1, 2010 to September 30, 2011.
The Hospital successfully demonstrated meeting meaningful use
of its certified EHR technology prior to June 30, 2011. The Hospital
applied and received approval from Medicare and Medicaid
notifying the Hospital qualified for approximately $2.5 million from
the two programs. The portion of these funds related to the
Hospital’s fiscal year end were accrued and are reported in
other current assets on the balance sheet and other revenues on
the income statement.
Accounting for EHR Payments
HFMA Issue Paper: Appendix A
Grant Accounting Model Example Assumptions
• Grant income recognition for a Year 2 incentive
payment
• Second payment year (or EHR reporting period) of the
EHR incentive program, which is the federal fiscal year
ended September 30, 2012
• Hospital has a June 30 fiscal and cost reporting year end
• Hospital’s fiscal year ending within the EHR reporting
period is June 30, 2012
• Hospital has met the Stage 1 meaningful use criteria in
the first EHR incentive payment year (the federal fiscal
year ended September 30, 2011)
• Hospital is reasonably assured that it will comply with the
meaningful use criteria for the entire EHR reporting
period
Accounting for EHR Payments
Original Estimate Entry at October 31, 2011
• The Hospital’s original estimate of its Year 2 EHR incentive
payment determined on October 1, 2011 is $618,000.
• October 1, 2011 is the start of the second fiscal quarter
of the Hospital’s 2012 fiscal year.
The Hospital records the following entry for the month
ending October 31, 2011:
Accounting for EHR Payments
Revised Estimate Catch-up Entry
• The Hospital revised its estimate of its Year 2 EHR
incentive payment as of June 30, 2012 based on analysis
of year end discharge, charity care, and other input
data. The analysis resulted in a revised Year 2 EHR
incentive payment estimate of $650,000.
The Hospital records the following cumulative catch-up
entry in its fourth fiscal quarter to account for this change in
estimate.
Accounting for EHR Payments
Entry to Record Receipt of Incentive Payment
• The Hospital received a preliminary Year 2 EHR incentive
payment of $620,000 in November 2012.
The Hospital records the following entry in the second fiscal
quarter of fiscal year 2013 related to receipt of the EHR
incentive payment:
Accounting for EHR Payments
Entry to Record Revised Estimate
• In August 2013, the Hospital files the cost report for its
fiscal year ended June 30, 2013 and revises its estimated
Year 2 EHR incentive payment to $660,000 based on
settlement information included in the filed cost report
(i.e., the c/r period beg. during the 2nd payment year).
The Hospital records the following entry in its first fiscal
quarter of 2014 to record the revised estimated EHR
incentive payment to be received from CMS:
Accounting for EHR Payments
Entry to Record Final Settlement
• During fiscal 2015, the fiscal intermediary completes its
audit of the Hospital’s fiscal 2013 Medicare cost report.
• As a result of the audit, CMS determines a final EHR
incentive payment of $ 655,000 was earned by the
Hospital.
The Hospital records the following entry in fiscal 2015, to
record the effects of the settlement of the 2013 audited
cost report related to the Year 2 EHR incentive payment:
Accounting for EHR Payments
Summary of EHR Estimate Activity
Subsequent to fiscal year 2012, the Hospital recognized an
additional $167,500 of the Year 2 EHR incentive payment
due to the amount prorated into fiscal 2013 and the
changes in estimate relating to prior years.
Hospital’s original estimate of Year 2 EHR incentive
payments determined at July 1, 2011 ($51,500 x 9)
Change in accounting estimate for Year 2 EHR
incentive payments determined at June 30, 2012
Total recognized for the year ended June 30, 2012
$463,500
24,000
$487,500
Questions?
Wes Sternenberg, CPA
wsternenberg@draffin-tucker.com
Lisa Gilmore, CPA
lgilmore@draffin-tucker.com