CMS recently solidified a new trend in electronic health information exchange sustainability: requiring all stakeholders who stand to benefit from electronic HIE to share in a portion of its costs. It seems like common sense, but a scan of HIE initiatives reveals that HIE traditionally has been funded by a precious few — usually hospitals, philanthropies and the government. This traditional funding model is unsustainable, and, CMS suggests, unfair.

Because CMS is poised to provide substantial Medicaid funding to support the development of HIE networks in states throughout the country, its ground rules are likely to be an important driver of HIE sustainability strategies in the near future.

In subregulatory guidance, CMS committed to providing Medicaid administrative funding to states for HIE development activities, but only if states can demonstrate they have a business model that includes funding from various other health care stakeholders. In other words, CMS is offering states a financial incentive to convince others to fund HIE. This requirement could have the effect of swiftly moving HIE initiatives further down the important path to financial sustainability.

Current State of HIE Sustainability

Though their potential to reduce the cost and improve the quality of health care is significant, HIE initiatives face an uncertain path to long-term financial sustainability. When asked — as part of the eHealth Initiative’s 2011 Report on Health Information Exchange — about the top challenges HIE initiatives are facing, 144 out of 196 respondents reported “developing a sustainable business model.”

Quite simply, to be sustainable, HIE initiatives must offer valuable services that generate enough revenue to cover all of their costs, and that revenue cannot come solely from government grants, which have long been the lifeblood of many developing HIE initiatives. 

The major sources of available funding for HIE initiatives come from the federal government, state governments and private funding.

Medicaid: ‘We’ll Pay Our Fair Share if You Pay Yours’

In implementing the Medicaid Electronic Health Record Incentive Program, CMS has agreed to fund its fair share — but not all — of HIE development costs in states throughout the country, consistent with federal principles governing states’ allocation of costs under federal reimbursement and other programs. This funding would be available only for the duration of a state’s Medicaid EHR Incentive Program. 

How HIE Benefits Medicaid

Economic pressures and increasing demand have prompted states to focus on policies to manage and coordinate care, and to improve patient health outcomes through payment reforms that reward quality, not quantity, of care. 

Electronic HIE is critical to many of these quality and efficiency goals because it provides infrastructure to support the consolidation of patients’ medical records, as well as the use of such comprehensive records for public health and quality improvement purposes.

Medicaid Administrative Funding 101

The HITECH Act authorized CMS to fund 90% of the costs states incur while administering the Medicaid EHR Incentive Program. To receive these administrative funds, the HITECH Act requires a state to demonstrate that it is:

• Using the funds provided for the purposes of administering EHR incentive payments, including tracking meaningful use by providers;
• Conducting adequate oversight of the program, including routine tracking of meaningful use attestations and reporting mechanisms; and
• Pursuing initiatives to encourage the adoption of EHRs to promote health care quality and the exchange of health care information.

CMS released a series of State Medicaid Director letters and a final regulation implementing this provision of the HITECH Act, including allowing states to request HITECH administrative funding for “reasonable administrative expenses related to their efforts to promote the adoption of certified EHR technology and HIE.”

CMS’ Ground Rules for Receipt of HITECH Administrative Funding

To receive HITECH administrative funding, a state’s HIE promotion activities must be aligned with its HIE activities under the State HIE Program and must meet each of the following requirements:

• Serve as a direct accelerant to the success of the state’s Medicaid EHR Incentive Program, and facilitate the adoption and meaningful use of certified EHR technology;
• Be consistent with ONC’s long-term vision for HIE and supportive of activities prioritized under the State HIE Program, including secure messaging, electronic reporting of structured lab data and e-prescribing;
• Not duplicate federally funded meaningful use technical assistance efforts, including, but not limited to, those conducted by regional extension centers or State HIE Grant Program funding;
• Be “normalized and integrated into the Medicaid business enterprise.” CMS includes developing technical links between Medicaid IT systems and HIE initiatives as an example of an activity that would meet this requirement;
• Cannot otherwise be funded by Medicaid administrative funds for states’ operation of Medicaid claims processing systems, commonly called Medicaid management information systems; and
• Be developed in accordance with Medicaid Information Technology Architecture principles. MITA establishes national guidelines for technologies and processes to improve Medicaid administration, stressing an overall framework of IT interoperability.

To receive HITECH administrative funding from CMS, HIE promotion activities must be well-defined, focused on development (as opposed to ongoing operations) and time-limited with specific goals that would enable eligible Medicaid providers to achieve meaningful use of their EHRs. Thus, health care providers’ ongoing HIE participation costs would not be eligible for HITECH administrative funding.

CMS specifically states that HITECH administrative funding would not be available for ongoing HIE costs where the HIE initiative is fully operational and instead suggests that states may seek Medicaid’s general 50% administrative match rate for ongoing HIE costs “if the HIE is related to Medicaid.” CMS also suggests that states should consider sustaining operational HIEs by setting reimbursement methodologies to account for whether Medicaid providers participate in HIE initiatives.

The following are examples of HIE promotion activities that CMS describes as potentially eligible for HITECH administrative funding:

• Staff training;
• Identification and development of tools to connect to HIE initiatives;
• Record locater services;
• Secure messaging gateways;
• Provider directories;
• Development of privacy and governance policies and procedures;
• Master patient indexes;
• Interfaces for data that are important to Medicaid providers to be fully successful in an HIE environment (e.g., laboratory); and
• Technical assistance for Medicaid providers to achieve meaningful use.

According to CMS, states should consider Medicaid’s contribution to HIE (which is limited to the duration of the Medicaid EHR Incentive Program) “in view of contributions by other payers.”

While Medicaid may serve as a catalyst to establish necessary HIE infrastructure, CMS firmly holds that HITECH administrative funding cannot be the sole funding source for building, implementing or operating HIE initiatives. Rather, states should treat HITECH administrative funding as part of a sustainable business model that includes various streams of federal and state government funding, as well as support from those private-sector health care stakeholders who will benefit from the HIE initiative, including health care providers, commercial payers, large employers, integrated delivery networks and laboratories, among others.

According to CMS, “other payers who stand to benefit [from HIE] must contribute their fair share from the beginning. The absence of other payers is not sufficient cause for Medicaid to be the primary payer.”

CMS provides that states should obtain proportional investments from HIE participants based on their market share and expected volume of HIE transactions. States may base their calculations of Medicaid’s share of HIE development costs on the percentage of all providers in the state who are projected to receive Medicaid EHR incentives over a specified time period. For example, if there are 10,000 providers in the state and 500 of them will receive Medicaid EHR incentives, then Medicaid’s share would be 5% of HIE development costs.

CMS believes this to be a fair measure of the proportional benefit that will accrue to Medicaid compared with other HIE participants, and the agency proposes to limit its financial contribution accordingly. States may propose alternative methodologies for calculating Medicaid’s fair share, which CMS will review on a case by case basis. 

To confirm that states will obtain funding from other HIE participants, CMS is requiring states to submit legal agreements that outline the terms (e.g., scope, budget and timing) of each HIE participant’s financial contributions to the HIE initiative. CMS also is requiring states to explain how they intend to reduce costs to existing HIE participants as new participants join.

CMS provides the following arguments in support of its policy to fund only its fair share of HIE development costs and to require others to fund theirs: 

• The efficiencies and quality improvements associated with electronic HIE accrue to all participants;
• The governance and risks associated with developing HIE infrastructure should not be borne solely (or predominately) by a single payer; and
• HIE strategies need to be developed with broad stakeholder involvement to ensure that the resulting HIE network supports the needs of both public and private health care stakeholders.

Looking Forward

While the concept of requiring all those who benefit from something to share in its cost is rooted in the principles of fairness and justice, the idea that all health care stakeholders should fund their fair share of HIE costs was never a foregone conclusion. On the contrary, HIE has been funded by so few for so long that some, at one point or another, have thought the concept idealistic. CMS’ policy breathed new life into the idea and could prove an important policy lever for HIE initiatives that have had difficulty convincing private stakeholders to contribute and thus developing a sustainable business model.

CMS is using its policymaking authority and considerable funding as an incentive to encourage HIE initiatives to secure funding from other sources. But, whether HIE initiatives can leverage this opportunity and secure fair share funding from all (or enough) health care stakeholders to guarantee their successful development and operations will depend on a host of other variables, including whether policymakers succeed in reforming the health care payment system to reward providers for exchanging information and coordinating care. The sustainability of HIE will not be secure until all health care providers have a business case to support it.

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