The federal government’s promotion of electronic health records has created financial incentives for medical professionals and hospitals that make meaningful use of certified electronic health record (EHR) technology.
But medical providers must comply with standards for use of the technology and properly account for the incentive payments in an area where accounting principles are in an infant stage. This week, the Healthcare Financial Management Association (HFMA) published an issue analysis to provide clarity on accounting for incentive payments received under the Health Information Technology for Economic and Clinical Health (HITECH) Act (Title XIII of the American Recovery and Reinvestment Act of 2009, P.L. 111-5).
A total of $19 billion in incentive payments is available for hospitals and physicians under Medicare and Medicaid programs. The incentives will be paid out over four years on a transitional schedule to hospitals and physicians that meet “meaningful use” criteria for the technology. The Centers for Medicare & Medicaid Services define meaningful use through three stages that become more stringent over time.
The HFMA, a membership organization of health care finance executives and leaders, offers in its paper practical guidance on the accounting and reporting issues raised by the HITECH Act’s incentive payments. The analysis of the HITECH Act comes through the HFMA’s Principles & Practices Board.
The complete guidance is available at hfma.org/EHRpayments.
It shows that hospitals have been accounting for the incentive payments using either a contingency model or an IAS 20 model, which is widely used by companies that receive incentive payments for meeting required conditions.
The HFMA board recommends that physicians and hospitals using the contingency model should consider and document all contingencies and monitor additional accounting and reporting developments.
The report states that preliminary indications show SEC registrant hospitals using a contingency model, and advises them to consult with SEC staff if they are using any other model. Privately held, nonprofit and government-owned hospitals appear split regarding use of the contingency or IAS 20 models, according to the report.
Those using the IAS 20 model need to consider additional reporting requirements based on whether the hospital is privately held, nonprofit, or owned by the government, according to the HFMA board.
The HFMA strongly recommends that medical providers discuss accounting for the incentive payments with their independent auditors as soon as possible because accounting practices are just starting to emerge in this area.
Those using the contingency model need to appropriately identify the conditions that must be met before recognizing the revenue, the report says. The contingency model would not permit incentive payments to be recognized as income until the medical provider has complied with the meaningful use criteria for the full EHR reporting period in a given year, according to the report.
Using the IAS 20 model, EHR grants should not be recognized until there is reasonable assurance that the medical provider will comply with the conditions for the incentives, the report says.
— Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.
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