The recently published final "meaningful use" regulations make it clear that hospitals must be careful in how they report charity care on their Medicare cost reports if they want to maximize their incentive payments for using EHR. The amount a hospital receives in EHR incentive payments is calculated based on the hospital’s Medicare and Medicaid patient volume, calculated as a fraction of the hospital’s total patient volume. The rule proposal failed to define key terms that are part of the calculation of the fractional share of the hospital’s Medicare and Medicaid patient volume, including the term "charity care." The proposed final rule looks to the charity care amount reported in the hospital’s Medicare cost report, despite the fact that this reported number likely did not have a significant impact on the hospital’s Medicare reimbursement in the past.

As CMS explains in the preamble to the rule, "We believe that the charity care charges reported on line 20 of the pending final OMB approved Worksheet S-10 [Form CMS-2552-10, effective for cost reporting periods beginning on or after May 1, 2010] represent the most accurate measure of charity care charges as part of the hospital’s overall reporting of uncompensated and indigent care for Medicare purposes… if a hospital has not properly reported any charity care charges on line 20, we may question the accuracy of the charges used for computing the final Medicare share of the [EHR] incentive payments."

CMS goes on to explain that charity care data can be obtained by the Medicare contractor, and the data "would be used to determine in the hospital’s charity care criteria are appropriate, if a hospital should have reported charity care charges, and if the reported charges are proper. If we determine, as based on a determination of the MAC, that the hospital did not properly report charity care charges on line 20 of the pending final OMB approved Worksheet S-10, then we proposed to deem the [charity care] portion of the denominator … to be 1." Instructions to draft Form CMS-2552-10 for Worksheet S-10 define "charity care" as "[h]ealth care services for which a hospital demonstrates that the patient is unable to pay … [and] results from a hospital’s policy to provide all or a portion of services free of charge to patients who meet certain financial criteria." Conversely, "non-Medicare bad debt" is defined as "[h]ealth care services for which a hospital determines the non-Medicare patient has the financial capacity to pay, but the non-Medicare patient is unwilling to settle the claim."

CMS makes it clear that just as Medicare contractors currently determine whether a hospital’s indigency policies (for example, how a provider determines that a non-Medicaid patient is indigent or medically indigent and that the patient’s financial condition is not likely to improve following an asset/income test of patient resources) are appropriate for determining allowable Medicare bad debt, the Medicare contractor can similarly determine whether the hospital’s policies are sufficient for determination of charity care information used in the EHR incentive payment calculation.

In short, a hospital seeking EHR incentive payments must closely examine not just the accuracy of reported charity care and non-Medicare bad debt data included on its Medicare cost report, but must ensure it is actually undertaking a review of patients’ ability to pay for services. Failure to document the proportion of uncompensated care that qualifies as "charity care" may result in a decrease in EHR incentive dollars.