DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop C2-21-15 
Baltimore, Maryland 21244-1850 
Center for Medicaid, CHIP and Survey & Certification 
                SMD# 10-016 
 
August 17, 2010 
 
          Re:  Federal Funding for Medicaid HIT Activities 
 
Dear State Medicaid Director: 
 
This letter provides guidance to State Medicaid agencies regarding implementation of section 
4201 of the American Recovery and Reinvestment Act of 2009 (the Recovery Act), Pub. L. 
111-5, and our recently published regulations at 42 CFR Part 495, Subpart D.  Section 4201, as 
well as our final regulations, will allow the payment of incentives to eligible professionals (EPs) 
and eligible hospitals to promote the adoption and meaningful use of certified electronic health 
record (EHR) technology.   
 
The Recovery Act provides 100 percent Federal financial participation (FFP) to States for 
incentive payments to eligible Medicaid providers to adopt, implement, upgrade, and 
meaningfully use certified EHR technology, and 90 percent FFP for State administrative 
expenses related to the program.   
 
The Centers for Medicare & Medicaid Services (CMS) issued a State Medicaid Director (SMD) 
letter on September 1, 2009, that provided guidance to States on allowable expenses for activities 
supporting the administration of incentive payments to providers.  CMS has now promulgated 
final regulations that also govern State administrative expenses related to administering the 
program.  Both the SMD letter and our regulations at 42 CFR section 495.318 explain that, in 
order to qualify for the 90 percent FFP administrative match, a State must, at a minimum, 
demonstrate to the satisfaction of the Secretary compliance with three requirements: 
 
  Administration of Medicaid incentive payments to Medicaid EPs and eligible 
hospitals; 
 
  Oversight of the Medicaid EHR Incentive Program, including routine tracking of 
meaningful use attestations and reporting mechanisms; and 
 
  Pursuit of initiatives that encourage the adoption of certified EHR technology for the 
promotion of health care quality and the electronic exchange of health information. 
 
    Page 2  State Medicaid Director 
 
This letter and the accompanying enclosures provide more detailed guidance from CMS on the 
expectations relating to the activities and potential uses of the 90/10 matching funds. 
 
I.  Administration of the Medicaid EHR Incentive Program  
 
Title IV, Division B of the Recovery Act established the Medicare and Medicaid EHR incentives 
programs, as one component of the Health Information Technology for Economic and Clinical 
Health (HITECH) Act.  This initiative supports the goals of health reform by helping to improve 
 
Americans health, and increase safety and efficiency in health care through expanded use of 
EHRs.  Accordingly, States administration of the Medicaid EHR Incentive Program, and their 
role in fostering adoption and meaningful use of certified EHR technology, are essential 
components of broader reforms.  States can receive the enhanced FFP for approved design, 
development, and implementation of systems and processes that are necessary to effectively 
administer the Medicaid EHR Incentive Program.  When developing their implementation 
timelines, States should consider the critical role the Medicaid EHR Incentive Program plays in 
the success of related HITECH programs.  In order for States to benefit most from available 
Federal resources, including time-limited funding and technical assistance, timely initiation of 
their Medicaid EHR Incentive Programs (i.e., as soon as possible in 2011) is important.  
 
Enclosure A outlines CMS expectations and provides examples of potentially allowable 
activities and reasonable costs related to State administration of the program.  
 
II.  Oversight of the Medicaid EHR Incentive Program  
 
Under section 1903(t)(9)(B) of the Social Security Act and our recently published regulations at 
42 CFR Part 495, Subpart D, States are required to conduct adequate oversight of the Medicaid 
EHR Incentive Program.  Although the provider incentive payments are paid by the States, they 
are 100 percent reimbursable under Medicaid.  States must ensure that the program meets all 
statutory and regulatory requirements and is implemented in a manner that minimizes the 
potential for fraud, waste and abuse.  The 90 percent matching rate for FFP is available to States 
for approved processes, systems, and activities necessary to ensure that the incentive payments 
are being properly made to the appropriate providers, in the appropriate circumstances, and in an 
auditable and defensible manner.  We emphasize that an effective and efficient oversight strategy 
is one that is timely, targeted, and balances risk with available auditing resources.  
 
Enclosure B provides additional information about CMS initial expectations for States auditing 
and oversight of their Medicaid EHR Incentive Program.   
 
III.    Pursuing Initiatives to Encourage the Adoption of Certified EHR Technology and 
Health Information Exchange  
 
CMS expects that State Medicaid agencies will have a role in the promotion of EHR adoption 
and health information exchange.  HITECH provided several funding sources, including various 
grant programs through the Office of the National Coordinator for HIT (ONC) for States to 
achieve improved health care outcomes through health information technology (HIT).  Medicaid 
plays an important role as both a payer and a collaborator with these other HIT initiatives to 
produce the desired impact on the health care system.  Where possible, CMS encourages State 
Medicaid agencies to collaborate on HIT initiatives with Federal programs and other partners in 
    Page 3  State Medicaid Director 
 
the States, such as public health departments, county governments, and local governments.   
Costs will be distributed equitably across all payers following fair share and cost allocation 
principles, per section 495.358. 
 
Enclosure C outlines the CMS guiding principles for the availability of the 90 percent FFP 
administrative matching funds for basic administration and oversight of the Medicaid EHR 
Incentive Program, as well as efforts to promote its success among eligible Medicaid providers. 
 
IV.    State Medicaid Health Information Technology Plan (SMHP) and HIT 
Implementation Advance Planning Document (HIT IAPD) 
 
The SMHP (the product of the initial HITECH planning funds awarded to States) should outline 
the States current (As-Is) and future (To-Be) HIT landscape and plan for the administration 
and oversight of its Medicaid EHR Incentive Program in compliance with our regulations.  As 
States establish the broad vision for their Medicaid EHR Incentive Programs in the SMHP, 
however, not all activities will necessarily be eligible for FFP under HITECH.  States must use 
the HIT Implementation Advance Planning Document (IAPD) to request FFP and receive 
approval before implementing proposed State Medicaid HIT plan activities and services or 
acquire equipment.  There may be activities that are more appropriately reimbursed as Medicaid 
Management Information Systems (MMIS) or general program administration expenditures, or 
may not be eligible for any CMS funding at all.   
 
Enclosure D outlines the CMS process for reviewing the SMHP and associated funding request 
documents (HITECH and MMIS).  
 
CMS expects that States will take an incremental approach to the initial implementation of their 
Medicaid EHR Incentive Programs.  For example States may begin by focusing on provider 
outreach and registration, then on provider attestation and verification of eligibility, next on 
provider payments, and finally on capturing meaningful use data.  Toward that end, we have 
identified elements of an SMHP that are considered critical for the initial submission and those 
that may be deferred for future updates.  States must outline their timeline, noting critical 
benchmarks and dependencies.  An updated template for the SMHP for States to use as a guide is 
available on the CMS Web site for download at: 
http://www.cms.gov/EHRIncentivePrograms/91_Information_for_States.asp#TopOfPage. 
CMS will seek ONC input as we review SMHPs to ensure a coordinated approach for the State 
EHR Incentive Program and health information exchange (HIE) efforts.  While the SMHP 
focuses on the Medicaid strategy for moving toward meaningful use of certified EHR 
technology, it should be consistent with and complementary to the overall State HIT strategy 
developed under section 3013 of the Public Health Service Act (PHS).  CMS and ONC will work 
together in the review of both strategies to prevent duplicative efforts of statewide HIT/HIE 
activities, provider outreach activities, and Medicaid HIT activities.   
 
We encourage States to use the resources, tools, Frequently Asked Questions, and information 
available at the Federal level, particularly through the CMS EHR Incentive Program Web site:  
http://www.cms.gov/EHRIncentivePrograms/ and the ONC Web site:  http://www.healthit.gov.  
We look forward to collaborating with State Medicaid agencies and learning from your 
experiences as we provide technical assistance, policy guidance, and Federal resources to ensure 
successful development and implementation of Medicaid EHR Incentive Programs.  CMS 
believes that health information technology can be a transformative tool, improving the quality, 
    Page 4  State Medicaid Director 
 
efficacy, timeliness, and safety of patient care.  With the States, as our partners, we can leverage 
the momentum provided by the Recovery Acts EHR incentive programs to ensure that the 
innovations enabled by technology can support the framework of health care reform.  
 
For further information or clarification on this State Medicaid Director letter, please contact 
Mr. Rick Friedman at 410-786-4451, or Richard.Friedman@cms.hhs.gov. 
 
          Sincerely, 
 
          /s/ 
 
          Cindy Mann 
          Director 
 
Enclosures: 
 
A)  Administering the Medicaid EHR Incentive Program  
B)  Oversight of the Medicaid EHR Incentive Program  
C)  Guiding Principles for the Use of the 90 Percent FFP for EHR Promotion 
D)  SMHP/IAPD Review Process 
 
cc: 
 
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
Division of Medicaid and Childrens Health Operations 
 
Ann C. Kohler   
NASMD Executive Director 
American Public Human Services Association 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Debra Miller 
Director for Health Policy 
Council of State Governments 
 
Christine Evans, M.P.H. 
Director, Government Relations  
Association of State and Territorial Health Officials 
 
 
    Page 5  State Medicaid Director 
 
Alan R. Weil, J.D., M.P.P. 
Executive Director 
National Academy for State Health Policy 
 
David Blumenthal, M.D. 
National Coordinator 
Office of the National Coordinator for HIT 
    Page 6  State Medicaid Director 
 
Enclosure A 
 
Administering the Medicaid EHR Incentive Program 
 
Under the Recovery Act, States have the option to participate in the Medicaid EHR incentive 
program.  States may receive 90 percent FFP for reasonable administrative expenditures incurred 
in planning and implementing the program.  
 
States will undertake a number of activities relative to the administration of the Medicaid EHR 
Incentive program.  As indicated in the CMS Electronic Health Record Incentive Program Final 
Rule at  495.332, States will be expected to describe in detail in the State Medicaid HIT Plan 
(SMHP) a number of activities that CMS considers vital to the effective administration of the 
EHR Incentive Program.  In order for States to claim the 90 percent FFP match, they must 
submit both a State Medicaid HIT Plan and an HIT Implementation Advance Planning 
Document (HIT IAPD).  We recognize that not all States will administer the program using the 
same systems and processes; therefore we will assess each States SMHP to determine which 
activities would most appropriately be funded with the HITECH enhanced match and which 
might be better applicable to MMIS or regular program administration funding, or which may 
not be eligible for any CMS funding at all.  In order to be eligible for the HITECH 90 percent 
FFP, activities must be directly related to the success of the Medicaid EHR Incentive Program, 
as described further in Enclosure C.  In addition, please see Enclosure D for additional details 
about submitting SMHPs with HIT IAPDs for both HITECH and MMIS funding.  
 
States may potentially receive 90 percent FFP for the following program administration activities 
(not an exhaustive list), subject to CMS prior approval.  (Note, as required by  495.358, all costs 
are subject to cost allocation rules in 45 CFR Part 95.): 
 
  System and resource costs associated with the National Level Repository (NLR) Interface 
  System and resource costs associated with State interfaces of a Health Information Exchange 
(HIE)--(e.g., laboratories, immunization registries, public health databases, other HIEs, etc.) 
  Creation or enhancement of a Data Warehouse/Repository (should be cost allocated) 
  Development of a Master Patient Index (should be cost allocated) 
  Communications/Materials Development about the EHR Incentive Program and/or EHR 
Adoption/meaningful use 
  Provider Outreach Activities (workshops, webinars, meetings, presentations, etc). 
  Provider Help-Line/Dedicated E-mail Address/Call Center (hardware, software, staffing) 
  Web site for Provider Enrollment/FAQs 
  Hosting Conferences/Convening Stakeholder Meetings 
  Business Process Modeling 
  System and resource costs associated with the collection and verification of meaningful use data 
from providers EHRs 
  System and resource costs to develop, capture, and audit provider attestations 
  Evaluation of the EHR Incentive Program (Independent Verification (IV) & Validations (V) and 
programs impact on costs/quality outcomes) 
  Data Analysis, Oversight/Auditing and Reporting on EHR Adoption and Meaningful Use 
  Environmental Scans/Gap Analyses 
  SMHP updates/reporting; IAPD updates 
  Developing Data Sharing & Business Associate Agreements (legal support, staff) 
    Page 7  State Medicaid Director 
 
  Ongoing costs for Quality Assurance activities 
  Multi-State Collaborative for Health IT annual dues 
  Staff/contractual costs related to the development of State-Specific meaningful use and patient 
volume criteria 
  Medicaid Staff Training/Prof. Development (consultants, registration fees, etc.) 
 
CMS strongly encourages States to collaborate with other State-level and local partners in the 
design, development, and even procurement of systems needed to administer their EHR 
Incentive Programs.  Doing so would make more effective use of both CMS and States share of 
the cost and would shorten the timeline for actually dispersing incentive payments to eligible 
providers.  CMS is available to provide technical assistance to States interested in exploring 
collaborative approaches, and will disseminate information on approved and successful models. 
 
CMS also strongly encourages States to consider the activities they plan to undertake to 
administer their EHR Incentive Program and to identify any that may overlap with other 
Federally-funded activities, such as provider outreach, development of a Master Patient Index, 
external inquiry management, etc.  Where possible, these activities should be accomplished 
collaboratively, in which case costs are allocated across partners.  
 
Budgeting for the 90 Percent FFP 
States will be responsible for estimating the expenditures for the Medicaid EHR Incentive 
Program on the States quarterly budget estimate reports via Form CMS-37.  These reports are 
used as the basis for Medicaid quarterly grant awards that would be advanced to the State for the 
Medicaid EHR incentive program.  These forms are submitted electronically to CMS via the 
Medicaid and State CHIP Budget and Expenditure System (MBES/CBES).  On Form CMS-37, 
States should include any projections of administration related expenditures for the 
implementation costs.  On Form CMS-64, a State submits on a quarterly basis actual expenses 
incurred, which is used to reconcile the Medicaid funding advanced to States for the quarter 
made on the basis of the Form CMS-37.  (Refer to Enclosure D and its section on State 
Reporting of Estimates, Expenditures, and Timing of the Grant Award Letter.) 
 
To assist States in properly reporting expenditures using the MBES/CBES, the CMS-37 and 
CMS-64 reports will include a new category for reporting the 90 percent FFP match for State 
administrative expenses associated with the Medicaid EHR Incentive Program.  The new 
category will be called Health Information Technology Administration.  This reporting 
category is located on the 64.10 base page lines 24A and 24B for Administration.  
Implementation expenditures are included on lines 24C and 24D.    
 
CMS will monitor State agency compliance through systems performance reviews, focused 
reviews, and audits of the processes documented in the SMHP, and other planning documents.  
CMS may review States EHR Incentive Programs using a variety of audit/review tools, 
including, but not limited to, financial audits, State Program Integrity Reviews, and payment data 
analysis.  CMS is allowed to suspend payments if the State fails to provide access to information, 
per our final regulations,  495.330.   
 
    Page 8  State Medicaid Director 
 
In order to track progress made towards the nationwide implementation of the Medicaid EHR 
Incentive Programs, CMS requests that States indicate to us through their State Medicaid HIT 
Plans, the target date by which they plan to launch their program.  For consistencys sake, we 
will consider a States Medicaid EHR Incentive Program ready to launch when a State has met 
all of the following criteria: 
 
  The State has an approved SMHP and an approved IAPD.  
  The State has initiated outreach and communications about the Medicaid EHR Incentive 
Program, including posting information on its Web site. 
  The State has an effective and tested interface to accept provider registration information 
from the CMS NLR (i.e., has successfully tested with the NLR). 
  The State is now capable, or will be capable within 3 months, of accepting provider 
attestations. 
  The State is now capable, or will be capable within 5 months, of making provider 
incentive payments. 
  The State has sufficient controls in place to ensure that the right incentive payments are 
made to the right providers before initiating provider incentive payments. 
 
Prior to the release of the 100 percent FFP provider incentive funding, CMS will require that 
States provide a brief written update regarding the launch criteria above. 
 
    Page 9  State Medicaid Director 
 
Enclosure B 
 
Oversight of the Medicaid EHR Incentive Program 
 
Under Section 1903(t)(9)(B) of the Social Security Act, States are required to conduct adequate 
oversight of the Medicaid incentive program.  Our regulations, including  495.318(b), 
495.332, 495.366, and 495.368, also require States to conduct oversight to monitor, among other 
things, provider eligibility, payments, fraud, waste, and abuse. 
 
In addition, CMS is developing a joint Medicare/Medicaid audit strategy.  In the interim, this 
enclosure provides initial CMS expectations regarding State responsibilities for oversight and 
audit in the early stage of EHR incentive program implementation.  CMS will expand and build 
upon these requirements after the joint strategy is finalized and States begin implementing their 
programs. 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
CMS expects States to implement a risk-based auditing approach to prevent making improper 
Medicaid EHR Incentive payments and to monitor the program for potential fraud, waste, and 
abuse.  For 2011, CMS expects that, at a minimum, States will focus their auditing resources on 
the following specific items: 
 
  Provider eligibility: for example, an identified means to verify that providers are 
credentialed, not-sanctioned, not hospital-based, practicing predominately, and are one of 
the types of eligible professionals or institutions under the EHR incentive program. 
  Patient volume:  for example, an identified means to audit or verify the attestation data, 
including use of proxy data (such as claims) where appropriate to identify risk. 
  Adopt, implement, or upgrade (AIU):  for example, have an identified means to audit or 
verify that providers have actually adopted, implemented, or upgraded certified EHR 
technology.  (Note:  CMS does not anticipate that States will audit meaningful use in 
2011 as all eligible Medicaid providers can receive an EHR incentive payment for AIU in 
their first participation year.)  
  Certified EHR technology:  for example, States should collect the certified EHR 
technology code (see below) as part of provider attestation for AIU, and should verify 
that the code is on the Office of the National Coordinator (ONC) list of certified EHR 
technology prior to issuing an incentive payment to that provider. 
 
Prior to January 2011, ONC will make available through a public Web service (URL is still to-
be-determined), a list of all certified EHR technology, including the name of the vendor and 
product, the products unique certification code, and the meaningful use criteria for which the 
product was certified.  After January 2011, the ONC Web service is expected to have additional 
functionality related to combinations of certified EHR modules.  For combinations of separate 
certified EHR technology that collectively could achieve meaningful use (e.g., modules), the 
ONC Web service would allow providers to enter the codes from the different certified modules 
and request a unique certification code that represents that specific combination.  The Web 
service would then store and reflect for other providers that particular combination of certified 
EHR technology and the unique code associated with it.  States should utilize the ONC Web 
service to automate the pre-payment verification of providers attestations regarding use of 
certified EHR technology.  States should plan to test this process prior to accepting provider 
attestations.  CMS will provide further details as soon as they become available. 
 
    Page 10  State Medicaid Director 
 
Using either their attestation system or other means, States must notify providers that it is the 
providers responsibility to ensure that its certified EHR technology code is listed on the ONC 
Web service before attesting to the State.  Otherwise, the States verification system might 
produce a false negative result (e.g., the EHR technology was certified but there was a delay 
before it was added to the ONC Web service). 
 
States may receive enhanced matching funds for the following audit/oversight activities, subject 
to CMS prior approval: 
  Auditing contractor(s)/Auditing In-House Activities 
  Systems costs for interfaces to verify provider identity/eligibility (e.g., provider enrollment, license 
verification, sanctions, patient volume) 
  System and Resource Costs associated with Provider Appeals for EHR Incentive Payments 
  Staff and resources for data analysis and reporting requirements for the CMS EHR Incentive 
Program 
  Privacy/Security Controls 
 
We strongly recommend that States consider the data sources and partners (such as Regional 
Extension Centers and HIEs, etc.) that are available to support their auditing and oversight 
responsibilities- including using them as tools for conducting risk assessments for fraud, waste 
and abuse.  For example, where appropriate, States should utilize reliable third-party data sources 
rather than conduct resource-intense individual on-site reviews.  As noted above, we will be 
issuing further guidance related to oversight and auditing of meaningful use in the Medicare and 
Medicaid EHR Incentive Programs.  At that time, CMS will share with States its auditing plans 
for the Medicare EHR Incentive Program.  We will look for opportunities where appropriate to 
leverage Federal efforts on behalf of the States, including, but not limited to our auditing strategy 
for hospitals that are eligible for both Medicare and Medicaid EHR incentive payments.  Further 
details regarding potential State and CMS collaboration on the auditing of meaningful use for 
hospitals that are eligible for both incentive payments is forthcoming.  States should recognize 
that it is their sole responsibility to audit hospitals that are Medicaid-only (e.g., childrens and 
cancer hospitals).  
 
The primary means for CMS and States to avoid duplicate payments to eligible professionals is 
through joint use of the National Level Repository (NLR).  States must interface with the NLR 
not just to receive provider registration data and to ensure that there are no duplicative payments 
prior to issuing provider incentives, but also to notify the NLR when they have made an 
incentive payment.  CMS expects that States will notify the NLR that an incentive payment has 
been made within 5 business days.  Similarly, if a State has determined that the provider is 
ineligible for a payment, CMS expects that the State will notify the NLR within 5 business days. 
Finally, in accordance with our regulations,  495.332, the State must make a payment within 45 
days of completing all eligibility verification checks.  In the case of providers registering at the 
end of a calendar year, a payment for that year must be made no later than 60 days into the next 
calendar year for EPs, or fiscal year, for hospitals.  The full requirements document and interface 
control document developed for States interface with the NLR was made available to States 
through the CMS regional offices, with the July 13, 2010, release of the CMS final rule. 
 
    Page 11  State Medicaid Director 
 
CMS will monitor State agency compliance with audit and oversight requirements through 
systems performance reviews, focused reviews, and audits of the processes documented in the 
SMHP, and other planning documents.  CMS may review States EHR Incentive Programs using 
a variety of audit/review tools, including, but not limited to, financial audits, State Program 
Integrity Reviews, and payment data analysis.  CMS is allowed to suspend payments if the State 
fails to provide access to information, per our final regulations,  495.330.   
 
In accordance with the CMS final rule, Medicaid agencies must implement a provider appeals 
process.  See  495.370 of our final regulations for details regarding provider appeals, as well as 
the SMHP template, which is located on the CMS Web site at: 
http://www.cms.gov/EHRIncentivePrograms/91_Information_for_States.asp#TopOfPage.  
Enclosure E also discusses information regarding provider appeals in the context of the SMHP 
contents.  
 
 
   
    Page 12  State Medicaid Director 
 
  Enclosure C 
 
Guiding Principles for Use of the CMS 90 Percent Administrative Matching 
Funds for the Medicaid EHR Incentive Program 
 
State Medicaid agencies can receive enhanced matching funds at a 90-percent rate for their 
administration and oversight of the Medicaid EHR incentive program.  CMS also expects that 
States will request the enhanced matching funds for reasonable administrative expenses related 
to their efforts to promote the adoption of certified EHR technology and health information 
exchange (HIE).   
 
We recognize that not all States will implement their programs in the same manner, and each 
State may face unique barriers to adoption and meaningful use.  The principles below provide an 
overarching framework by which CMS will consider State requests for 90 percent FFP.  Each 
proposal will be examined by CMS (with input from ONC) to ensure funds provide direct 
support to the success of the Medicaid EHR incentive program, are coordinated with other State 
HIT-related activities, do not duplicate other funding sources, and are implemented in the most 
efficient and effective manner.  In addition, we strongly encourage States to collaborate with 
other States and local partners in the design, development, and procurement of any new systems.   
 
CMS will consider approval for 90 percent FFP for EHR/HIE promotion initiatives that will 
meet all of the following criteria: 
 
  Serve as a direct accelerant to the success of the States Medicaid EHR Incentive 
Program and facilitate the adoption and meaningful use of certified EHR technology. 
Expenses that do not directly correlate to the EHR Incentive Program will not be 
approved.  Examples that may correlate include: 
-  Expenditures related to provider needs assessments, provider outreach about 
adoption and meaningful use of certified EHR technology, staff training, 
identification and development of tools to connect to health information 
exchanges, record locater services, secure messaging gateways, provider 
directories, development of privacy and governance policies and procedures, 
master patient indexes, interfaces for data (e.g., laboratory) that is important to 
Medicaid providers to be fully successful in an HIE environment, and procuring 
technical assistance for Medicaid providers to achieve meaningful use.  
 
  Are consistent with the ONC long-term vision for health information exchange, and are 
supportive of the activities prioritized by ONC cooperative agreement funding, namely 
secure messaging, the electronic reporting of structured laboratory data and enabling e-
prescribing.  
 
  Are not duplicating meaningful use technical assistance efforts conducted by the ONC-
funded Regional Extension Centers, Workforce Grantees, Beacon Grantees or other 
Federally-funded projects whose target population is the same, as well as ONC 
cooperative agreement grant funding for the development of HIE. 
 
 
    Page 13  State Medicaid Director 
 
  Will, to the extent possible, be normalized and integrated into the Medicaid business 
enterprise.  Examples include: 
-  Expenditures related to technical bridges between Medicaid and health 
information exchanges or all-payer clinical/claims data warehouses or 
technologies to authenticate providers and beneficiaries (e.g., master provider or 
patient indices).  
 
  Cannot otherwise be funded by the MMIS matching funds.  MMIS will be examined as a 
more appropriate funding source before HITECH because HITECH funds should be 
targeted toward scenarios that contribute to the transformation of the MMIS into a 
clinical- and claims-based engine that supports Medicaids broader health care reform 
goals.  Examples of expenditures that relate to the Medicaid EHR Incentive Program but 
that might more appropriately be funded through the enhanced MMIS match include: 
-  Expenditures related to the design, development, and testing of a standard 
continuity of care record (CCR) or continuity of care document (CCD) based 
upon Medicaid claims; or building a portal between the MMIS and a clinical data 
repository or an immunization registry. 
 
  Are designed to be well-defined, developmental, and time-limited projects, with specific 
goals that would enable eligible Medicaid providers who qualify for the Medicaid EHR 
Incentive Program to achieve meaningful use of certified EHR technology. 
-  Providers transactional and on-going expenses derived from participation in 
health information exchange would not be eligible for the 90 percent HITECH 
Medicaid administrative match.  Instead, CMS believes such costs are more 
appropriately addressed through State reimbursement to providers.  CMS will 
entertain State plan amendments that speak to payment policies designed to 
incentivize providers to report data, such as the medical home per-member/per-
month model.  
 
  Are not intended to be permanent initiatives but will lead within a reasonably short 
timeframe to sustainable outcomes. 
-  Sustainability refers to the responsibility for on-going costs for operations and 
maintenance of systems initially developed or enhanced using HITECH funding. 
After a defined milestone, funding sources other than HITECH must be used. 
-  Personnel costs for those who work directly on the Medicaid EHR Incentive 
Program are permissible expenditures for the enhanced match over the short term; 
however, States must plan to absorb or bear those costs in the future. 
 
  Are developed in accordance with Medicaid Information Technology Architecture 
(MITA) principles, as required by 495.332. 
 
  Are distributed equitably across all payers following the fair share principle.  CMS 
recognizes that Medicaid is often one of the largest insurers in a State and, as such, stands 
to benefit from efficiencies associated with health information exchange and meaningful 
use of EHRs.  However, Medicaids contribution to health information technology should 
be weighted and allocated based on contributions by other payers, and not be the sole or 
primary source of start-up or operational funding.  
 
    Page 14  State Medicaid Director 
 
  Are cost-allocated per Office of Management and Budget (OMB) Circular A-87.  CMS 
will work with States on an individual basis to determine the most appropriate cost 
allocation methodology.   
 
-  HITECH cost allocation formulas should be based on the direct benefit to the 
Medicaid EHR incentive program, taking into account State projections of 
eligible Medicaid provider participation in the incentive program.   
-  Cost allocation must account for other available Federal funding sources, the 
division of resources and activities across relevant payers, and the relative benefit 
to the State Medicaid program, among other factors. 
-  Cost allocations should involve the timely and ensured financial participation of 
all parties so that Medicaid funds are neither the sole contributor at the onset nor 
the primary source of funding.  Other payers who stand to benefit must contribute 
their share from the beginning.  The absence of other payers is not sufficient 
cause for Medicaid to be the primary payer. 
 
   
    Page 15  State Medicaid Director 
 
Enclosure D 
 
State Medicaid HIT Plan and Implementation Advance Planning Process   
 
This Enclosure provides guidance on the following topics regarding the States Medicaid HIT 
Plan (SMHP) and the States HIT Implementation Advance Planning Document (HIT IAPD): 
 
  HIT IAPD Preparation and On-Going Planning Activities 
  Budget Preparation Tips 
  State Submission and CMS Review and Approval Process for the SMHP and the  
HIT IAPD    
  State Reporting of Estimates, Expenditures, and Timing of the Grant Award Letter  
  Retroactive Requests for Planning Activities Funded at 90/10 Federal Financial 
Participation (FFP)   
 
HIT IAPD Preparation and On-Going Planning Activities 
 
Since the publication of the State Medicaid Directors Letter on September 1, 2009, nearly every 
State and Territorial Medicaid agency has been approved to conduct HIT planning activities 
through the HIT Planning Advance Planning Document process (HIT PAPD), with the 
remaining agencies expected to submit funding requests in the coming months.  A required 
deliverable of the HIT PAPD is the completion of a State Medicaid HIT Plan (SMHP), which 
must include the elements contained at 495.332 of the Medicare and Medicaid Programs EHR 
Incentive Program Final Rule.  Once approved, the SMHP and the results of the planning 
activities must be included in the States HIT Implementation Advance Planning Document (HIT 
IAPD).  The HIT IAPD is a plan of action that requests FFP and approval to acquire and 
implement the proposed State Medicaid HIT Plan activities, services or equipment.  The end 
result of implementation will be the ability for the State Medicaid agency to successfully operate 
its EHR Incentive Program.  States will then be able to make provider incentive payments with 
100 percent FFP for State expenditures.   
 
To the extent possible, the HIT IAPD must include the list of the HIT IAPD required elements 
that are contained in the Final Rule at: 495.338.  In addition, the State should consider 
incorporating the optional SMHP elements included in the revised SMHP template located on 
the CMS Web site at:  
http://www.cms.gov/EHRIncentivePrograms/91_Information_for_States.asp#TopOfPage.  It is 
possible that some planning activities may be on-going.  In these instances, the State should 
continue to describe on-going planning activities using the As-Needed HIT Advance Planning 
Document Update (HIT APDU) process to request funding approval for project continuation, 
scope, and schedule changes, for incremental funding authority and project continuation when 
approval is being granted by phases.     
 
    Page 16  State Medicaid Director 
 
Budget Preparation Tips 
 
We believe the provisions of the HITECH Act provide the necessary assistance and technical 
support to providers, enable coordination and alignment within and among States, 
establish connectivity to the public health community in case of emergencies, and ensure that the 
workforce is properly trained and equipped to be meaningful users of certified EHR technology.  
It is therefore important that the HIT IAPD include information about any grants, State or local 
funds, or other funding sources that are available to the State and that will contribute to the costs 
of activities for which the State is requesting HITECH matching funds.  This information is not 
meant to duplicate what is in the SMHP but rather to provide CMS with adequate information to 
determine if the proposed cost allocation and/or division of labor and responsibilities among the 
various State partners are appropriate to existing rules and regulations and CMS expectations.  
For example, if a State wishes to build System X, it should indicate all other sources of funding 
that will contribute to System X, including other Federal HIT grant funding.   
 
  Example:  
Grant/Funding  Share of the Cost  Timing of the  Lead Agency  Contact 
Source:  Allocation  Funding  Information 
Contribution 
(e.g., current, 
FY11, TBD)  
State HIE  $5,000,000    State Office of E- Name 
Cooperative  Health  Phone 
Agreement  number 
Program  E-mail 
ONC Regional  $3,500,000    State University of  Name 
Extension Center  XYZ   Phone 
Cooperative  number 
Agreement  E-mail 
Program  
 
 
Follow this link for a full description of each grant, listed in the bullets below:  
http://healthit.hhs.gov/portal/server.pt?open=512&objID=1487&parentname=CommunityPage&
parentid=4&mode=2&in_hi_userid=10741&cached=true. 
 
  State Health Information Exchange Cooperative Agreement Program 
  Health Information Technology Extension Program 
  Strategic Health IT Advanced Research Projects (SHARP) Program 
  Beacon Community Program 
  Community College Consortia to Educate Health Information Technology Professionals 
Program 
  Curriculum Development Centers Program 
  Program of Assistance for University-Based Training 
  Competency Examination for Individuals Completing Non-Degree Training Program  
         
 
The HIT IAPD proposed budget should follow the requirements at  495.338 in the Final Rule 
and include the source of all funds which will be utilized by the State Medicaid agency for the 
    Page 17  State Medicaid Director 
 
specific activities outlined in the IAPD.  This includes the following grants to the Medicaid 
agency: 
  CHIPRA Quality Demonstration Grant, if HIT related 
  Medicaid Transformation Grant 
  Primary Care Stabilization Grant 
 
Enhancements to the States MMIS, such as building an interface to a source of HIT data, 
or shared reporting between the multiple projects, which will be cost allocated between the 
different projects, should be described in a separate MMIS APD.  The separate MMIS APD 
may be included in the submission of the States HIT IAPD and, as an example, may be 
titled Part 1  HIT, Part 2  MMIS.  Recovery funds must be tracked separately.  That is 
the reason for separating the two documents.  Funding requests for the MMIS APD should 
follow MMIS-specific guidance about the matching levels and permitted expenditures.   
 
State Submission and CMS Review and Approval Process for the SMHP and the HIT 
IAPD    
 
The State may simultaneously submit to CMS for approval both the SMHP and the HIT IAPD; 
or the State may choose to submit the SMHP first, receive CMS approval, and then submit the 
HIT IAPD to CMS.  Either way, implementation activities cannot begin until the SMHP and the 
HIT IAPD have both been approved by CMS.  As with the HIT Planning Advance Planning 
Document (PAPD), prior approval is required for States requesting FFP before conducting 
implementation activities.  Exceptions will be made for States that have previously conducted 
planning activities and are requesting retroactive approval for 90 percent FFP for activities that 
occurred on or after February 18, 2009.  Instructions for submitting these requests are described 
below under the heading, Retroactive Approval of FFP with an Effective Date of February 18, 
2009. 
 
CMS will determine which activities will be eligible for a 90 percent FFP match for State 
expenses for administration of the incentive payments and for promoting EHR adoption 
implementation activities.  States should contact their CMS regional office representatives 
regarding funding questions.  Enclosures A, B, and C contain examples of partial lists of 
implementation expenditures/activities that may be considered eligible for 90 percent FFP for 
administrative expenses to implement the activities contained in the States SMHP and HIT 
IAPD.   
 
CMS will be using a joint Central Office/Regional Office review approach.  In addition, CMS 
will share the States SMHPs with the Office of the National Coordinator for HIT (ONC) to 
ensure a coordinated approach for the State EHR Incentive Program and HIE efforts.  While the 
SMHP focuses on the Medicaid strategy for moving toward meaningful use of certified EHR 
technology, it should be consistent with and complementary to the overall State HIT strategy 
developed under section 3013 of the Public Health Service Act (PHS).  CMS and ONC will work 
together in the review of both strategies to prevent duplicative efforts of statewide HIT/HIE 
activities, provider outreach activities, and Medicaid HIT activities.   
 
    Page 18  State Medicaid Director 
 
State Reporting of Estimates, Expenditures and Timing of the Grant Award Letter  
                     
For the purposes of this guidance, CMS is using the term grant award when approving Federal 
funding for allowable Medicaid expenditures.  This should not be confused with competitive 
grant awards (e.g., Transformation Grants, CHIPRA grants, etc.) made by CMS or other Federal 
agencies, such as ONC, for HITECH activities.  Once CMS has officially approved the SMHP 
and HIT IAPD, a CMS HIT approval letter will be issued notifying the State of the approved 
funding to conduct implementation activities.  Only then may a State request to receive the grant 
award on a quarterly basis.  On the Forms CMS-37.9 and CMS-37.10, the new line items listed 
below have been added to reflect provisions under section 4201 of the Recovery Act:  
 
  Line 24A - HIT:  Planning:  Cost of In-house Activities  Planning Activities for 
administrative expenses to oversee incentive payments made to providers: Cost of In-
house Activities 
 
  Line 24B - HIT:  Planning:  Cost of Private Contractors Planning Activities for 
administrative expenses to oversee incentive payments made to providers:  Cost of 
Private Sector Contractors 
 
  Line 24C - HIT:  Implementation and Operation:  Cost of In-house Activities  
Implementation Activities for administrative expenses to oversee incentive payments 
made to providers: Cost of In-house Activities 
 
  Line 24D - HIT:  Implementation and Operation:  Cost of Private Contractors  
Implementation Activities for administrative expenses to oversee incentive payments 
made to providers:  Cost of Private Sector Contractors 
 
In addition, the CMS 64.10 report includes expenditure reporting for the following line items:   
 
  Line 24A -  HIT Planning:  Cost of In-house Activities 
  Line 24B -  HIT Planning:  Cost of Private Contractors 
  Line 24C -  HIT Implementation and Operation:  Cost of In-house Activities 
  Line 24D -  HIT Implementation and Operation:  Cost of Private Contractors 
 
For both the CMS 37.9, 37.10 and 64.10 reports, estimates and expenditures only pertain to 
HITECH and not to MMIS reporting for the line items listed above.  In that regard, do not 
include any projections or expenditures of provider incentive payment for this provision 
for either FY 2010 or FY 2011 on the CMS-37.9, CMS-37.10, or 64.10 reports.  When State 
staff are preparing the budget for the HIT IAPD, it is critical that both program and financial 
staff communicate with each other to ensure consistent State reporting to CMS Financial 
Management Group in order to eliminate discrepancies in both the APD estimates and the 
information being reported by the State fiscal staff pertaining to Form CMS-37.9 and Form 
CMS-37.10.   
 
On the quarterly CMS-37 budget submission, a State may request to receive its HIT IAPD CMS 
grant award by including an estimated HIT IAPD expenditure in the CMS-37.10 Form.  This 
estimated expenditure will result in a grant award to cover those expenses specified for that 
quarter.  Therefore, it is imperative to accurately estimate the HIT IAPD expenditures by quarter.  
    Page 19  State Medicaid Director 
 
CMS will finalize the HIT IAPD grant award against the 64 HIT IAPD expenditures.  The HIT 
IAPD grant award will be issued separately with a specified Payment Management System 
subaccount code. 
 
If a State has not received its HIT IAPD approval letter, the State may still include a footnote in 
the Form CMS-37.12 of anticipated HIT IAPD expenditures, broken out by quarter.  
 
Retroactive Approval of 90/10 FFP with an Effective Date of February 18, 2009 
 
For administrative activities performed by a State, prior to having an approved HIT PAPD, 
which are in support of administrative expenditures for planning activities for incentive 
payments to providers, a State may request consideration of retrospective FFP by including a 
request in a HIT advance planning document or implementation advance planning document 
update.   In considering such a request, the agency takes into consideration overall Federal 
interests which may include any of the following:  
(a)  The acquisition must not be before February 18, 2009. 
(b)  The acquisition must be reasonable, useful, and necessary. 
(c)  The acquisition must be attributable to payments for reasonable administrative 
expenses per our regulations in 495.362. 
The activities must be related to planning, and can be requested in the HIT APD that is active at 
the time of the request.  As an example, if the HIT PAPD has ended and the State is preparing 
the HIT IAPD, then this request can be included in a separate section titled:  Request for 
Retroactive HIT Planning Funding and must follow the criteria above.  It can also be included 
 
in an Update or in the Annual APD report due 60 days from the approved APD anniversary date.