DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
Center for Medicaid, CHIP and Survey & Certification 
                  SMDL# 11-002 
                   ARRA# 8   
 
April 8, 2011 
 
Re: Technical changes impacting the Medicaid 
EHR Incentive Program from the 2010 Medicare 
and Medicaid Extenders Act  
 
Dear State Medicaid Director:  
 
This letter provides guidance to State Medicaid agencies regarding technical changes in section 
4201 of the American Recovery and Reinvestment Act of 2009 (the Recovery Act), Pub. L. 111-
5, as a result of section 205(e) of the Medicare and Medicaid Extenders Act of 2010 (the 
Extenders Act), Pub. L. 111-309.  The Extenders Act, enacted on December 15, 2010, amended 
sections 1903(t)(3)(E) and 1903(t)(6)(B) of the Social Security Act (the Act).  The amended 
sections change the requirements for an Eligible Professional (EP) to demonstrate the net 
average allowable costs, the contributions from other sources, and the 15 percent provider 
contribution to participate in the Medicaid Electronic Health Record (EHR) Incentive Payment 
Program.  The Extenders Act now provides that an EP has met this responsibility, as long as the 
incentive payment is not in excess of 85 percent of the net average allowable cost ($21,250 for 
first year payments). 
 
Summary 
Prior to the Extenders Act, Medicaid EPs who wanted to participate in the EHR Incentive 
Payment Program were required to provide documentation of certain costs related to acquiring 
and implementing certified EHR technology.  The Extenders Act amended the Medicaid EHR 
Incentive Program by allowing for providers to simply document and attest that they have 
adopted, implemented, upgraded, or meaningfully used certified EHR technology, while 
allowing the Centers for Medicare & Medicaid Services (CMS) to set these average costs.  
 
Background 
The documentation originally required by an EP for demonstrating the net average allowable 
costs, and the contribution amounts from other sources, is no longer required as the Extenders 
Act allows CMS to establish the average payment that Medicaid EPs will receive from other 
(non-governmental) sources.  As a result, rather than requiring each EP to calculate the payments 
received from outside sources, each will use the average costs and contribution amount 
established by CMS.  After conducting a meta-analysis of existing data of an EPs costs to adopt, 
implement, or upgrade certified EHR technology, CMS has determined that average 
contributions from outside sources should not exceed $29,000.  
  Page 2  State Medicaid Director 
 
The documentation originally required by an EP to demonstrate that he or she contributed 15 
percent (e.g., $3,750 for Year 1) of the net average allowable costs is also no longer needed. 
The Extenders Act now provides that an EP has met this responsibility as long as the incentive 
payment is not in excess of 85 percent of the net average allowable cost ($21,250). 
 
Calculations 
As shown in the table below, in rulemaking, CMS determined the average allowable cost to 
acquire certified EHR technology and implementation support for the purposes of this program 
to be $54,000.  The statute  as amended by the Extenders Act  requires the agency to reduce 
net average allowable costs by average contributions from certain outside sources.  In addition, 
the statute, as originally enacted, requires that in no case will net average allowable costs exceed 
$25,000 in Year 1 (or $10,000 in subsequent years).  Thus, to reach the statutory maximum of 
$25,000 for net average allowable costs in Year 1, the average contribution from outside sources 
cannot exceed $29,000.  As we have determined that average contributions are less than $29,000, 
the net average allowable cost for this program remains at the statutory maximum of $25,000 
per EP for the first payment year.   
 
Also, as long as the State can verify that no more than 85 percent of the net average allowable 
cost was paid to the EP as an incentive payment, an EP is determined to have met the remaining 
15 percent of the cost under section 1903(t)(6)(B) of the Act.  Additionally, all EPs are deemed 
to have met the requirement that no more than $29,000 be received in contributions from other 
(non-governmental) sources. 
Determination of Net Average Allowable Costs for the First Payment Year 
First Year       
Variables1  Amounts  Prior to Extenders Act Changes  Currently 
Average  $54,000  Determined through a CMS meta- No change. 
Allowable  analysis, described in both the Notice 
Costs  of Proposed Rulemaking (75 Fed. 
Reg. 1844) and the Final Rule (75 
Fed. Reg. 44314). 
Contributions  Does not  Subtracted from Average Allowable  No documentation is 
from Other  exceed  Costs to reach Net Average  needed.  We have 
Sources   $29,000  Allowable Costs.  An EP was  determined that average 
required to show documentation of  contributions do not 
all contributions from certain other  exceed $29,000.  
sources. 
Capped  $25,000  Capped by statute and designated in  No change. 
Amount of   CMS Final Rule. 
Net 
Average 
Allowable 
Costs 
                                                 
1 These same concepts (but not figures) apply to the second through sixth years, integrating the figures from the 
Final Rule.  Ultimately, the incentive paid in the second through sixth years is still the statutory maximum of 
$8,500.  Page 3  State Medicaid Director 
 
First Year       
Variables  Amounts  Prior to Extenders Act Changes  Currently 
Contribution  $3,750  An EP was required to demonstrate  No documentation 
from the EP  that he or she had contributed at least  needed.  Determined to 
15 percent of the net average  have been met by virtue 
allowable costs towards a certified  of EP receiving no more 
EHR.  than $21,250 in the first 
payment year.  
Incentive  $21,250  85 percent of the Net Average  All EPs will receive the 
payment2  Allowable Costs; determined through  maximum incentive 
statute.  An EP could receive less  payment of $21,250, as 
than this amount if he or she had  all EPs will be 
contributions from other sources  determined to have 
exceeding $29,000.  contributions from other 
sources under $29,000. 
 
Please contact Mr. Rick Friedman, Director, Division of State Systems, of my staff, at  
410-786-4451, or Richard.Friedman@cms.hhs.gov, if you have any questions. 
 
            Sincerely, 
 
/s/ 
 
            Cindy Mann 
             
 
 
 
 
 
 
 
 
 
   
                                                 
2 This figure is further reduced to two-thirds for pediatricians qualifying with reduced Medicaid patient volumes. 
This is described at 42 CFR 495.310.  Page 4  State Medicaid Director 
 
cc: 
 
CMS Regional Administrators  
 
CMS Associate Regional Administrators  
Division of Medicaid and Childrens Health  
 
Matt Salo 
Executive Director 
National Association of Medicaid Directors  
 
Alan R. Weil, J.D., M.P.P.  
Executive Director  
National Academy for State Health Policy  
 
Director of Health Legislation  
National Governors Association  
 
Rick Fenton  
Acting Director  
Health Services Division  
American Public Human Services Association  
 
Christine Evans, M.P.H.  
Director, Government Relations  
Association of State and Territorial Health Officials  
 
Debra Miller  
Director for Health Policy  
Council of State Governments  
 
Joy Wilson  
Director, Health Committee  
National Conference of State Legislatures 
 
Christine Evans, M.P.H.  
Director, Government Relations  
Association of State and Territorial Health Officials  
 
Alan R. Weil, J.D., M.P.P.  
Executive Director  
National Academy for State Health Policy