HHS and others have promoted electronic prescribing as one way to improve the quality of health care that beneficiaries receive and as one way to reduce costs. Health care costs are typically paid for by health care payers, such as CMS in the Medicare Program. In traditional, or paper- based, prescribing, health care providers that are licensed to issue prescriptions for drugs (e.g., physicians or physician assistants in some states) write a prescription, and the beneficiary takes that prescription to a dispenser (e.g., pharmacy) to be filled. In contrast, electronic prescribing consists of a licensed health care provider using a computer or hand-held device to write and transmit a prescription directly to the dispenser. Before doing so, the health care provider can request the beneficiary’s eligibility, formulary, benefits, and medication history. This information can be used to improve quality and reduce costs. For example, a health care provider can use this information to avoid potentially adverse drug events such as drug-to-drug or drug-to-allergy interactions and to prescribe less-expensive medications, such as lower-cost generic drugs. Figure 1 illustrates the flow of information during the electronic prescribing process and identifies areas in this process that may result in improvements in the quality of health care provided to beneficiaries and reductions in costs to health care payers. Appendix II provides information from studies measuring whether or to what extent electronic prescribing improves quality or reduces costs. The types of Medicare providers eligible to earn incentive payments or who may be subject to penalties in the EHR and Electronic Prescribing Programs were established in statute, and although they overlap they are not identical. Specifically, only physicians, who are the largest population among each program’s eligible providers, can earn incentive payments or be subject to penalties from both programs, but they cannot receive incentive payments or be subject to penalties from both programs during the same year. Other health care providers, such as nurse practitioners and physician assistants, are only eligible to receive incentive payments or are subject to penalties from the Electronic Prescribing Program. (See fig. 2.) There is some overlap in the time frames for incentive payments and penalties for the Electronic Prescribing and EHR Programs. Incentive payments for the Electronic Prescribing Program are available from 2009 through 2013. Incentive payments for the EHR Program begin in 2011 and may be available until 2016, depending on which calendar year the provider initially receives an incentive payment from the program. Incentive payments for both programs are determined by multiplying the provider’s total allowed charges for provider services covered by Medicare Part B for the year by the incentive percent authorized by statute. However, in the EHR Program the year in which the provider first adopts and meaningfully uses the EHR technology determines the maximum annual incentive payment a provider can earn and the total number of years incentive payments are available. For both programs, incentive payments are disbursed after providers demonstrate that they met the applicable program requirements. Figure 3 displays the timeline and maximum incentive payments and penalties for both programs. (App. IV provides additional detail on the annual and total incentive payments an eligible provider could receive from the EHR Program based on the initial year the provider receives an incentive payment.) By law, providers cannot receive an incentive payment for both programs during the same year. Penalties for the Electronic Prescribing Program and the EHR Program may be automatically applied to providers that fail to meet the programs’ requirements. Penalties for the Electronic Prescribing Program begin in 2012 and end after 2014. Penalties for the EHR Program begin in 2015, and there is no statutory end-point provided for when the penalties will end. Since the Electronic Prescribing Program ends after 2014 and penalties for the EHR Program do not begin until 2015, providers will not receive penalties from both programs during the same year. However, providers who are subject to penalties from the Electronic Prescribing Program in 2014 and who are subject to penalties from the EHR Program in 2015 will face a higher penalty from the EHR Program—2 percent instead of 1 percent. Similar to the incentive payments, penalties for not adopting a program’s technologies are also calculated by multiplying the provider’s total allowed charges for provider services covered by Medicare Part B by the penalty percent authorized by statute. Penalties will be assessed by reducing the reimbursement that the provider would ordinarily receive for furnishing Part B services by the applicable penalty percentage. The amount of incentive payments or penalties eligible providers may receive depends on the year in which the provider chooses to begin participating in—that is, meeting the requirements of—either or, if eligible, both programs. In general, the earlier a provider begins participating in the program, the more incentive payments the provider will earn and the fewer penalties the provider will be assessed. Figure 4 below presents three scenarios of participation in the Electronic Prescribing and EHR Programs between 2009 and 2018. In each scenario, we assume that the provider is eligible for both programs and has $24,000 in total allowed Medicare Part B charges each year. CMS will develop the reporting requirements that providers will have to meet for the EHR Program in three stages. To date, CMS has only developed the reporting requirements that eligible providers will have to meet to receive incentive payments for the first stage, which will apply to providers first obtaining incentive payments from the EHR Program from 2011 through 2014. By the end of 2011, CMS expects to develop reporting requirements for receiving incentives in the second stage and, by the end of 2013, develop reporting requirements for receiving incentives in the third stage. CMS has stated that it may include information on the reporting requirements that eligible providers must meet to avoid penalties at the same time it issues regulations describing the third-stage requirements. CMS intends to make the reporting requirements more stringent over time as EHR technology and providers’ use of that technology becomes more sophisticated. To receive an incentive payment for the EHR Program, eligible providers must meet or exceed a total of 20 reporting requirements established by CMS. Of the 20 reporting requirements, 15 are mandatory, and providers must choose an additional 5 from a menu of 10 other reporting requirements. The reporting requirements encompass a variety of activities related to the delivery of health care to encourage providers to capture the following types of information in their EHR systems: patient demographics and clinical conditions, use of clinical decision support, and the coordination of care across health care settings. See app. V for a complete list of the stage-one reporting requirements for receiving incentive payments. The reporting requirements that CMS develops for the second and third stages of the EHR Program may be influenced by the Patient Protection and Affordable Care Act of 2010 (PPACA), which directed CMS to develop a plan to integrate the reporting requirements used in the EHR Program with the information that CMS collects from eligible providers in the Physician Quality Reporting System (PQRS). Similar to the EHR and Electronic Prescribing Programs, CMS, as directed by Congress, implemented PQRS to provide incentive payments to eligible providers who satisfactorily reported data on various quality measures and impose penalties on those providers who did not. Specifically, PPACA directed CMS to develop an integration plan by January 1, 2012, that would identify reporting requirements that could be used to demonstrate meaningful use for the EHR Program and also be used to demonstrate quality of care provided to individuals for PQRS. To determine which providers should receive the Electronic Prescribing Program’s incentive payments, CMS analyzes information reported by providers on their Medicare Part B claims, which are used to submit charges for covered services. To determine which providers are subject to penalties, which begin in 2012, CMS will also analyze information reported by providers on their Part B claims, but the requirements for avoiding penalties are different than those for obtaining incentive payments. In 2009, CMS paid incentive payments to about 8 percent of certain Medicare providers—that is, of the over 597,000 Medicare providers who had at least one applicable visit during 2009—and another 7 percent of those same Medicare providers participated in the Electronic Prescribing Program but did not receive incentive payments. Incentive payments for the Electronic Prescribing Program are available from 2009 through 2013, and to determine which providers meet the program’s requirements and should receive the payments, CMS analyzes information reported by providers on their Part B claims. Specifically, for 2009, CMS first examined 2009 Part B claims to determine whether, after each applicable patient visit, providers marked any one of three electronic prescribing reporting codes used to report information on the adoption and use of electronic prescribing systems. For 2009, the three electronic prescribing reporting codes were: the provider had a qualified electronic prescribing system and used it to generate all prescriptions during the visit; the provider had a qualified electronic prescribing system but did not use it to generate one or more prescriptions during the visit for one of the following reasons: the patient requested a paper prescription, the pharmacy could not receive an electronic transmission, or the prescription was for a narcotic or other controlled substance and could therefore not be electronically prescribed; and the provider had a qualified electronic prescribing system but did not generate any prescriptions during the visit. By submitting any one of the three electronic prescribing reporting codes to CMS, providers attested that they met the program’s technology requirement by adopting a qualified electronic prescribing system and are eligible to earn incentive payments from the program. Second, CMS analyzed the 2009 Part B claims to determine which of the providers who submitted the electronic prescribing reporting codes also met or exceeded both components of the following reporting requirement: the provider submitted one of the three electronic prescribing reporting codes at least 50 percent of the time that the provider had an applicable visit; and at least 10 percent of the provider’s total allowed Medicare Part B charges for the year were from the services designated as applicable patient visits. If the provider met or exceeded the reporting requirement, CMS gave the provider an incentive payment for 2009, which the agency calculated as 2 percent of the provider’s total allowed Medicare Part B charges for the year and by applying a small adjustment factor.