California physicians could get up to $3 billion from the federal stimulus package to install electronic medical records — with plenty of strings attached.

In February, President Barack Obama signed the stimulus package that included $36 billion over the next six years for the Health Information Technology for Economic and Clinical Health Act (HITECH) to help subsidize the costs of installing electronic medical records systems.

The federal government has made it mandatory for physicians to install EMR by 2015 if the physician wants to continue taking Medicare or Medicaid patients. If a physician doesn’t comply, the government will financially penalize the physician.

The fines will be deducted from reimbursement payments, beginning with 1 percent in 2015, 2 percent in 2016 and 3 percent in 2017 if EMR is not installed.

The reimbursements for installing EMR will be paid to physicians through the Medicare and Medicaid programs. Medicare will pay up to $44,000 over five years, while Medicaid will pay up to $66,000 during the same period, starting in 2011. The money is supposed to be used for paying off loans or other financing the physician used to pay for the new computer systems up front.

Physicians who accept Medicaid will be paid at a higher rate because they often have the lowest reimbursement rates on average. However, a physician can’t tap both programs — they must chose one or the other.

Hospitals will be eligible for several million dollars in the Medicaid and Medicare programs to similarly use health information technology. Federally qualified health centers, rural health clinics, children’s hospitals and others will be eligible for funding through the Medicaid program.

There is debate on how much savings can be derived from widespread use of EMR systems. The Congressional Budget Office estimates the technology could save between $19 billion and $36 billion in the long term.

The majority of savings will result from eliminating unnecessary diagnostic tests and helping physicians target their diagnosis and treatment more efficiently.

As a result of this legislation, the Congressional Budget Office estimates that about 90 percent of doctors and 70 percent of hospitals will be using comprehensive electronic health records within the next decade.

Written into the act is a provision that acknowledges that the enormous task could cost more than $36 billion. As a result, the Congressional Budget Office is required to submit frequent financial updates to Congress in case they have to authorize more funds to reach the aggressive goals.

“Studies show small practices will pay an average of $125,000 over five years to implement an EMR. It is true the incentives alone won’t cover the cost of purchasing an EMR, but it is very unlikely a subsidy will be offered again,” said Brenda Gleason, president of M2 Health Care Consulting in New York City.

“So while practices may be thinking it’s still too expensive, it won’t get less expensive if you wait. In fact, it may get more expensive if penalties are enforced, as they are scheduled to, starting in 2015,” she said.

Choosing an EMR system

Given the large amount of money involved, physicians can expect to be bombarded by calls from companies eager to install EMR systems, but be careful. There are several important factors to consider before signing on the dotted line.

Physicians can only receive the incentive payments if they are using a “certified” EMR company. While the precise definitions of “certified” and “meaningful use” are being worked out, small practices should probably choose vendors who are already certified or are actively pursuing certification, said Gleason. The list of certified EMR vendors is available at http://www.cchit.org/choose/ambulatory/08/

A physician should ask potential vendors a series of questions before committing (see box), Gleason said, such as whether or not the company works with other small practices.

But merely installing the EMR software won’t be enough. The physician must show that patient care has improved by using EMR or they still will not be reimbursed for the EMR costs.

A committee of physicians and health care professionals will make recommendations to Medicare about how to evaluate physicians under the new rules.

Grabbing federal cash for California

The potential of $3 billion for California isn’t automatic. The state must compete for the money, provide about 10 percent in matching funds and show the federal government that the state has the systems in place to roll out and evaluate the EMR systems.

In late April, Governor Arnold Schwarzenegger appointed Jonah Frohlich as Deputy Secretary of Health Information Technology within the California Health and Human Service Agency.

Frohlich will lead the administration’s efforts to achieve statewide electronic health data exchange, uniform interoperability standards and adoption of health information technologies, such as e-prescribing. Prior to his appointment, Frohlich served as a senior program officer for the California HealthCare Foundation.

“Jonah brings outstanding experience and skills that will help ensure California fully utilizes federal stimulus monies,” said Schwarzenegger in a statement.

Paul Tang, M.D., vice president and chief medical information officer at the Palo Alto Medical Foundation was named to serve on the federal government’s new Health Information Technology Policy Committee that was created with the passage of the stimulus package.

The committee will advise the Health and Human Services secretary and the head of the Office of the National Coordinator for Health Information Technology on a policy framework for the adoption of electronic health records.

“In addition to quality and safety benefits for physicians, I am a firm believer that personal health records allow patients to take a more active role in their health and become equal partners in their care with physicians,” said Tang, who was chosen to represent medical providers on the 13-member committee.

The other Bay Area professional who was appointed to the committee is David Lansky, president and CEO of Pacific Business Group on Health in San Francisco that represents employers.

There are many decisions that have to be made by state and federal officials over the next six months to provide precise guidelines for physicians to follow during the enormous task of installing EMR in a short amount of time.

“New financing and new information systems alone will not transform the health care system,” said Karp. “Evidence has shown this will require better aligned financial incentives to improve clinical performance, greater innovation in the development of lower-cost care models and engaged patient participation in their own care. But HITECH is a significant down payment on the infrastructure that will be required.”

This also will be great for the Bay Area economy, according to estimates. Though there stands to be some job loss — in the medical records managements and transcription of physicians’ notes, for example — thousands of new jobs will likely be created to support adoption and implementation of electronic health records.

More indirectly, companies in the supply chain — for example, producers of routers and circuit boards — should experience job growth as well.

And according to Karp, the widespread installation of EMR across the state will be the dawning of a new day for California health care.

“Used effectively, health IT can help improve the quality, safety and efficiency of health care in California,” Karp said.

- By Troy May

Troy May  is a contributing editor of the Healthcare Journal.