Medicare failed to follow some basic safeguards in switching its paper-based health record system to electronic health records, a key part of the current administration’s plan to save millions of dollars and provide better health care, the HHS Inspector General said in a report released Thursday.

In the report, the IG for Health and Human Services said Medicare did not put in place appropriate technology tools to make sure the information provided by hospitals and doctors about their EHR implementation was accurate. At stake were financial awards given to health providers if they adopted electronic records beginning in 2011.

Medicare “faces obstacles” in overseeing the electronic records incentive program “that leave the program vulnerable to paying incentives to professionals and hospitals that do not fully meet the meaningful use requirements,” the IG said.

It recommended that Medicare certify EHR technology that provides meaningful assessments of progress on a regular basis. In addition, the technology should be improved to allow for certification to ensure accurate reports among a number of procedures to police the implementation of the electronic process.

Digitizing medical records is the lynchpin of the Affordable Care Act to provide health care for all Americans, otherwise known as ObamaCare. EHRs are expected to shave significant costs in a system bloated by paper and inefficient delivery of care. The 2009 law will be fully implemented next year, and Medicare is the largest single provider of health care in the United States.

“We’ve gone from the horse and buggy to the Model T, and we don’t know the rules of the road. Now we’ve had a big car pileup,” Lynne Thomas Gordon, the chief executive of the American Health Information Management Association, a trade group in Chicago, told the New York Times.

The association argues that more study is needed to determine whether hospitals and doctors actually are abusing electronic records to increase their payments.

The problem: Medicare didn’t build in a mechanism to make sure information provided by hospitals and doctors about their electronic records systems was accurate so they could qualify for certain incentive pay, for example, checking for harmful drug interactions.

In a statement to the New York Times, a Medicare spokesman said: “Protecting taxpayer dollars is our top priority and we have implemented aggressive procedures to hold providers accountable. Making a false claim is a serious offense with serious consequences and we believe the overwhelming majority of doctors and hospitals take seriously their responsibility to honestly report their performance.”

Beginning in 2011, physicians could receive up to $44,000 in Medicare incentive payments for implementing EHR systems. But they have a 2015 deadline to adopt EHRs or face declining Medicare reimbursement rates.

Although there is little disagreement over the cost-saving and health benefits of electronic records, critics increasingly argue that the federal government has not devoted enough time or resources to making certain the money it is investing is being well spent.

“Rural hospitals and small, independent physician practices will have a harder time meeting the [digital medical records] requirements,” the Milwaukee Journal Sentinel wrote in a recent editorial. “But the incentives and potential penalties under the Recovery Act have made it clear that they no longer can put off the challenging task of parting with their paper charts.”

In a response to the IG report, HHS Secretary Kathleen Sebelius (pictured above) dismissed the idea of suspending the incentive program, arguing that it “would be profoundly unfair to the hospitals and eligible professionals that have invested billions of dollars and devoted countless hours of work to purchase and install systems and educate staff.”

She also said Medicare was still trying to determine whether electronic records had been used in any fraudulent billing.