Massachusetts chief health IT officer thinks the Commonwealth’s health information exchange (HIE) solves a key dilemma — financial sustainability — with funding from the Centers for Medicare and Medicaid Services.

“It’s a major significance from a sustainability perspective,” said Manu Tandon, Massachusetts’ State HIT Coordinator, of the $16.9 million grant for Phase 1 of Massachusetts HIE. “One of the challenges with HIEs is funding sustainability.”

[Related: Micky Tripathi shares the 3 phases of HIE in Massachusetts.]

The HIE, Tandon said, could be the IT backbone for the smarter and more efficient healthcare system envisioned by Massachusetts’ new cost containment law.

Phase 1 of the HIE, being built by Orion Health, will focus on the HIE’s technical infrastructure and is set to run by the end of the year. The successive phases, over the next several years, will focus on building capabilities for healthcare quality analysis and eventually search functions for providers to track patients’ history.

A high-end estimate for all three phases is $50 million, Tandon said. If CMS funds most of it — and Tandon thinks it will — Massachusetts could be ahead of the state HIE curve nationally.

“We expect that to happen,” he said.

Massachusetts’ HIE was ripe for Medicaid funding, Tandon said, because all of the Commonwealth’s hospitals and 80 percent of its providers serve Medicaid patients.

Also, HIEs may be a key part of reigning in Medicaid spending.

“The feds think that Medicaid in general is to benefit from the use of an HIE and they want Medicaid to be at the center of cost containment nationally,” Tandon said.

The CMS grant came just days before Massachusetts Governor Duval Patrick signed a healthcare cost containment bill.

[Q&A: Why HIE needs an 'ATM-like appetite' for health data to flourish.]

The law in part relies on HIEs to keep costs in check, Tandon said. It creates a health information technology council, within the executive office of health and human services, that will mostly promote and help design HIEs.

“We think that (EHR) adoption rate would be organically pretty high, without the traditional stick of regulations,” Tandon said.

So far, Tandon said, Massachusetts’ four largest providers offer patients use of EHRs and about 15 percent of them are using it.