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Financial Incentives From the Stimulus Package for Providers


Adoption of electronic health records is one of the rare bi-partisan goals of the federal government. In 2004, President Bush set a federal government goal to ensure all American citizens have access to electronic health records. In 2009, President Obama restated the goal. Congress, through the American Reinvestment and Recovery Act of 2009 (“ARRA”), provided approximately nineteen billion dollars to incentivize mass adoption of electronic health records. The ARRA provides direct funding to physicians and hospitals to support the adoption and implementation of electronic health records.


The Medicare funding for physicians may be as high as $44,000. Specifically, physicians that participate in Medicare may receive financial incentives starting in 2011 if specific requirements are satisfied. First, the physician must “meaningfully use” certified electronic health records. Meaningful use means that the physician has obtained and implemented an electronic health record that (1) includes e-prescribing; (2) exchanges health information for care coordination; and (3) reports to the Centers for Medicare and Medicaid Services (CMS) specific measurements required by CMS.

The second requirement is that the electronic health record must be certified. However, the certification requirements have not been established. The ARRA established the National Coordinator of Health Information Technology and the HIT Policy Committee and the HIT Standards Committee to develop policies, certification standards and implementation specifications. Electronic health record systems must be certified and in compliance with the requirements set by the federal agencies in order to permit physicians to obtain the funding.

If the physician adopts a certified electronic health record and meaningfully uses it, the physician may receive incentive payments commencing with 2011 through 2016. The calculation of incentive payments is seventy-five percent (75%) of the Secretary of Department of Health and Human Services (DHHS) estimate of the Medicare charges for the physician during the payment year, which shall be calculated within two months of the expiration of the payment year. The payments will be made to the physician or his or her employer or a facility where the physician reassigns his or her Medicare billings and may be split between multiple locations if the physician works for multiple facilities. The payments will commence with maximum amounts of $18,000 per year if the electronic health record is meaningfully used prior to 2011 and $15,000 if the electronic health record is adopted after 2012. The maximum incentive payments will then decrease each year from $18,000 to $12,000 to $8,000 to $4,000 to $2,000 in 2016.

On the other hand, if a physician does not adopt and meaningfully use electronic health records by 2015, commencing in 2015, the physician’s reimbursement from Medicare will decrease by one percent (1%) to two percent (2%) each year until 2018, provided the decrease will not exceed a cumulative decrease of five percent (5%). Accordingly, physicians have an incentive for quick adoption and meaningful use of certified electronic health records and a disincentive for failing to begin using electronic health records.


Similar to physicians, the ARRA uses a carrot and stick approach to promote the adoption of electronic health records. Hospitals that meaningfully use certified electronic health records may receive additional funding based upon a specific formula. A hospital’s meaningful use of electronic health records differs slightly from physicians because hospital electronic health records do not need to include e-prescribing functions. Instead, the hospital must adopt and use a certified medical record by ensuring that it can exchange health information for care coordination and report required data related to quality healthcare to CMS. If a hospital complies with the ARRA requirements, CMS has allocated the following formula for hospital incentive payments:

$2,000,000 x (Discharge ratio) x
(Medicare Share) x
(Transition Factor) = Financial Incentive

In order to evaluate this formula, the hospital must calculate each component of the formula. The specific components are as follows:

The discharge ratio is determined by taking the total number of discharges for the payment year between 1,150 to 23,000 discharges (not to exceed 23,000) and multiply the answer by $200.00.

The Medicare Share is determined through the following calculation: (((Total estimate number of inpatient beds during the payment year attributable to patients who hospital received payment from Medicare Part A) plus (the estimated number of beds attributable to the Medicare Advantage plans Part C)) divided by ((the total number of inpatient beds) multiplied by ((the total eligible charges received by Hospital during the payment year minus charity care or estimated uncompensated care) divided by (the hospital’s total charges during the payment year))).

The transition factor is set as one (1) for the first payment year, ¾ for the second payment year and ½ for the third payment year and 0 for the fourth payment year. If a hospital fails to adopt electronic health records in 2015, the hospital will not be eligible for payments. Moreover, if a hospital starts meaningfully using electronic health records in 2013, the transition factor will be ratcheted down each year to reduce the incentive payments.

The ARRA also sets forth a different calculation for Critical Access Hospitals (CAH) which will commence payments in 2011. The CAH formula is dependent upon the specific CAH reasonable costs for the payment year or from previous cost reports that have not been depreciated. In addition, the Medicare Share utilized is the CAH Medicare Share, plus twenty percentage points (20%) and capped at one hundred percent (100%). Therefore, depending upon how the CAH is paid, the specific formula and actual costs must be analyzed in accordance with the regulations. Further, any payments to CAHs are limited to four years and will not apply to cost reporting periods after five (5) years. Accordingly, each hospital must evaluate the potential benefit available from Medicare based upon its specific characteristics and factors.

It is also important to note that Medicaid also provides financial incentives to eligible professionals, which exceeds merely physicians, for adoption and meaningful use of electronic health records. Medicaid financial incentives cannot be duplicative and are also based upon the specific characteristics and factors unique to the eligible professional’s practice. Additional information will be provided through separate publications regarding Medicaid financial incentives.

Michele P. Madison is a partner in the firm’s Healthcare and Healthcare Information Technology Practices, where she provides general legal advice to health systems in various regulatory and business matters. Ms. Madison received her bachelor’s degree from Georgia State University and her law degree from the University of Georgia.