ARRA-HITECH Act Impact on HC Providers

In 2009, The American Recovery and Reinvestment Act (ARRA) was passed into law, and a key component of this legislation is the HITECH Act. This program is designed to encourage the adoption of Electronic Health Records (EHR), for hospitals and physicians. The HITECH Act provides incentives for those providers demonstrating “Meaningful Use” of a certified EHR, and beginning in 2015 penalizes providers who fail to demonstrate “meaningful use” of a certified EHR.

  • Providers who demonstrate Meaningful Use are eligible to receive incentive payments, payable over a specified time period
  • Failing to demonstrate Meaningful Use of a certified EHR will result in ongoing penalties in reduced Medicare reimbursements, until Meaningful Use of a certified EHR is demonstrated
  • As intended by the legislation, the HITECH Act is driving the adoption of EHRs, for hospitals and physicians, throughout the country

ARRA/HITECH Act Stimulus Incentive – Hospitals

When a hospital implements an EHR and demonstrates Meaningful Use, it becomes eligible to receive incentive funding. The incentive opportunity is based on total discharges, Medicare/Medicaid case mix and charity care rate.  There are different incentive programs for Medicare and for Medicaid and hospitals can participate in both.  The graph below shows a typical hospital’s Total Medicare Incentive Potential, based on hospital annual net revenue, with a $2 million base payment and additional incentives based on discharge volumes and case mix.  For example, a typical hospital with $150 million annual net revenue is eligible for about $8 million in incentives.

ARRA/HITECH Act Penalty – Hospitals

Beginning in Federal FY2015, hospitals failing to demonstrate Meaningful Use will face penalties in the form of a reduction in their annual Medicare market basket adjustment of 25% in Federal FY2015, increasing to 75% in 2017 and beyond. There are no Medicaid penalties.

The graph below, based on hospital annual net revenue, shows the Medicare Reimbursement Reduction (penalty) hospitals will avoid in 2015 by demonstrating Meaningful Use. These penalties will triple in 2017 and beyond.

ARRA/HITECH Act Stimulus Incentive – Office-based Physicians

When an office-base physician (i.e., not hospital-based) demonstrates Meaningful Use of a certified EHR, he/she becomes eligible to receive incentive funding. There are different incentive programs for Medicare and for Medicaid and unlike hospitals, office-based physicians can participate in only one of the programs. The HITECH Act offers a maximum incentive payment for Medicare-focused physicians of $44,000 over 5 years and must have first qualified in either calendar 2011 or 2012 to receive the full amount. Medicaid-focused physicians are eligible for up to $63,750 over 6 years.

ARRA/HITECH Penalty – Office-based Physicians

Physicians who fail todemonstrate Meaningful Use of a certified EHR in 2015 will be penalized 1% of their Medicare payments, increasing to 3% or more in 2017 and beyond. There are no Medicaid penalties.