Practices paperless before 2012 could maximize Medicare bonuses

Physicians can earn tens of thousands in IT incentives, but they must act quickly to achieve the biggest benefit and avoid penalties.

By — Posted March 16, 2009

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The recent economic stimulus package provides a significant investment in health information technology that could benefit many physicians. But the government is expecting doctors to do their part to implement health IT and is prepared to penalize those who don't.

Over the next decade, the federal government is projected to spend more than $35 billion on Medicare and Medicaid bonuses to physicians, hospitals and others that adopt certified electronic health records. Because of the Medicare penalties that eventually will apply to nonadopters, however, the net spending level will be only about $20 billion over 10 years.

Physicians with approved EHRs in place before 2011 or 2012 will be eligible for the maximum Medicare incentive payments allowed by the stimulus. They will receive bonuses equal to 75% of their allowed Medicare Part B charges -- up to a sliding cap -- in each of the five years after adoption. The maximum of $18,000 in the first year phases down to $2,000 in the fifth year for a total five-year bonus of up to $44,000 for early adopters.

Doctors who wait until 2013 or 2014 to have EHRs in place will be eligible for smaller bonuses. The 2013 adopters can capture a maximum of $39,000 over four years, while the 2014 adopters can claim up to $24,000 over three years. Medicaid will have its own five-year bonus schedule that will offer as much as $64,000 to eligible physicians who don't claim Medicare bonus money.

Once the chance for bonuses ends, Medicare starts penalizing physicians who have not responded to the incentives. Doctors who have not adopted an EHR before 2015 and who fail to obtain a hardship exemption will see a 1% cut to their Medicare pay, a reduction that phases up to 3% for 2017 and remains each year after that.

Simply setting up any paperless system is not enough to earn bonuses and avoid penalties. The stimulus package stipulates that physicians must adopt a qualifying EHR and use it in a "meaningful way." Meaningful users are defined as physicians who demonstrate to the Health and Human Services Dept. that they are using electronic prescribing; that their technology is connected in a manner that provides for electronic exchange of health data to improve quality of care; and that they submit information to HHS on clinical quality measures.

No longer a question of "if"

Some physicians already have begun to move away from paper, and they would rather act sooner than later to avoid penalties down the road. "The question now isn't if, but how and when, because physicians are feeling a sense of inevitability," said Todd Rowland, MD, executive director of in Bloomington, Ind., a regional health information exchange that covers a multicounty area. "We need to figure out how to implement it in an economical, management-oriented approach that requires as few work-flow sacrifices as possible."

Dr. Rowland added that he doesn't expect physicians to like the implementation process -- or the possibility of penalties if they don't do it right -- but that it makes sense for physicians younger than 55 in particular to get on board. He estimates that more than 50% of physicians in Bloomington's metro area and more than 75% in the rural area have adopted EHR systems.

While the stimulus also provides Medicaid incentives, physicians can't have it both ways -- they must choose either Medicare or Medicaid bonuses, said Heidi Echols, a partner at the law firm McDermott, Will & Emery in Chicago.

In an effort to prevent additional "double-dipping," physicians who report using an EHR system that is also capable of e-prescribing no longer will be eligible for the e-prescribing bonuses that went into effect this year under the Medicare Improvements for Patients and Providers Act. On the other hand, Medicare penalties for those not e-prescribing by 2012 will sunset after 2014, so that no physician will be subject to double penalties for failing to e-prescribe and failing to use an EHR.

Now that Congress has set up the incentive structure for adoption, President Obama and his administration also must promote interoperability of EHR data so the records don't become information "islands," said David J. Brailer, MD, in an article published online as part of a series on health IT in Health Affairs' March/April issue.

Dr. Brailer was the first National Coordinator for Health Information Technology at HHS from 2004 to 2007 and is now chair of Health Evolution Partners, a health care investment firm based in San Francisco. He said physicians particularly need to be wary of vendors from which they purchase IT services, as systems that become obsolete could set back progress.

"What it boils down to is, are you buying EHRs that you can use and keep for a long time, or is it a system that in two or three years goes kaput?" he asked. "We're trying to avoid doctors having to start over again with electronic records during their career."

The next steps

The stimulus act requires HHS by Dec. 31 to develop an initial set of standards, implementation specifications and certification criteria for EHR system adoption. It also authorizes the department to provide competitive grants to states for implementation loans to health care entities.

The national health IT coordinator also will be authorized to make available a qualifying EHR system to physicians and others for a nominal fee. Doctors who do not purchase the government's system can purchase a qualifying system from a vendor of their choice as long as it meets certain standards, including interoperability requirements.

The American Medical Association will seek clarification from HHS on the cost of the government system and when it will be available. The department must determine more details on how it will spend the stimulus dollars and how doctors can access them.

Once those details are available, physicians must examine the cost-benefit breakdown. According to a May 2008 report from the Congressional Budget Office, estimated total costs for implementing a typical office-based EHR are about $25,000 to $45,000 per physician. Each physician would then need to spend about $3,000 to $9,000 per year to maintain the system.

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Give and take

[download pdf]

The total amount of federal funds expected to go toward Medicare and Medicaid health information technology bonuses under the federal stimulus act is estimated to be more than $35 billion over 10 years. But once Medicare penalties kick in on doctors and others for not adopting electronic health records after 2015, the government starts saving billions. That means net spending on the technology incentives will be only about $20 billion over the decade. Estimated health IT budget outlays (in millions):


Source: Congressional Budget Office (link)

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The price of delaying

Physicians who adopt and use certified electronic health records soon will be eligible for up to $44,000 in Medicare bonuses over five years, but doctors who wait too long to go paperless will see lower bonuses or eventual Medicare penalties.

First payment yearBonus for first payment year, then subsequent yearsPenalty for nonadoption or nonuse
2011$18,000, then $12,000, $8,000, $4,000, $2,000None
2012$18,000, then $12,000, $8,000, $4,000, $2,000None
2013$15,000, then $12,000, $8,000, $4,000None
2014$12,000, then $8,000, $4,000None

Note: Physicians in rural health professional shortage areas who adopt and use EHRs are eligibile for a 10% increase on the bonuses. Doctors may avoid penalties for up to five years if they qualify for a hardship exemption.

Source: American Medical Association research

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