The House of Representatives and Senate passed the American Recovery and Reinvestment Act of 2009 (ARRA) on February 13th (with a House vote of 246-183, with no Republican support and 7 Democrats voting no; and a Senate vote of 60-38, with 3 Republicans voting yes (Senators Collins, Snowe, and Specter). President Obama signed the bill on February 17, 2009.

Major health care provisions in the bill include funding pertaining to:

  • Medicaid
  • Health Information Technology (HIT)
  • Comparative Effectiveness Research (CER)
  • Repeal Of The 3 Percent Withholding Tax
  • Medicare Improvement Fund Modifications
  • Prevention and Wellness
  • Community Health Centers
  • Training Primary Care Providers
  • Indian Health Service Facilities
  • NIH Research and Facilities

Those provisions that deal with Medicare funding and payments are discussed in greater detail below.

Health Information Technology (HIT)

One of the most significant health provisions of ARRA has to do with the health information technology (HIT), also known as electronic health records (EHR). The way the law works, according to The American Academy of Professional Coders (AAPC), is the health care providers will receive financial incentives beginning in 2011 for implementing qualified electronic health records systems (EHRs). Physicians, facilities, and other providers will receive money through Medicare -- or Medicaid for their "meaningful use" of EHRs. Payments will be structured to encourage early adoption and penalties will discourage procrastination. "Meaningful user" is not defined in the bill. The law defers to the Secretary of Health and Human Services to set specific guidelines for determining what constitutes a "qualified EHR" in a "meaningful manner. However, the bill does specify that e-prescribing, electronic exchange of medical records, and interoperability of systems will determine criteria.

Title IV of the Act, entitled "Health Information Technology for Economic and Clinical Health Act" or "HITECH Act," authorizes nearly $21 billion in grants, loans, and incentive payments for promoting the use of HIT. HITECH formally established an Office of the National Coordinator for Information Technology within the Department of Health and Human Services (HHS) and requires that agency to develop clear standards for interoperability by the end of 2009. In addition, the Act allows the National Coordinator to distribute various grants and loans to states as well as incentive payments to individual physicians and hospitals that can demonstrate their use of EHR technology.

Hospital payments beginning in 2011 will be based on a $2 million base amount. Added to the base amount is an additional discharge-related payment multiplied by the Hospital's Medicare share. Before receiving the payment however and after a comment period, hospitals will be required to submit quality data on measures identified by HHS.

Hospitals will be - penalized for not meaningfully adopting certified RHR systems and the quality measures. They will see their amounts reduced by the applicable percentage for the year in which they first adopt:

  • 2011 - 100 percent of the amount the incentive payments for which the hospital is eligible
  • 2012 - 75 percent of the amount for which the hospital would otherwise be eligible
  • 2013 - 50 percent of the amount for which the hospital would otherwise be eligible
  • 2014 - 25 percent of the amount for which the hospital would otherwise be eligible.
  • 2015 - No incentive payments

Other HIT/EHR provisions include:

  • Officially establishing the Office of the National Coordinator for Health Information Technology (ONCHIT) within HHS to promote the development of a nationwide interoperable HIT infrastructure; President Bush already created ONCHIT by Executive Order in 2004.
  • Establishing HIT Policy and Standards Committees that are composed of public and private stakeholders (e.g., physicians) to provide recommendations on the HIT policy framework, standards, implementation specifications, and certification criteria for electronic exchange and use of health information.
  • HHS would adopt through the rule-making process an initial set of standards, implementation specifications, and certification criteria by December 31, 2009.
  • ONCHIT would be authorized to make available an HIT system to providers for a nominal fee.
  • Provides financial incentives through the Medicare program to encourage physicians and hospitals to adopt and use certified electronic health records (EHR) in a meaningful way (as defined by the Secretary and may include reporting quality measures). Authorizes ONCHIT to provide competitive grants to states for loans to providers.
  • Early adopters, whose first payment year is 2011 or 2012, would be eligible for an initial incentive payment up to $18,000. In 2014, the payment limit would equal $12,000. Adopters, whose first payment year is 2015, would receive $0 payment for 2015 and any subsequent year.
  • For eligible professionals in a rural health professional shortage area, the incentive payment amounts would be increased by 10 percent.
  • Incentives under the Medicaid program are also available for physicians, hospitals, federally qualified health centers, rural health clinics, and other providers; however, physicians cannot take advantage of the incentive payment programs under both the Medicare and Medicaid programs. Eligible pediatricians (non-hospital based), with at least 20 percent Medicaid patient volume, could receive up to $42,500, and other physicians (non-hospital based), with at least 30 percent Medicaid patient volume, could receive up to $63,750, over a six-year period.
  • Physicians who do not adopt/use a certified HIT system would face reduction in their Medicare fee schedule of -1% in 2015, -2% in 2016, and -3% in 2017 and beyond. E-prescribing penalties would sunset after 2014.
  • Allows HHS to increase penalties beginning in 2019, but penalties cannot exceed -5%. Exceptions would be made on a case-by-case basis for significant hardships (e.g., rural areas without sufficient Internet access).
  • Privacy
  • Requires physicians to provide patients, upon request, an accounting of disclosures of health information made through the use of an EHR.
  • Requires personal health record (PHR) vendors to notify individuals of a breach of patient health information.
  • Authorizes increased civil monetary penalties for HIPAA violations.
  • Grants enforcement authority to state attorney generals to enforce HIPAA.

Medicare Improvement Fund Modifications

The conference agreement clarifies that the Medicare Improvement Fund can be used to increase the physician conversion factor to address any projected shortfall in 2014 relative to the 2008 conversion factor and to adjust Medicare payments for Parts A and B items and services. It would also require, in 2020 and beyond, that any savings from HIT penalties be applied to the Medicare Improvement Fund.

Repeal Of The 3 Percent Withholding Tax

The conference agreement delays, from December 31, 2010, to December 31, 2011, implementation of the 3 percent withholding tax on government contractors (including Medicare providers) that was enacted under section 511 of the Tax Prevention and Reconciliation Act of 2005.


While ARRA provides an extensive collection of financial incentives that relate to health care, not everyone is confident of its value to the health care delivery system overall. The Institute for Health Freedom, which bills itself as a national nonprofit, educational organization whose mission is to bring the issues of personal health freedom to the forefront of the American health-policy debate, has raised concerns about the mandate for electronic health records and warns that "Economic Stimulus Bill threatens medical privacy.
Another problem is that almost five months after the signing of ARRA by President Obama, only a fraction of the funds, intended to create or save jobs, has been disbursed. The federal government has paid out less than 6 percent of the money, largely in the form of social service payments to states, points out Michael Cooper writing in the New York Times. "Although administration officials say the program is right on schedule, they have actually spent relatively little so far."

"The stimulus bill has directly injected around $45.6 billion into the economy, mostly to help states cover the costs of Medicaid and unemployment benefits, one-time $250 checks that were mailed to Social Security recipients, and income tax cuts that began to take effect this spring…

"The intent of the stimulus program was to pump money into the economy quickly, and many members of Congress said at the time of its passage that speed was of the essence. But the huge program has been a challenge to administer for both a new administration and for states and local governments grappling with their own fiscal problems.

Some states and cities are beginning to complain that the money has yet to reach them. Others have been slow to get their paperwork to Washington."


For more details on the health care provisions in the American Recovery and Reinvestment Act of 2009 (ARRA) from the American Medical Association (AMA), click on one of the links below:

More on Medicare-related legislation...

Publication Date: Wednesday, August 12, 2009