Fitch Ratings: Meaningful use incentives well-timed

By Erin McCann
10:41 AM

Meaningful use incentives distributed to hospitals have been meaningfully-timed, according to officials at the New York-based Fitch Ratings.

The incentives doled out to hospitals under the American Recovery and Reinvestment Act of 2009 (ARRA) are positive for hospitals, providing them with a timely source of additional funding as revenue growth in the sector remains constricted, the global rating agency noted in a news release published Aug. 6.

The Fitch release also warned, however, that bondholders should be aware that this revenue is a nonrecurring source of funding and only partially offsets the capital costs hospitals have to absorb to implement these IT systems.

[See also: Meaningful use final rule to see 'minor revisions'.]

Hospitals are eligible to receive both Medicare and Medicaid electronic health record incentive payments by demonstrating that they are meaningful users of EHR technology. 

Once providers qualify for the funds they can receive payments over a period of four years. According to the Centers for Medicare and Medicaid Services Web site, more than 3,000 hospitals have received incentive payments through June 2012, totaling to $4 billion. Medicaid EHR incentive payments are administered by states voluntarily. Several states including District of Columbia, Hawaii, New Hampshire, Minnesota and Virginia, have not yet initiated fund disbursement. 

While ARRA funding is not a significant portion of a hospital's total revenue, Fitch officials say it is important for bondholders to recognize that otherwise anemic revenue growth may be masked by these nonrecurring funds over the next five years. Only hospitals that are already financially stable will be able to afford the high cost investment in EHR technology. 

[See also: ARRA changes game for IT projects.]

Hospitals unable to demonstrate meaningful use by 2015 will be penalized through their Medicare reimbursement. Fitch expects this to lead to a wider gap between higher and lower credits. An earlier Fitch report surveying hospitals on capital spending found that 45 percent of hospitals expected to increase their capital spending in the next five years and that investing in IT was the highest priority item above building inpatient and outpatient capacity.

Mitigating some of the concerns on the fading out of ARRA incentive funds is the gains in quality, efficiency, and costs that the effective use of these newly implemented IT systems can provide. Fitch officials have already seen a number of providers materially improve operations after their IT implementation. And officials also say the need to implement IT systems is one of the drivers in the current wave of hospital consolidation, a pressure that is expected to continue as 2015 approaches.