Medicare Initiatives: Bonuses & Penalties

Medicare Bonus & Penalty Information

New Medicare initiatives present a unique opportunity for you to demonstrate the quality of the care you provide and to increase your net revenue, offering bonus payments that reward value in primary care rather than volume.

If you have not already done so, implementing the Medicare initiatives in 2013 (instead of waiting until 2014) could potentially save you more than $19,000 per physician in your practice.*

The more you do now, the better off you'll be. Early implementation of Meaningful Use of EHR (MU), e-prescribing (eRX), and the Physician Quality Reporting System (PQRS) enables you to capture bonus payments and avoid penalties.

Consider the potential financial impact of different implementation dates for a small private practice of three physicians with $1.425 million total annual revenue and a 20% Medicare payer mix. The following table outlines the cumulative potential bonuses and potential penalties associated with this practice implementing the new Medicare initiatives of Meaningful Use of EHR, e-prescribing, and PQRS in 2013, 2014, or 2015.

*Calculations based on a three-physician practice with $1.425 million total annual revenue and a 20% Medicare payer mix.

Year Practice Begins Meaningful Use of EHR, eRX, & PQRS: 2013

2013 Total: $43,575MU: $45,000eRX: -$2,850PQRS: $1,425
2014 Total: $37,425MU: $36,000eRX: $0PQRS: $1,425
2015 Total: $24,000MU: $24,000eRX: $0PQRS:  
3-year Total Total: $105,000MU: $105,000eRX: -$2,850PQRS: $2,850

Year Practice Begins Meaningful Use of EHR, eRX, & PQRS: 2014

2013Total: -$4,275MU: $0ERX: -$4,275PQRS: $0
2014Total: $31,725MU: $36,000ERX: $5,700PQRS: $1,425
2015Total: $19,725MU: $24,000ERX: $0PQRS: -$4,275
3-year TotalTotal: $47,175MU: $60,000ERX: -$9,975PQRS: -$2,850

† Calculations based on implementation before the end of the calendar year.

For 2015 information, download the full version of this table(2 page PDF).

This information is designed to provide generalized financial impact information for a typical family physician practicing primarily in a private practice setting. It provides a summary of the main aspects of several government programs and financial information that will allow eligible small- and medium-size practices to make informed decisions regarding their implementation of these programs.

Meaningful Use of the Electronic Health Record

The Medicare Electronic Health Record (EHR) Incentive Program provides bonus payments to eligible professionals who demonstrate meaningful use (MU) of certified EHR technology.

The cumulative payment amount depends on the year in which a professional begins participating in the program. Physicians whose participation starts in 2013 may receive up to $39,000 in cumulative payments; physicians who start in 2014 may receive up to $24,000.

Penalties for those who do not demonstrate MU of EHR are set to begin in 2015.

Electronic Prescribing

The Electronic Prescribing (eRx) Incentive Program offers a bonus of 0.5% for eligible professionals who successfully use electronic prescriptions for their Medicare Part B services by the end of 2013. Eligible professionals who have not successfully used electronic prescriptions for their Medicare Part B services will be penalized in 2013 and 2014.

To avoid this penalty, you must have met the program's requirements by June 30 of the prior year (e.g., to avoid a penalty in 2014, requirements must be met by June 30, 2013).

Physician Quality Reporting System

The Physician Quality Reporting System (PQRS) includes a bonus payment for eligible professionals who report data on quality measures for covered services provided to Medicare Part B Fee-for-Service beneficiaries. Individual eligible professionals may choose from multiple reporting options for either individual or group measures. Group practice reporting options are also available.

PQRS reporting deadlines are based on the method of reporting. If you qualify for PQRS bonuses in 2013 and 2014, you will avoid penalties in 2015 and 2016, respectively.

An additional bonus of 0.5% is available for eligible professionals who work with a qualified Maintenance of Certification (MOC) entity and complete certain other requirements from 2012 through 2014.

You should also consider:

Value-based Payment Modifier Program

Beginning in 2015, payment rates under the Medicare Physician Fee Schedule for groups of 100 or more eligible professionals will be subject to a value-based payment modifier (VBPM). By 2017, this modifier will be implemented for all physicians.

Physicians who do not demonstrate higher quality and lower costs will receive lower payments. The VBPM is based on performance two years prior (e.g., application of the VBPM in 2015 will be based on physician performance in 2013). Eligible professionals may avoid penalties by successfully participating in the PQRS.


On October 1, 2014, ICD-10 is scheduled to become the HIPAA-mandated code set for reporting diagnoses and conditions. To receive payment from Medicare, Medicaid, and all private payers, you must code all claims using ICD-10 for dates of service on or after October 1, 2014. Failure to do so may result in claim denials.

The conversion from ICD-9 codes to ICD-10 codes will be significant for you and your staff. You can ensure a smooth transition and avoid an interruption in payment by educating yourself and your staff about the new code set and planning early for conversion.