It's no secret that hospitals are unlikely to recover much of the money they spend on electronic health record (EHR) implementation through the meaningful use incentive program. But experts say hospitals need to watch out for the long-term costs associated with using EHRs. If technology initiatives are not planned effectively, these expenses may quickly swamp a hospital's finances and have a much more lasting impact than the up-front money hospitals have to pay to get systems up and running.
Methodist Health System, a Texas group comprised of six hospitals and a network of ambulatory medical offices, has implemented EHRs throughout its system and is currently receiving incentive payments. But Pamela McNutt, the system's senior vice president and CIO, said these payments only covered a fraction of the up-front implementation costs. When the total cost of ownership of the EHR system is added up, the meaningful use incentives may not actually be all that meaningful for the system's bottom line.
Cost to upgrade EHRs
(based on cost of initial contract)
Allscripts: 20% to 22 %
Cerner: 30% to 35%
Epic: 40% to 49%
McKesson: 10% to 13%
Source: The Total Cost of Ownership of Electronic Health Record Systems, Katalus
McNutt said it is difficult to know exactly how much the system is spending on its EHR system because the factors that drive costs are so varied. Hospitals all know that setting up an EHR system can be an expensive project. Most know they will have to continue to pay for system maintenance and upgrades. But it is more difficult for administrators to plan for expenses related to pulling staff away from their regular responsibilities for training, ongoing subscription fees for accessing libraries of medical evidence, and upgrading hardware to ensure compatibility with software updates.
"The stimulus funds might pay for a portion of the up-front costs, but the biggest cost in any EHR implementation is the human resources," McNutt said. "It's real dollars. Training costs are very real. When you're pulling nurses and physicians out of their practice, you're going to need to pay them and replace them on the floor. All this adds up to the hidden costs."
Hospitals are mostly on their own when it comes to tallying up these hidden costs. Jeremy Bikman, CEO of Alpine, Utah-based Katalus Advisors, which consults hospitals on implementing IT systems, said vendors typically do not help hospitals understand the long-term costs associated with implementation.
"We've never heard of a vendor yet and we've never talked to a site yet where the vendor came in and said, 'We're going to make this a really economically sustainable model,'" Bikman said.
When you're in the middle of a firefight and bullets are going over your head, it's hard to be very strategic.
CEO, Katalus Advisors
One reason he gave for this lack of interest among vendors in explaining long-term EHR costs is that there is so much emphasis right now on ensuring implemented systems comply with the rapidly advancing requirements of the meaningful use program. Most hospitals and EHR vendors are only thinking about implementing systems that will satisfy these immediate requirements.
"Being strategic kind of goes out the window," Bikman said. "There was more [long-term] planning before, but that changed when the government put out the legislation and created a feeding frenzy. When you're in the middle of a firefight and bullets are going over your head, it's hard to be very strategic."
He recommended that hospitals address long-term financial considerations when negotiating contracts with vendors. Administrators should know when upgrades are coming and how much they will cost. Additionally, Bikman said installing a system that meets the unique needs of the hospital is more important than chasing meaningful use incentives. Hospitals should not change their long-range plans simply for a chance at receiving a relatively minor payment boost that will have no impact on long-term finances, he said.
Making sure the long-term costs associated with EHR use are minimized could have major implications for hospitals' future financial health. Emily Wong, senior director at Fitch Ratings who recently completed a projection of hospitals' finances in 2015, said hospitals already have tight budgets with the federal incentive payments, meaning budgets could become smaller as they are slated to run out. The loss of meaningful use incentives, combined with escalating maintenance costs, could make things even tighter.
"After 2015, it's going to be very challenging," Wong said. "When the money does run out, it's just going to be one more thing. That loss of revenue is going to be a key reason for loss of performance. It's already a challenging environment, and it's only going to get worse."
Wong said that leveraging EHRs and other IT tools to improve care quality and efficiency will play an important role in making sure IT initiatives are financially sustainable. There is no question that technology can add costs to a hospital's budget. But if the tools are used effectively, they may be able to cut down on things like readmissions and medical errors through improvements in data collection and tracking.
However, this continues to be one of the biggest questions surrounding EHR use, Bikman said. Most hospitals implement EHR systems with the belief that the technology will reduce readmissions, help staff catch sepsis events earlier, and shorten length of stay, among other things. But it is not clear how quickly these quality improvements will happen, if at all. In the meantime, long-term financial planning may be difficult for hospitals.
"The whole goal of getting an EHR is to reduce some of these events and make the whole staff a lot more efficient, and we're seeing that that is not necessarily happening yet," Bikman said. "It should over time, but is that five years from now; 10 years from now?"
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Ultimately, Methodist's McNutt said her organization is not obsessing over what the return on investment for EHRs will be. While using the technology may represent a major additional expense, the hospital has no choice but to implement EHRs. The meaningful use program is requiring every hospital to implement EHR systems. Furthermore, offering more evidence-based services is good medicine, she said. "For most of us here in the field, it's just something you have to do."
And while the meaningful use incentives may not defray the long-term costs associated with EHR use, the payments may help motivate hospitals to get new initiatives off the ground. For example, McNutt said Methodist had been interested in doing more health information exchange, reporting more data to public health agencies, conducting syndromic surveillance, and providing information to patients in standardized digital formats. But the group did not have the money in its budget to make these initiatives top priorities.
"These wouldn't have been a must-do on our list, but the stimulus funds have offset [the cost of] those things the Office of the National Coordinator [of Health Information Technology] asked us to do," she said. "It also allowed us to do the things that we wanted to do."
She added that most hospitals may be able to fund specific IT initiatives for a couple years with help from the meaningful use incentives. While this may not be enough to sustain an EHR implementation over the long-term, it could buy hospitals a little time until quality and efficiency improvements kick in, which will ultimately be necessary to improve hospitals' financial health over the long term anyway.