Electronic Medical Records Return on Investment

This is the second article in a series on electronic medical record systems (EMRs) for the office. This article addresses the concepts around the “return on investment” (ROI) that a practice may expect from deploying the tool set, which is what an EMR should really be considered.

ROI analysis commonly looks at the investment of capital and compares magnitude and timing of the expected gains (the “returns”) to the cost of the investment, with an effort to improve returns by reductions in costs, increases in expected gains, or acceleration of the timing of when gains may occur.  The ROI analysis may be applied to the purchase of assets, or to programs or projects.  ROI calculations can be very basic and simple, or quite complex, depending on the number of variables to be considered and the time over which the project or investment will span, etc.

Return on investment calculations can be approached from several perspectives. It is important to distinguish between those perspectives to truly capture the essence of the project, i.e., implementation of office electronic medical record systems.  “Hard costs” and “hard returns” can be fairly easily determined, as, for example, the actual cost of the hardware used and the actual cost of transcription eliminated. 

A more subtle concern relates to the “soft costs” and, as importantly, the “soft returns.” For example, the image of a high tech office with an electronic medical record system in place may have a marketing value or competitive advantage in certain markets, but putting a specific value to that could be difficult.  Likewise, prevention of an adverse event from prescribing the wrong medication, and preventing patient injury, suffering, or even death will also likely prevent costs associated with litigation, increased malpractice costs, judgments, etc. But the prevention itself does not generate actual cash for the office, just the avoidance of spending cash.

Example Vignette:

“Suburban OB/GYN, P.C.”, a two-physician practice near a large metropolitan area, is interested in implementing an electronic medical records system in their practice with two offices (one in a building next to the hospital, and another in a suburb 20 miles away).  The practice wants to eliminate the problem of faxing records between offices (as when patients go to the “wrong” office) and copying records to send to the hospital for obstetrical patients.  It is currently spending $45,000 per year for transcription services for the two physicians, and estimates that office staff spends, on average, 2 hours per week faxing records to the hospital, and another 4 hours a week making copies of records to send to L&D or other offices.  With staff time costing $15 per hour (including benefits), the annual costs of the current state can be calculated, and compared to the cost of the practice running with an EMR in place.   {see Example #1}

Using some basic assumptions for the example calculations, the Total Cost of Ownership (TCO) for a mixed use (one doctor using the system, the other staying on paper) does not garner anywhere near the benefits that would accrue if both physicians adopted the technology.

In this sample scenario, with the amount of transcription as a significant driver of cost for this practice, the benefit of electronic documentation eliminating transcription is alone sufficient to make EMR acquisition a worthwhile endeavor.

Process

The process of calculating a valid ROI for adoption of an electronic medical records system begins with identifying the current expenses for key metrics.

Some of the key metrics to be tracked for evaluation include: the number of new patients per provider per unit of time; the cost to create a new chart (the cost of the folder, the stick-on labels for names, year, medical record number, paper forms within the chart, the actual time it takes for a staff member to assemble the chart, the hourly salary (with benefits included) for the staff doing the assemblage); the amount of staff time spent looking for charts (for lab results, phone calls, etc.); the amount spent on transcription per physician (as some use more than others..); current network costs (if any); and hardware maintenance costs (if any).

To forecast the maintenance costs after an EMR is implemented, the on-going costs of network connectivity as well as hardware maintenance costs need to be obtained.  Determining the costs of licensing and hardware should be straight forward since the various EMR vendors will provide the numbers. The costs will vary depending on whether the system is a client-server product or an application service provider (ASP).

Validating costs

The practice should validate the costs of expected expenses. Appropriate due diligence includes looking at competitive costs for services where there is competition (such as network connectivity, hardware, etc.).  Ensuring that there are no forgotten expenses will prevent unwelcome surprises that also change the ROI; (i.e. Do the training and implementation costs include travel expenses?).

One-time costs

Productivity concerns are often mentioned in relation to EMR adoption.  Users may require a longer time to record information as the new system is learned.   With familiarity, that gives way to either the same time spent, or more likely, less time spent documenting than in the paper world.  The decreased per-patient productivity may be manifest by longer working hours rather than fewer patients depending on how the office schedules patients during the first few weeks after go-live.  Time for training may likewise be spent after normal office hours or on a weekend, versus closing the office for a day or two for training   and thus affecting productivity.  If the practice does choose to close the office, and reduce patient volume for a period of time, the decreased practice revenues should also be included in the overall ROI calculations.

Soft costs and returns

As discussed earlier, there are soft elements where a true value of cost or benefit may not be easily determined.  For example, there is no absolute dollar amount that can be placed on the ease of accessing patient records from home (convenience, cost of gasoline to drive to the office, missed dinner, etc.), or picking up a problem that would have been missed without that access (saving patient discomfort, or a lawsuit).

Ultimately, the practice must look at not only the financial returns, but the political costs and returns.  If the adoption of an EMR is going to create an unbridgeable chasm between staff and physicians, then that must be considered.  Those kinds of change management imperatives are as important as the financial ones and as will the Federal mandates that will begin decreasing payments for practices not using EMRs.

Total Cost of Ownership

Another way at looking at one of the components of the ROI calculations, and also useful when comparing vendors once the decision has been made for acquiring an EHR, is to identify all of the various costs of having the product deployed.  The “total cost of ownership” (TCO) is the sum of all the related expenses that will be borne during the expected life of the product, or over the period of time that is being compared.  Thus the costs of purchasing or leasing the hardware and software components (with finance costs included), education and training, support and maintenance, travel (to training site, or for trainers to come to you), consulting, data backups maintained off-site, etc.

It may be surprising to add up all of the costs and things that seem like small items that over the course of several years become significant (or, as one U.S. Senator recently said, “a billion here, a billion there, pretty soon we are talking about real money…”).  When comparing the seemingly low costs of one EMR versus another, higher-priced product, one must ensure that all of the costs are computed equally to get the true TCO.  Often, the “teaser” low price of one product isn’t always the lowest cost in the long run.

Regardless, the TCO for an EMR still compares very favorably to the staff costs, the real estate costs (for storing all of those paper records), etc.

Conclusions

To understand the financial impact, looking at the return on investment and total cost of ownership provides valuable comparative data to practices.  Informed practices require an EMR to keep track of quality metrics and deliver optimum care for their patients.  As requirements become better defined with the new HITECH bill(s) in the federal stimulus legislation, use of an EMR will become essential for payments as well.

While this author definitely thinks that EMRs are an essential tool for any medical practice in the 21st century, there will be rare, unique situations and circumstances that may lead a practice to find the ROI not compelling enough, and forgo implementing an EMR now.  For most of the readers of this article, though, (and as a famous footwear company’s motto states), “just do it”! 

 

--Michael J. McCoy, M.D.

Contact:

Anne Diamond
Senior Director
adiamond@acog.org