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Health care organizations face great challenges today in managing their revenues and expenses, said Robert E. Wiggins, MD, MHA, who is a member of the AAOE’s subcommittee on electronic health records (EHRs). “They must exercise great care in investing their limited resources to maximize value. Therefore, as with any major capital expenditure, an ROI analysis should be performed before an electronic health record system is purchased.” An organization should compare short- and long-term costs with both the tangible and intangible benefits of conversion. Dr. Wiggins is the physician administrator at Asheville Eye Associates, a 20-physician practice in North Carolina that converted to EHRs four years ago.
Calculate the initial set-up costs. Unless you plan to undergo extensive facility remodeling, equipping your practice with the necessary hardware, software and networking equipment is the greatest expense associated with EHR adoption. And it is important to consider the transition costs of, for instance, hiring a project-management team, providing user training, managing old paper records and—not to be underestimated—loss of productivity during the conversion.
Set-up costs will vary depending on which system you select, but prices can range from $15,000 to $30,000 per physician. Janna Mullaney, chief operations officer of the Katzen Eye Group in Maryland, said that her practice considered the lease/purchase expenditures associated with the system they selected over a five-year period. It was determined that their expense would be about $470 per month, per physician.
Estimate change in incremental cash flow. EHR adoption will impact both revenues and expenses, said Dr. Wiggins. Estimate the change to incremental revenues and then subtract the estimated change to incremental expenses to calculate the change in incremental cash flow.
What will impact incremental revenues? Factors that may boost incremental revenues include: increased patient volume; increased reimbursement with better documentation; improved billing cycle management; and federal stimulus funds for meeting meaningful use criteria.
What will impact incremental expenses? These may go up for some categories of expenditure and go down for others. Categories to consider include: labor (e.g., expenses for transcription and filing staff may be reduced but those savings may be offset by increased spending on training, on scanning and on IT personnel); supplies (e.g., eliminating paper charts may reduce expenditure); and facility (e.g., ability to convert chart storage space to another use). Other recurring costs to consider include expenditure for maintaining data security, for software upgrades and for ongoing licensing and maintenance fees, which typically range from 15 to 18 percent of the original software and licensing costs.
Impact on revenues and expenses. The Katzen Eye Group converted to EHRs about six years ago. Ms. Mulbylaney—along with Richard Edlow, OD, who is the practice’s chief executive officer— kept a careful eye on the fiscal impact. “We found an ROI on a number of items that we were not expecting, particularly a substantial savings from using fewer paper products. For example, our data and demographic sheets, paperwork related to surgeries and consent forms are all computerized now. Paper charts were eventually eliminated. We no longer have transcription costs for letters and chart note dictation. And, before a patient even walks out of the exam room, the CPT coding is complete and a letter is generated to the referring physician or the patient’s primary care physician. Our hardware expenses have actually increased over our initial investment, though, because we purchase and install additional computers on an as-needed basis when we discover new areas that can improve our efficiency. With multiple computer stations installed throughout the office, our staff can view e-mail and scheduling; the doctors can check to see which patient is next and how many patients are dilating; and techs can answer incoming calls and address patient questions.”
The transition to EHRs also enabled the practice to change the arrangement of its exam rooms. “Patient education information is now printed from a computer as needed,” said Ms. Mullaney. “It can also be e-mailed to patients. So all the racks that were once filled with different forms are no longer necessary.”
One of the greatest returns Katzen Eye Group found was with the transformation of previously unproductive office space. At one location, they were able to convert their former file room into three extra exam lanes.
Three Ways to Calculate ROI
“There are three commonly used methods to evaluate ROI,” said Dr. Wiggins. “ The payback period calculates the time it would take to recoup the initial investment expenses.  Net present value calculates the difference between the initial investment expense and the discounted incremental cash flows to an organization because it has made the investment. Discounting or adjusting the cash flows is necessary because of the time value of money and risk associated with the project. If the difference is positive, then there is a positive financial ROI.  Internal rate of return is the percentage of return on the initial investment.” There are pros and cons to each approach.
“Vendors often supply a spreadsheet that allows entry of the projected incremental expenses and revenues associated with adoption of their product on a year-by-year basis over a five-year period,” said Dr. Wiggins. “This is a relatively simple analysis that can provide some financial insights into the project over a reasonable period of time. A major caveat, however, is that whereas initial set-up costs can be fairly accurately determined, projected effects on volume and labor savings are merely estimates.”
ROI depends on productivity. “The greatest leverage point in the ROI analysis is the impact on staff productivity and patient throughput,” said Dr. Wiggins. “Small changes on average daily patient volume, for better or worse, can have a significant impact on the bottom line and overwhelm differences in initial costs of one product vs. another. The biggest question is whether one EHR can make you more efficient than another. In the long run, initial set-up cost differences will be relatively minor compared with the former considerations.”
Maximize Your ROI
You need a strong project management team. “The benefits of an EHR system and its ROI are directly proportional to a practice’s commitment to EHRs,” said Dr. Wiggins. “Thus, a strong project management team for both selection and implementation is critical to maximizing ROI. It is necessary to look at and change processes in the practice as needed to maximize efficiency with the new technology.”
Don’t underutilize your EHR system. “We try to incorporate every program our vendor offers and use our computers for everything possible,” said Ms. Mullaney. “For example, we have an educational program that runs in the exam rooms while our patients are dilating and we can e-mail them a link to the program so it can be reviewed at home, too. Our visual acuity charts are all computerized now. E-mails can also be imported into a communication folder in the patient’s chart so, when a patient calls with questions, we can open it up and find out exactly what was said.”
Commit to the transition. Not only will a high level of commitment result in a smoother transition, it will improve your results. “Unfortunately, resistance to change is probably the most significant barrier to a maximized ROI,” Dr. Wiggins said. Ms. Mullaney agreed and related her experience: “We were lucky because all of our doctors were extremely positive. They were all committed to doing whatever was necessary to make it a success.”
Take the Intangible Benefits Into Account
“There are a variety of intangible benefits of EHRs that cannot be incorporated into a simple financial analysis,” said Dr. Wiggins. “For example, our organization is involved in a quality improvement program, which makes use of the Baldrige National Quality Program criteria. It is important that we track our outcomes to help improve the quality of care we deliver, which is very difficult to do with paper charts. One might also look at the financial benefits of a potential for reduction in malpractice costs with improved quality of care, though this is also difficult to quantify. Furthermore, there is the potential for reducing risk associated with Medicare chart audits.”
“The intangible benefits we experienced are significant,” said Ms. Mullaney. “When we looked at ROI, we wanted to know: Are we doing better at coding? Are we comfortably seeing patients without a tremendous wait time? Is the system keeping us up and running? Are we communicating with our patients better?”