Running Head: Cost-benefit Analysis of Electronic Health Records

Cost-benefit Analysis of Electronic Health Records in Small Group Practices

Health Care Economics and policy

MHA 644

March 22, 2009

Bilal A. Bhatt
Abstract

There is increase in the number of physician offices and small group practices that are

installing Electronic health record systems designed for use in ambulatory care settings.

The purpose of this paper is to examine whether an introduction of Electronic Health

Record (EHR) is beneficial and effective in small group practices. Research has shown

that the initial average cost of is $44,000 per full-time-equivalent provider, and ongoing

average cost is $8,500 per provider per year. The average practice paid for its EHR costs

in 2.5 years and after that they get profited handsomely. Electronic Health Records have

the potential to greatly improve quality, although not much is known about their costs

and benefits in small group practices, where more than two-thirds of physicians work.

Large employers and the centers for Medicare and Medicaid services (CMS) are

promoting EHR adoption and are considering programs to help finance the cost or to

provide financial incentives for implementing EHRs.

Background

The health records contain documentation of patient care activities and health services.

For patients, it serves as a communication tool among care providers. The health record

serves an archival function, pending a need to access the data in future episodes of care.

The information maintained in health records is an invaluable resource for research and

supports claims filed by providers for reimbursement. It is also used for clinical and

administrative performance management activities which improves the quality of care

and improving resource allocation and utilization and cost containment.

A 1991 report by institute of medicine provided major impetus to the development of

EHRs by all health care organizations, from large medical centers to small group

physician offices. A revised report released in 1997 provided an update on available

technology and discussed issues like privacy and confidentiality of electronic health

information.

Electronic Health Records have the potential to greatly improve quality of health care,

although not much is known about their costs and benefits in small group practices,

where more than two-thirds of physicians work. The cost-benefit analysis is practical

attempt to ensure optimal choice in the absence of market (Henderson, 2009).There is not

much literature on cost-benefit analysis in small group practices, so they have to face

greater challenges in successfully using EHRs. The policy makers have to rely on

opinions rather than evidences. If the data about cost and benefit would be better, it will

help policy makers to formulate financial and non financial incentives designed to

achieve an acceptable rate of EHR adoption and higher level of quality improvement
benefits at the lowest possible cost. Research using technology diffusion modeling (Ford

et al.) suggests that diffusion into small practice setting will not be achieved before 2024.

There is an increase in the number of physician offices and small group practices that are

installing electronic health record systems designed for use in ambulatory care settings.

The Medicare and Medicaid Services provide assistance and support to physicians for

implementing EHRs through Medicare Quality Improvement Organization (QIO)

Program

Pros and Cons

The advantages of electronic health records, in terms of electronic storage, accessibility

and availability of information to authorized practitioners, are often combined with

benefits of an EHRs and it includes enhanced access to medical information, greater

efficiency, which will allow continuous data processing and updated information. The

distinct benefit of EHRs over paper health records is the huge potential of cost saving and

centralized administration. In addition to this, EHRs provide single point of access and

thus allow completed and accurate documentation of all clinical details and variances in

treatments. Furthermore, information can be easily sorted or grouped with certain priority

and criteria which can allow practitioners to graph a set of results over time, thus

allowing them to notice the trends that might be vital for special attention or proper care.

According to Powsner and Wyatt (1998), There are total of ten benefits in having an

Electronic Health Record. One of the benefit mentioned before, that is, continuous data

processing, is actually where the data is structured and coded in an unambiguous

structure. Later programs can check and filter the data for errors, as well as summarize
and interpret data continuously. The other seven benefits are assisted search,

incorporation of electronic data, tailored paper output, patient data confidentiality,

flexible data layout, safer data and legibility of records.

Top 10 Benefits, according to a survey of

providers
1 Interoperability with other departments
within a facility
2 Quality of care

3 Clinical workflow

4 Medical staff’s work efficiency and time

management
5 Patient safety

6 Interoperability outside the facility, but

still within the healthcare system
7 Patient privacy and confidentiality

8 Business practices (strategic and

operations)
9 Patient-doctor relationship

10 Cost of care
Source: Thakkar and Davis. (2006). “Risks,
Barriers, and Benefits of EHR Systems: A
Comparative Study Based on Size of Hospital.”
Perspectives in Health Information Management,
3:5.

The disadvantages include items like start up cost and training cost, which can be

excessive in small group practices. The learning is substantial and practitioners have to

have literacy in using the system, performance data as well as information retrieval. So

system must be user friendly. Every error on the records can have a major impact as

multiple users can access the record at one point of time. This can lead to system

software and hardware failure and complete system crash that might result in total loss of
data and several weeks of providing care with no computer access and paper charts. The

other risks include financial risk, other than long payback period, severe billing problems

partly related to EHR and redo billing. Lastly, the security measures has to be enforced

strictly to protect privacy and confidentiality in the system.

Top 10 Barriers, according to a survey of

providers
1 Software cost

2 Hardware cost

3 Participation from physicians

4 Interoperability among different electronic

systems and the true EHR system
5 Inability to find the software that meets the
requirements of the true EHR system
6 Organizational culture

7 Participation from nursing staff

8 Standards

9 Return on Investment (ROI)

10 Personnel costs
Source: Thakkar and Davis. (2006). “Risks, Barriers, and
Benefits of EHR Systems: A Comparative Study Based on Size
of Hospital.” Perspectives in Health Information Management,
3:5.

In-depth Analysis

The decision to implement electronic health records in any health care setting requires

thorough understanding of the potential cost-benefit and cost-effectiveness. Cost-benefit

analysis requires that all benefits and costs be valued in monetary terms (Henderson,

2009). The cost-effective analysis is a way to quantify trade-offs between resources used

and health outcome achieved without having to value health outcome in monetary terms
(Henderson, 2009). The study done by Miller et al. on fourteen small group practices,

who used EHR for more than two years on an average, determine the costs and benefits

of EHRs in current “early adopter” solo or small primary care group practices. All these

small group practices used EHR for most common tasks, including prescribing,

documenting, viewing, and within-practice messaging, and all used it to assist in billing.

According to this study the initial EHR costs were $44,000 per FTE provider per year,

and ongoing costs were about $8,500 per FTE provider per year. Variation in financial

costs were due to heterogeneity among small practices in pre-EHR hardware and in

technical and negotiating skill. Software, training, and installation costs averages $22,038

per FTE provider. Hardware costs average almost $13,000 per FTE provider. Revenue

losses from reduced visits during training and implementation averages $7,473 per FTE

provider. Losses depend in part on the extent to which providers worked longer hours

initially instead of reducing patient visits. Estimated ongoing cost averages 19.5 percent

of initial cost which is mainly due to vendor software maintenance and support fees,

hardware replacement and payment for information staff or external contractors, which

account for 91 percent of these costs.

Financial benefits average approximately $33,000 per FTE provider per year. The

financial benefits for providers are obtained from two main sources: higher coding

levels and efficiency-related savings or revenue gains. Efficiency in economics measures

how well resources are being used to promote social welfare (Henderson, 2009).

Increased coding levels account for more than half of financial benefits. Efficiency

related savings (40 percent of benefits) consists mostly of a decrease in personnel costs.

Efficiency related revenue gains from increased visits accounts for 8.1 percent of
financial benefits. Other financial benefits are pay-for-performance rewards from health

plans for quality improvement and transcription saving.

The breakeven point for small group practice for its initial and cumulative ongoing EHR

costs is almost two and a half years and then they began to reap more than $23,000 in net

benefits per FTE provider per year. Other benefits include improved quality of life as

providers liked accessing records from home, which enables them to spend time with

family and then work later in evening and accessing records immediately when on call.

EHR use confers various quality benefits, such as improved data organization,

accessibility, and legibility. And almost all practices engaged in specific EHR activities

result in Quality improvement.

Specific Impact

EHRs financial cost and benefits in small group practices can have specific impact on the

rate at which providers adopt them and on the other hand quality improvement benefits

can affect patients health. This in turn then result in financial benefit to payers from

avoiding “downstream” expenditures, especially for hospital and emergency room

services. Different stakeholders can interpret the results of implementing EHR

differently. From providers’ perspective, one of the most important impact of EHRs is the

gains from higher coding levels which will reward providers’ initial time cost and

financial risk taking for EHR implementation. The corrected flaws in a reimbursement

system that encourage providers’ to code conservatively (under code) out of concern for

“fraud and abuse” penalties result in further gains. In contrast, from payers’ perspective,

providers achieved inefficient quality improvement (QI) since payers paid much more for
very modest QI gains. Furthermore, small group practices could generate the average

gains in each financial benefit category by increasing coding levels for approximately 15

percent of visits, eliminating 0.25 of an FTE medical records staffer, eliminating

transcription, and having 1 percent more patient visits.

Future

From the research I conducted and, I would say that with the diffusion of EHRs in small

group practices, the health care would improve from all the corners. As discussed above

EHRs are both cost-beneficial in terms of monetary gains and cost-effective in terms of

better health outcome. It would be the promising long term investment. I could see EHRs

strengthening all the pillars of healthcare like access, cost, and quality (Henderson 2009).

Government also has envisioned the same and that is the reason why major junk of

Obama’s stimulus plan will go to Health care IT. Not only this, several purchasers of

health care, including some large employers and the Centers for Medicare and Medicaid

services (CMS) are considering programs to help finance the cost or to provide financial

incentives for implementing EHRs. Medicare Quality Improvement Organizations

(QIOs) have launched Doctor’s Office Quality Information Technology (DOQ-IT)

programs, which have begun to provide a range of support service to various layers of

EHR adopters, considerers, implementers, and users. Funding for more rapid expansion

of regional health information organizations (RHIOs) and other entities that can enable

electronic clinical data exchange, ordering, and messaging would especially benefit small

group practices with EHRs by decreasing cost of document scanning, data entry and

providers’ time to access information.

The wall mart has moved step ahead and plans to provide package deal for EHRs which

include hardware, software, installation, maintenance and training made available this

spring. This will make EHRs more accessible and affordable. It will cost under $25,000

for first physician in a practice and about $10,000 for each additional doctor. After the

installation and training, continuing annual cost for maintenance and support will be

$4000 to $6500 a year. In the end I would say that EHRs could revolutionize the health

care, but it needs proper handling and regulation as far as patient security and

confidentiality is concerned. So in future there should be more secure and HIPAA

compliant EHR.
References:

Henderson, J.W. (2009). Health Economics and Policy (4th Edition). Mason, OH: South
Western Cengage Learning.

Austin, Charles J., Boxerman, Stuart B.(2008); “Information Systems for Healthcare
Management” 7th Edition; Health Administration Press.

Lohar, S. (2009). Wal-Mart Plans to Market Digital Health Records System. Retrieved
March 20, 2009 from http://www.nytimes.com/2009/03/11/business/11record.html?_r=1

Miller, R.H., West, C., Brown, T.M., Sim, I., Ganchoff, C. (2005). The Value Of
Electronic Health Records In Solo Or Small Group Practices. Retrieved March 20, 2009
from http://content.healthaffairs.org/cgi/content/full/24/5/1127

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Doubert, A., Formoso, A. (2008). A Tutorial About the Costs, Barriers and Benefits of
Electronic Health Records System. Retrieved March 23, 2009 from
http://gunston.gmu.edu/healthscience/740/Tutorials/CostBenefitsEHR.doc