EHR à la the 'Affordable' Care Act Is Driving Up Costs

July 18, 2011

To implement EHR nationwide, it could cost $168 billion - it boggles the mind, but where does it come from?

To implement EHR nationwide, it could cost $168 billion - it boggles the mind, but where does it come from? 

Several years ago rumors were circulating that Kaiser was going to commit $2 billion to an EHR. An article in a recent edition of the Los Angeles Times reported that the figure was $4 billion. After reading the article, sources within Kaiser confided that they thought the number was closer to $5 billion.

This comes only a few months after some Kaiser facilities reduced the number of patients that their physicians were expected to see each hour from four to three. This change would effectively require them to increase the size of their physician workforce by 33 percent to see the same number of patients annually.

Kaiser insures about 8.9 million people in 11 states and has about 14,600 physicians. In general, the cost of acquiring and operating an EHR is proportional to the size of the healthcare organization, the number of patients and the number of practitioners and ancillary staff. Kaiser's EHR cost works out to roughly $560/patient or about $340,000 per doctor. The length of time over which they intend to amortize this expense is unclear. If every practice implemented an EHR that was equivalent to Kaiser's and assuming the cost to each practice was proportional to Kaiser's expense, the total cost would be 300,000,000 (the US population) multiplied by the EHR cost per patient or $168 billion dollars. In reality, the cost to small practices can be expected to be higher because they lack Kaiser’s economies of scale.

On April 12, 2010, the Wall Street Journal reported that "the nation could face a shortage of as many as 150,000 doctors in the next 15 years." The U.S. now has approximately 353,000 primary-care doctors and an equal number of specialists. If their productivity is proportionately lowered by the use of EHR in the same way that Kaiser has been affected, the number of additional physicians that will be needed in the future is 267,300, not 150,000.

Perhaps these projections are wildly unreasonable. Perhaps, if everyone did EHR the same way, the cost to each practice might be lower. Let’s assume, for a moment, the cost was closer to Kaiser’s original estimate of $225 per patient. The total cost of implementing EHR nationwide would “only” be $68 billion but that's still a big number. The question is, when facing added internal expenses of this magnitude, how can the implementation of the Federal EHR strategy conceivably lower healthcare cost?

Think I'm crazy? Modern Healthcare reported on June 28 that "Buying health insurance benefits from Kaiser Permanente could be cheaper than it is, but because of some unusually high costs, the company charges more than it should, according to Dr. Benjamin Chu, the president of Kaiser's Southern California region… In fact, Chu said Kaiser could be 15 percent to 20 percent less than its competitors absent some high cost factors. Those factors include high labor costs... "

I've raised this issue in other posts but the basis for my concern was based on theory. The government has mandated that we collectively participate in an experiment to test this theory. The results are beginning to come in and the theory seems to be faring reasonably well so far. Assuming the average physician has a panel size of 1,800, the cost of their EHR (over the same time period that Kaiser assumes) would be approximately $400,000 times the number of physicians in the practice. Balancing these costs, any potential incentive payments, the possibility of a one to two percent reimbursement penalty for not using a certified EHR and the cost of being even slightly less productive, the average practitioner could be tens of thousands ahead over the life of their practice by focusing on caring for the patients rather than by participating in the regulatory game.

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