Paying for Technology in Your Practice

January 30, 2012

Many practices are spending more than they should for hardware, software, and services.

Has your practice ever overpaid for technology? Family medicine physician James Holsinger's has.

Holsinger, who runs a solo practice with his wife, Kathy, in Keokuk, Iowa, once purchased an automated complete blood count (CBC) machine for $50,000, only to have insurance compensation for blood count testing decrease. The end result: "The machine didn't have the payoff" Holsinger thought it would.

But paying too much hasn't always been a bad thing. In 2003, Holsinger, an early adopter of technology, paid more for his e-MDs EHR than today's first-time physician-buyer pays for the same system. In the long run, the EHR has saved him time and headaches, though the prices today's practices pay are enviable.

"It's like a big-screen TV," says Holsinger. "If you get the one with 3D, it's $5,000 or $6,000 more, but as time goes on, the price goes down. Now it's 25 percent less."

In all, Holsinger says the experience of overspending has taught him a lot of valuable lessons that now guide him in making smarter technology purchases. Many practices are in the same boat, having learned the hard way that they spent too much on technology, from EHRs to their practice's websites. Overspending - or the initial underspending that results in spending more money long-term - can have other consequences too, beyond the financial ones.

So if, for example, a practice tries to cut corners by not spending money on a secure e-mail service, it may owe up to thousands of dollars in HIPAA fines if patient data is compromised, says Beverley Caddigan, a healthcare consultant who works with medical practices and other businesses on technology purchases.

"Too often, I go into medical practices where they have overspent, underspent or unwisely spent," she says.

So as your practice looks to make some high-tech investments - whether in an EHR, practice management system, patient portal, website, or iPad - how can you be sure you're spending what you should -no more or no less? Taking the advice of our seasoned spenders and technology experts is a great start.

The rising cost of technology

At a time when the demand for new technology has reached its peak, practices are strapped for cash. From increasingly stingier reimbursements from payers to rising costs of utilities, technology, and insurance, providers today face more financial stressors than ever before.

And although technology can alleviate some of those stressors and improve a practice's performance, it initially can be a financial drain, one not easily plugged with EHR incentive money.

According to our most recent 2011 Technology Survey, completed by 1,017 physicians, nearly one out of four said they paid more than $10,000 for EHR software alone, excluding hardware and training costs. The Office of the National Coordinator estimates the average cost, all things included, for an EHR is about $35,000 per physician, notes Mary Griskewicz, HIMSS senior director of healthcare information systems. And that's just an EHR. In October, at the Medical Group Management Association's MGMA11 Conference in Las Vegas, Robert Tennant, senior policy adviser for government affairs, said for a typical, three-physician practice, the cost of conversion to ICD-10 - for which there is an Oct. 13, 2013, deadline - is estimated to be $83,290.

"Everybody says when you move to health information technology, you are able to automate processes and decrease administrative staff, but you are replacing them with folks to maintain your high-tech systems," says Tennant. "What we found is that overall costs increase when practices adopt technology such as EHRs. However, the bottom line may increase as well, as you become more efficient."

And while costs of some tech products, such as EHRs or mobile phones, have gone down over the years as newer, more sophisticated models are introduced and the technology becomes more commonplace, the sheer amount of technology a practice needs to keep up with the Joneses is daunting.

"The issue is [that] we are in the technology and information age and new technologies keep evolving and getting better and smarter, hence the costs remain high," says Griskewicz. "The need for providers to continue to manage clinical and business analytics as we move to accountable care will require the continued need for technologies that can support the healthcare marketplace."

Why practices overspend

Anyone who has spent too much on technology knows the pain of buyer's remorse. And like consumers, practices often spend too much on technology for a variety of reasons.

Quorum Health Resources consultant Ron Cline, whose work with practices includes making technology purchases, has seen many a practice investing too much in pricy EHRs and other technology.

It's very common for a small practice to buy a system that does more than it needs, he says.

A solo practitioner, for example, might benefit from a smaller, streamlined EHR that costs less than one that is overly comprehensive.

"A solo practitioner probably isn't going to be involved in [PQRSs' pay-for-performance program], so they don't need a system that incorporates that, or has too many reporting modules and the ability to slice and dice information for outcomes analysis," says Cline.

He recalls one practice, which did a lot of surgical procedures, investing $175,000 in a fancy EHR, only to discover that it wasn't able to efficiently support the practice's documentation needs.

"The areas for noting many of the required entries for surgical procedures weren't well-populated, requiring numerous manual entries," says Cline. "This particular system was being backed by a surgical devices company that swore it would work. 'Meaningful use' would have been difficult to meet, if not impossible."

Sometimes practices don't understand exactly what they need, so they over-buy, perhaps because they are wowed by the look and feel of a pricier service.

"There's a feeling that if you're buying the premium service, you'll have less trouble down the road," says Laurie Morgan, a healthcare consultant for Capko & Co.

One example: overspending on website development. Morgan says she has worked with practices that have bought the most expensive web hosting service only to find that the ongoing costs are higher than anticipated.

"What tends to happen is they'll invest in a website they can't modify themselves, so they have to pay the developer to go and make changes to the site," says Morgan, who advises practices to opt for sites run by an easy-to-use content management system like WordPress.

But sometimes overspending isn't totally the practice's fault. Healthcare consultant Beverley Caddigan says that there are IT consultants who do not mark up the price of hardware they're selling to cover a service fee for the job (for example, installation and ongoing monthly maintenance costs), and the practice is left to foot the additional bill. Too much can be spent on technology if the medical practice does not understand the concept of value-added service and if they do not ask about markup margins," says Caddigan.

Underspending can cost more later

Perhaps you've heard about (or are married to) that person who tries to cut corners by purchasing the raw materials to build something instead of buying the finished product. Then, after one month, the self-built item either breaks down or requires additional fixing. The moral of the story: A lower price tag doesn't always mean a better investment. Trying to save money can cost more in the long run, especially for those who underestimate their needs.

For example, a practice might buy a lower-price piece of equipment without considering supplemental costs. Caddigan uses the example of buying a server from an online retailer, "which is done to save time or money, but often there is no installation or after-sales support." In such cases, those practices may end up spending more money overall because they require IT assistance.

Some of those practices also overestimate their in-house abilities.

"Do-it-yourselfers are often their own worst enemy and have no idea how much of their time they waste," says Caddigan. "I am often called in where work's been poorly done, not finished, and so on. I can assure anyone that it always costs more to clean up a mess than to just have it done right from the beginning."

Morgan recalls one practice that was trying to save money by not upgrading its technology, but the old technology was a huge cost drain in other ways. The practice's billing person, who worked from home, was using an old, underperforming computer that required an exorbitant amount of energy and money to maintain.

"They had this horribly underpowered computer, and it took days to upload the bills, everything was big and clunky," recalls Morgan. "The energy bills were to the order of $500 or $600 a month."

Had the practice purchased a new, more efficient computer for its billing person for $1,000 to $2,000, the energy bills would have gone down significantly and the investment would have paid for itself within a few months, says Morgan.

In underspending, practices underestimate non-tangible costs such as time, says Griskewicz.

"Every minute that a physician isn't attending to their practice is a consideration," says Griskewicz, adding that practices need to take into account training time plus the extra time needed to get used to an EHR.

Spending tips

Does the idea of spending the right amount on technology leave you feeling a little spent? Here are a few tactics employed by practices that will make your job a lot easier:

Project ahead. You might think your physicians need iPads with video capabilities in order to access their EHRs, but if your doctors aren't planning to use them or are reticent about using new technology, shelling out money for the tablets might be a bad idea. If you're buying a new piece of technology, it's important to look at your long-term goals, Griskewicz says. In the case of an EHR, Griskewicz suggests a practice ask vendors questions such as, "What is your cycle for upgrading/renewing?" "What is your cycle for updates?" And as CMS rolls out Stages 2 and 3 of its meaningful use incentive, "What new features and functionalities will you bolt onto the core EHR?"

Take your time. Eager to get your hands on the latest and greatest? A slower approach might make more sense to avoid making a rushed decision that turns into one you regret. Plus, taking your time can help your practice avoid having a lot of bills at once. "We made the decision to spread out our technology costs so that they wouldn't be a burden," says Leann DiDomenico, administrative director of Performance Pediatrics, LLC, in Plymouth, Mass., noting that her practice purchased an EHR first (in 2006), upgraded it continuously over the next few years, and is now in the process of selecting a patient portal. "Our financial reality slowed the implementation of some technology. Still, I feel we are ahead of many of our peers. We may not be early adopters, but we believe we are right on the heels of those who are."

Figure out what you need. Practices that fail to engage in a needs assessment and simply make purchase decisions based on vendor recommendations often find their new product lacking, says Caddigan. A solid needs assessment takes into account where a practice is going (Does it plan to add staff or to move?), how old hardware is (What is the end-of-life projection?), and your current onsite technology (Do you have a backup system in place?).

Look for hidden costs. Griskewicz says practices should consider all costs associated with a particular technology product. A client-server-based EHR, for example, includes the cost of software, hardware, installation, and training. "Make sure the features and functionality are included in what you're buying," she says. If the costs are too high, practices may want to, say, consider using a cloud-based technology service, which utilizes a monthly user fee.

Partner with your peers. Afraid of going broke after purchasing your EHR? Perhaps you should look into teaming up with cost-conscious peers in your geographic area. Tennant said he knows practices that have bought the same EHR at the same time as their neighboring, competitor practices in order to share money on training costs, and a central IT help desk. "Pool resources to keep cost down," says Tennant. "If you've got a good working relationship with your local colleagues, it can be a very smart move."

Whatever advice you follow, try to learn from your spending mistakes.

When it came time to upgrade his practice's EHR software, Holsinger was able to be more selective, as he had a better idea of what he needed. When given the option to add a computerized appointment confirmation feature to his existing practice management system - a feature that carried a price tag of about $10,000 - he had the wisdom to opt out in favor of saving his money for a patient portal.

"I think we know better now whether we're going to use it or not," says Holsinger. "You have to start somewhere. You pay less to follow than you do to lead."

In Summary

Many practices have learned the hard way that they spent too much on technology. Here's what you should know:

• Although technology can improve a practice's performance, initially it can be a financial drain.
• A lower price tag doesn't always mean a better investment.
• Practices should consider all costs associated with a particular technology product.
• If you're buying a new piece of technology, it's important to look at long-term goals.

Marisa Torrieri is an associate editor at Physicians Practice. She can be reached at marisa.torrieri@ubm.com.

This article originally appeared in the February 2012 issue of Physicians Practice.