ROI: The Dollars and Sense Economic Impact of an EHR

December 20, 2010

Nearly everyone agrees that electronic health records (EHRs) make good clinical sense; but considering the cost and effort of installing an EHR, it is a reasonable question to ask if an EHR makes good financial sense.

Nearly everyone agrees that electronic health records (EHRs) make good clinical sense; but considering the cost and effort of installing an EHR, it is a reasonable question to ask if an EHR makes good financial sense.

The short answer is yes-at least in most cases.

Here’s why: EHRs help the bottom line in three ways-lowering costs, increasing revenue, and qualification for cash and incentives. Let’s take them one by one.

Lowering costs: Practices that use EHRs to wean themselves off of transcription can save a lot of money, considering that the monthly transcription bill for an average user is about $1,000 per month. Calculated over 5 years, that’s $60,000. This is real money that goes back into your pocket if you start entering your notes directly into the EHR instead of having someone type them for you.

Larger practices (more than 5 providers) may be able save on medical records staff, because eventually (within 6 to 24 months), they will have stopped paying someone to pull and refile paper charts. One study suggests a 25 percent reduction in medical records employees for EHR-enabled practices. Whether this translates to hard dollar savings depends on whether the practice chooses to reduce medical records staff or simply redeploy them. In either case, you have eliminated a task (daily pulling of paper charts) and made the practice more efficient.

Increasing revenue: EHRs can help topline growth by making it easier to document more completely (via progress note templates), improving coding accuracy (via coding wizards that analyze completed notes), and capturing charges better (via tools such as the electronic encounter that help capture charges as you are documenting the visit). This translates to higher coding levels (e.g., more 99213s and 99214s) and fewer lost charges due to incomplete documentation.

The best study on this topic for small practices analyzed 14 solo and small groups with EHRs and concluded that an EHR-based practice should be able to increase coding for about 15 percent of visits.* Assuming that individual providers are seeing about 3,000 patients a year, and a bump in coding levels translates into an extra $35 per visit, this equates to an extra $15,750 each year. Over five years, that’s an additional $78,750 per provider.

This study also suggests that the improved documentation efficiencies of an EHR would allow a practice to gradually increase its patient volume by 1 percent. For a 3,000-visit provider, that’s 30 additional visits; and if the average collection per visit is $100 that figures to an additional $3,000 per year of revenue. Or, you may choose to pocket your increased efficiency by going home earlier on occasion.

Cash and incentives: As a financial incentive to practices that see Medicare or Medicaid patients, the federal government is offering very generous five-year payouts ranging from $44,000 to $63,750 per physician and/or provider for those that adopt EHRs. As with most things in life, there are strings attached and in this case, to qualify for the federal money you will be required to demonstrate that you are using the EHR in a specific way (called Meaningful Use). So far the requirements look pretty reasonable. The government has structured the program to give the greatest benefit to those that implement EHRs over the next two years; they want practices to act now. This is also real money: a practice with five physicians that qualifies under the Medicare plan could bring an extra $220,000 over five years.

Of course, in calculating a return on investment, a practice has to estimate its expenses. There is no simple rule of thumb on the per provider cost for EHR software, hardware, and related services because there are so many variables (e.g., client server vs. hosted solution, EHR alone vs. integrated EHR/PM, plus size of practice). But best estimates say $30,000 to $40,000 per provider in the first year for software, hardware, implementation, and support fees-with the caveat the practices have paid both less and more than this range. In addition, you need to consider potential productivity losses as you ramp up the learning curve. It is not a bad idea to pare down the schedule a bit during the first few weeks after the go-live date. Fewer patients mean less pressure on providers as they are learning the system, but also means a temporary drop in revenue.

It is possible the EHR won’t pencil out for you (e.g., no transcription, no medical records savings, already maxed on coding levels and at full patient capacity, not able to qualify for federal money). This is unfortunate and will mean higher practice overhead in the form of software and support fees. But it won’t change the fact that EHRs are rapidly becoming a requirement of practicing medicine and not an optional extravagance.

Bruce Kleaveland is a paid correspondent through Intel’s sponsorship with Physicians Practice.

*Miller, et al “The Value of Electronic Health Records in Solo or Small Group Practices,” Health Affairs, Volume 24, Number 5