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What does your EHR really cost?

  • Steven Shaha, Ph.D., DBA
  • 10/22/2015

Time and time again, we hear horror stories of electronic health record (EHR) systems that far exceed budgetary expectations of their healthcare organizations. Failure to estimate all of the expenses accurately has steep long-term effects on operating costs, as indicated in Steven R. Eastlaugh’s recent hfm® article*.

It’s important to look at total cost of ownership – TCO – which goes well beyond the initial software, hardware and annual maintenance costs. For that reason, every well-managed healthcare organization purchases EHRs based on comparative TCO and then tracks the elements of TCO thereafter. Most often, executives do not fully account for long-term EHR expenses, such as ongoing cost of licenses, upgrade fees and staff dedicated to support.

These cost factors vary widely by EHR vendor and solution. Using hospital data from HIMSS Analytics, the nonprofit research arm of the Healthcare Information and Management Systems Society (HIMSS), Eastlaugh compared TCOs for the three leading EHR vendors, adjusting for organization size, and referring to them as A, B and C.

In Eastlaugh’s research, he includes two key factors in TCO that are often neglected, and since commonly ignored, become the unforeseen sources of catastrophic cost overruns:

  • FTE Support Costs – Hospitals using Vendor C employ twice as many staff dedicated to EHR support as those using Vendor A. Eastlaugh calculates that a 500-bed hospital that selects Vendor C instead of Vendor A can expect an additional 16 FTEs, which could amount to $16 million in incremental costs and TCO over a 10-year period.
  • Upgrade fees – Major upgrade costs for Vendor A averaged between 20%-22% of the original contract price, whereas it averaged 33%-35% for Vendor B and 40%-49% for Vendor C, constituting another major TCO overrun, when unanticipated.

Eastlaugh draws further conclusions from the HIMSS Analytics data, reflecting the average annual revenue of hospitals using each system:

The bottom line is this: If the average hospital using Vendor C’s system were instead to use Vendor A’s system, the difference in FTE support costs and upgrade fees would deliver an approximately 27.7 percent increase in hospital operating margins – from 2 percent to 2.6 percent. As a result, the average 350-bed hospital in the HIMSS Analytics sample could save $2.3 million a year, or $23 million over 10 years in ongoing EHR system costs in these two areas alone.

It does not take much to decipher the most likely vendors to match those in Eastlaugh’s study. When best healthcare executives follow Eastlaugh’s unbiased, TCO-driven recommendations, their EHR decisions will lead toward better organizational performance, financially and clinically. TCO provides important considerations in making best EHR decisions.

Financial pressures remain the sobering reality for healthcare organizations, even more so during the transition toward value-based-care models. It is more important than ever to carefully consider the total cost of ownership when making EHR decisions.

* Source: “The total cost of EHR ownership” by Steven R. Eastlaugh, ScD. hfm®, a publication of the Healthcare Financial Management Association (hfma.org). February 2013.

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About the author

Steven H. Shaha, Ph.D., DBA, is a Professor at the Center for Policy & Public Administration, and the Principal Outcomes Consultant for Allscripts. Dr. Shaha received his first doctorate in Research Methods and Applied Statistics from UCLA and has taught and lectured at universities including Harvard, University of Utah, UCLA, Princeton, Cambridge and others. An internationally recognized thought leader, lecturer, consultant and outcomes researcher, Dr. Shaha has provided advisory and consulting work to healthcare organizations including the National Institutes for Health (NIH), and to over 50 non-healthcare corporations including RAND Corp, AT&T, Coca-Cola, Disney, IBM, Johnson & Johnson, Kodak, and Time Warner. Dr. Shaha has presented over 200 professional papers, has over 100 peer-reviewed publications in print, over 35 technical notes and two books. He served on the 15-member team that authored and piloted the Malcolm Baldrige National Quality Award for Health Care, and he contributed to the Baldrige for Education.

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