Health IT Expenses Burden ACO Startups, But CMS Doesn’t Get It

A new study sponsored by the American Hospital Association has concluded that developing an Accountable Care Organization is likely to be substantially more expensive than CMS has projected.  Not surprisingly, the AHA expects buying and managing EMRs and clinician decision support systems to be a major percentage of the added expense.

CMS has estimated it will cost an average of $1.8 million to start and sustain an ACO.  But the AHA dismisses that number as far short of the mark. Its own research, conducted by McManis Consulting, concluded that the actual startup and first-year costs for ACOs range from $11.6 million for a 200-bed, one-hospital system to $26.1 million for a 1,200 bed,  five-hospital system.

The AHA estimates that hospitals will spend anywhere from $2 million to $7 million to buy an EMR, and hundreds of thousands to integrate the system and build a health information exchange.  Not only that, health systems are likely to spend anywhere from $1.5 million to $3.9 million per year to maintain the EMR, manage the integration process and keep building out the HIE.  (My instinct is that the study’s estimates of systems integration and HIE linkages are rather low;  check out page two of the report and let me know what you think.)

If the AHA has it right — and I suspect it does — something is out of order here.  It’s hard for me to imagine how the agency could underestimate health IT costs so significantly, unless there’s some political game afoot here.

I’m not surprised to read that HIT costs are just as heavy a burden as recruiting, managing and and supporting affiliated physicians.  And I’m pretty sure that hospital CIOs aren’t kidding themselves on this front either.

Somehow, though, the Medicare folks have made some rather flawed assumptions and embedded them in the proposed  Medicare Shared Savings Program for ACOs.  If you agree that CMS is on the wrong foot here, I encourage you to submit comments on the proposed rule.  (See the beginning of the document for how to file those comments.) You have until June 6, so have at it!

About the author

Anne Zieger

Anne Zieger

Anne Zieger is a healthcare journalist who has written about the industry for 30 years. Her work has appeared in all of the leading healthcare industry publications, and she's served as editor in chief of several healthcare B2B sites.


  • Katherine – Do you have any more information on what went into $1.8M estimate by CMS? If you have it handy, would love to get the exact page reference in the proposed rule (if that’s where that number came from). I’m interested to dig in a little on this but one must make sure we’re dealing with apples-to-apples first.

    Independent of that though, I do believe the report should be looked at as a examples, not necessarily a definitive cost model. The assumptions noted by the authors of the report are very legitimate and should be read and considered for anyone who want to use the headline numbers.

  • Maybe CMS conveniently left the cost of the EHR and CDS pieces since those are being paid for by the HITECH act, right?

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