Hospitals Rarely See the Whole EHR Financial Picture

Chris O’Neal is Managing Partner at KATALUS Advisors. KATALUS Advisors is a strategic consulting firm focused on the healthcare vertical. We serve healthcare technology vendors, hospitals, and private equity groups in North America, Europe, and the Middle East. Our services span growth strategies in new and existing markets, M&A due diligence, market analysis, and advisory services. www.KATALUSadvisors.com

Most hospital CFOs we have worked with readily acknowledge the fact that it is extremely difficult for them to find the time and manpower necessary to build an entire 10-year cost projection for an enterprise IT project. Accounting for every external and internal variable that could affect the total cost of ownership (TCO) is a monumental task and can easily take many weeks and cost tens of thousands of dollars’ worth of internal resources to do so adequately.

While seemingly overwhelming, the additional benefits and possible penalties around EHR purchases should make such a task imperative, especially for cash-strapped hospitals which have no time or financial room for a misstep of such gravity.

In research our team recently conducted on how hospitals estimate TCO for EHR purchases, we found that the real surprises in required cash outflows often come years down the road and outside the scope of traditional cost-estimation models which only reflect near-term purchase and implementation costs. For example, major upgrade (or version upgrade) costs can be a large differentiator in TCO projections. When looking at these upgrades as a percentage of upfront contract value, it is easy to see the importance of having a comprehensive, long-range TCO model which accounts for future costs:

Have you experienced financial “surprises” of your own with unexpected costs?

About the author

John Lynn

John Lynn

John Lynn is the Founder of the HealthcareScene.com, a network of leading Healthcare IT resources. The flagship blog, Healthcare IT Today, contains over 13,000 articles with over half of the articles written by John. These EMR and Healthcare IT related articles have been viewed over 20 million times.

John manages Healthcare IT Central, the leading career Health IT job board. He also organizes the first of its kind conference and community focused on healthcare marketing, Healthcare and IT Marketing Conference, and a healthcare IT conference, EXPO.health, focused on practical healthcare IT innovation. John is an advisor to multiple healthcare IT companies. John is highly involved in social media, and in addition to his blogs can be found on Twitter: @techguy.

5 Comments

  • Articles like this will continue to shine light on vendors who nickel and dime their customers throughout implementation and ongoing support. Hospitals, particularly rural and community hospitals, need to understand TCO and ask the “right” questions during their selection process to get this final figure. Find out how much you have to pay (if any) for upgrades / new releases, 24/7 support, interfaces, etc.

  • Thanks for the comment, Melanie. It really comes down to knowing what you’re in for over the long haul, and that can be a real challenge to figure out. You’re right, you have to ask the right questions and find out the answers as best you can.

  • I found the contrast between vendors update costs to be quite interesting. But I’m surprised at the absence of another point – how the EHR affects productivity.

    Numerous doctors have reported how a ‘shove it down your throats’ approach to EHR implementation in hospitals makes them far less productive. A 10 minute exam might take an extra 10 minutes to enter everything into the EHR (above and beyond what normal note taking would take). Doctor’s either see far fewer patients or they have to stay late and do the entry later (using paper with patients). Either way, productivity CAN take a huge hit, and I’m guessing that such a hit is NEVER calculated ahead of time; rather a huge improvement in productivity and therefore cost savings will be predicted.

    Of course, a carefully done implementation where the EHR matches the workflow of its users can make them far more efficient. But what are the odds?

  • Troy is right. There are a lot of “shove it down” EHRs out there. And as doctors hear those horror stories, we’re seeing them become more involved in the EHR selection process for their hospital, specifically in the rural and community market.

    A carefully done implementation is part of it but it also comes down to proper training and finding an EHR that adapts to your organization and the best practices you’ve developed. Don’t pick an EHR that forces you to conform to it. Find one that adapts to you and you’ll increase productivity instead of reducing it.

  • The cost of an investment is typically easier to calculate than the return. Primarily, one simply adds up the bills for a period of time.

    What I noticed over many major systems implementations is that capturing the savings or “return” can become onerous and very subjective (and political). Eliminating an FTE is a hard dollar savings. Reducing the time for an employee to enter data by 20 minutes per day may be more efficient, but it does not save anything. Opening a new service line or geographic market enhances the revenue. As Mr O’neal points out the total financial picture must include all costs, savings, efficiencies (if you can measure them) and new revenue to get a true picture of the value of an IT investment.

    The greatest challenge in an EHR (or any other application) implementation is to clearly articulate the goals, the changes necessary to achieve them, and the metrics by which success will be measured – then “stay the course” even when the going gets rough. The result will be a [financially] successful implementation.

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