Erlanger Health System Takes A Chance On $100M Epic Plunge

The seemingly eternal struggle between EMR giants Cerner and Epic Systems has ended in another win for Epic, which was the final choice of Chattanooga, TN-based Erlanger Health System. The health system’s CEO, Kevin Spiegel, who said that Cerner had been its other finalist, announced last week that Erlanger would spend about $100 million over 10 years for the Epic installation.

Erlanger, a four-facility public hospital system with about 800 total beds, is an academic medical system and serves as a campus of the University of Tennessee College of Medicine. The system also partners with UT to operate the UT Erlanger Physicians Group, a 170-member multispecialty practice.

The health system, which fell in financial trouble in 2012, only recently saved itself and positioned itself for the massive Epic investment. It closed out FY 2014 with $618M in total operating revenue and $18M in operating income.

Erlanger’s turnaround is all well and good. But that being said, these numbers suggest that Erlanger is making something of a gamble by agreeing to an approximately $10M a year health IT investment. After all, the health system itself concedes that its return to financial health came in large part due to $20 million in new Medicare and Medicaid funding from CMS, along with new funding from the state’s Public Hospital Supplemental Payment Pool. And politically-obtained funds can disappear with the stroke of a pen.

The risky nature of Erlanger’s investment seems even more apparent when you consider that the system has an aggressive building plan in place, including a new orthopedic center, a $68M expansion of one of its hospitals, a 100,00 square foot children’s & women’s ambulatory center and a new health sciences center. Particularly given that Erlanger just completed its turnaround last year, does it make sense to squeeze in Epic payments alongside of such a large capital investment in infrastructure?

What’s more, the health system has a bond rating to rehabilitate. Faced with financial hardships in 2013, its bond rating was downgraded by Moody’s to a Baa2 and the system’s outlook was rated “negative.” By 2014, Erlanger’s had managed to boost the Moody’s outlook to “stable,” in part due to the influx of state and federal funds obtained by Erlanger execs, but the Baa2 rating on its $148.4 million in bond debt stayed in place.

While I imagine the hospital will realize a return on its Epic spending at some point, it’s hard to see it happening quickly.  In fact, I’d guess that it’ll be years before Erlanger’s Epic install will be mature enough to be evaluated for ROI, given the level of effort it takes to build a mature install.

In the meantime, Erlanger leaders may be left wondering, from time to time at least, whether they really can afford their expensive new EMR.

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.

2 Comments

  • That $100 million figure is VERY low. That might be the cost of the software, but it takes considerable time and effort to implement, the cost of which greatly exceeds that of the cost of the software. Why an organization in their perilous financial condition would make this investment is mystifying.

  • We also know little if anything about the state of their current EHR and related systems. It may well be that they are so messed up that one way or another they have to spend to put their data house in order, and that this $100 million (and up) estimate will not just give them a good EHR but also includes much of the cost of cleaning up a mess, if one exists. Also consider that many hospital systems have different EHRs in each institution – sometimes multiple in one campus, and they have little choice but to spend a fortune to (try to) put it all together.

    One large system I know (one of at least a couple) runs from at least NYC through at least some of Long Island, using EPIC and MYCHART (let’s not forget the patient portal side of this). As a patient moves from one part of the system to another (perhaps from internist to specialist, also to/from hospitals) one gets a clearer and more comprehensive picture of that patient’s health, something that is hard to put together otherwise. Now if EPIC is making it easy for data interchange between EPIC based institutions, then there is extra reason to go to EPIC while we wait for effective HIE otherwise – if EPIC is already big in a region.

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