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Empowering Ambulatory Practice Stakeholders with EHR Cost Models

January 3, 2014
By Staff
Understanding the full cost of electronic health records (EHR) initiatives is one of the most important implementation success factors. Taking the time to create a total cost of ownership (TCO) model provides benefits beyond calculating a bottom-line cost. A comprehensive TCO model empowers all project stakeholders to understand how assumptions affect costs, to intelligently negotiate how to apportion costs among stakeholders, and decide how to finance a project whose TCO can range from $25K to $100K per provider over five years.
How can a cost model actually empower hospital executives, physician organizations, and the individual physicians? A TCO model prepared using a framework of best practices enables stakeholders to understand the full scope of the project and see which factors drive major costs. While the complexity of EHR projects can often mask these factors, a thorough cost model illuminates them, enabling stakeholders to gain visibility and control. By understanding how project decisions affect costs – and by seeing which costs are associated with each element of the project – it becomes possible to make informed choices, negotiate cost-sharing, and explore financing plans that respect the interests of all parties.
This article examines the principal cost drivers for EHR initiatives, issues and assumptions that affect those costs, and best practices to communicate them to all stakeholders.
Principal cost drivers
1. Complexity of distributed technology
At first glance, it may be tempting to think that EHR deployments are simply a matter of rolling technology into a group of doctors’ offices. Yet the reality is that a distributed EHR environment requires a diverse and complex mix of hardware and software with many choices to consider. The needs of a single practitioner’s office are different from a 15-physician group practice, which is different from other ambulatory providers.
Architectural choices have a major impact on the scope of the project. For example, highly centralized systems more easily deliver EHR to practitioners as a service while distributed systems require more technology at each office - increasing hardware costs and system management complexity. A best-practice cost model framework presents these options and their associated costs. The choice between centralized versus distributed – or a hybrid approach – is just one example of the many design choices that have a substantial impact on overall cost.
2. Mission-critical application requirements
Access to patient records is essential. Hardware or network failures that prevent or significantly delay access are unacceptable. What provisions will be made for backup? Will there be redundant hardware and alternative network connections? How will failed equipment be repaired? Who will provide helpdesk support for application problems? A mission critical application like EHR requires appropriate scalability, reliability and availability. Here again, there may not be a common, one-size-fits-all answer to these questions; the needs of the community should point the way to the best answers. All of these options have different costs and tradeoffs, and a best-practice cost model illuminates them.
3. EHR projects are more than technology: they involve substantial workflow redesign
While paper records on clip-boards and use of peel-off stickers to initiate billing may not be the height of efficiency, they are accepted elements of traditional ambulatory care workflow. EHR requires users to exchange familiar methods for a new workflow in the digitized world. Will doctors and nurses use fixed workstations to access records or will they carry wireless tablets? How will lab and radiology records be shared among providers? EHR makes sweeping changes throughout each practice, so it is important to recognize that this is nothing short of workflow redesign, with all the natural resistance to change that it can engender.
Costs related to workflow redesign involve many choices that a good cost model will present. For example, wireless notebooks are more expensive than hard-wired desktops but give practitioners greater mobility. Hiring practice consultants to help physicians and staff change workflow and become comfortable with new technologies is more expensive than centralized training. Yet the benefits of wireless technology and the ability to become familiar with new systems rapidly increase adoption.
Breaking down workflow-related costs by stakeholder groups (hospitals, physician practices, and individual practitioners), enables all stakeholders to explore ways to manage and reduce those costs. Where does it make sense to consolidate training? Can workflow definitions be made more standard? Often small changes in application requirements can have a ripple effect that affects the costs – or in some cases – the choice of software.
4. Implementation and support costs
Implementation entails more than buying hardware, software, and declaring victory. Like every aspect of EHR planning, implementation incurs many costs with choices to consider at every step. Examples of implementation elements that a best-practice cost model presents include:
  • Up-front planning: This is not a luxury, it is an essential success factor. Investments in a cost model and all the planning-related discussion it fosters will ensure that stakeholders will be satisfied with their system, understand its costs, and avoid the huge expense of re-doing a failed program.
  • Pilot Deployment: Even with excellent upfront planning, a complex EHR deployment requires validation. A pilot deployment ensures that technical designs are optimal, that workflow transitions are smooth and the implementation team gains valuable experience with your system.
  • Full Deployment: The services required here include implementation of hardware and software, practice consulting, training and go-live Support. This diverse team needs careful design and management to provide the best possible results in a cost effective manner.
  • Ongoing Support: Mission critical systems require world-class support, automated monitoring, remote help and on-site repair when needed.
  • Program Oversight: Complex programs require management, communication, coordination, vendor management and a method to resolve questions and problems. It is important to remember these critical elements while still focusing on costs.
Figure 1 illustrates some of the major cost drives associated with EHR implementations. A best-practice cost model looks at each of these areas in detail, stating the assumptions that underlie low-cost and high-cost options and calculating the multi-year cost of each.
Software Licenses
  •  Licensing costs per practice and the best model of payment for your organization.
Services Team Structure
·         The mix of skills and size required for a well rounded team. The development of time frames and expectations need to be determined after factoring in the complexities of the project. 
Interface Development
·         An interface strategy needs to be set in place utilizing current interfaces and integrating the additional needs and complexities of new systems and software tools.
Template Development
·         Care guides and standards need to be determined for consistency of care. The data base structure and clinical reporting needs are major factors in template development. 
Managed Services
·         The level of support needed to keep mission critical applications working properly is examined. The operational and administrative requirements of service desks through onsite support are vital.
Practice Financing
·         The funding model is assessed and looks at ways costs be spread out over a course of several years.
Best practices in developing cost models
1. Build a multi-year cost forecast
EHR projects take months to plan and implement yet provide service for years. Much of the cost occurs in the first year, but support over five years can be 20 percent of TCO.
2. Include all elements of the project
A solid, comprehensive project plan is essential, documenting all phases of the project including the costs and identifying who will perform all tasks.
3. Understand how assumptions affect up-front and on-going costs
This is an essential best practice. Unless assumptions are clearly stated in the cost model along with alternatives and their costs, it is all-too-common for planners to change assumptions without considering the cost implications.
4. Separate fixed versus variable costs
Fixed costs are investments by the hospital or physician organization; variable costs will typically vary by the providers
Financing EHR Initiatives
Who will pay? EHR systems are expensive, so it is easy for each stakeholder group to list reasons why others should pay the lion’s share. Each group is under significant financial pressure. With the average annual income of an internist or primary care practitioner now under $200K, asking them to shoulder $25K to $50K is difficult. Hospitals big and small are all budget-constrained. Physician organizations are funded by the two other stakeholder groups and have little funds of their own. One bright spot is that payers are increasingly providing incentives for EHR which need to be factored into TCO calculations.
Critical success factors for apportioning costs begin with recognizing that the costs are high and a formula must be developed to divvy them up. Second, be candid with all stakeholders that apportioning costs is a critical negotiation that must take into account the specifics of each constituency’s ability to pay.
Since individual practices are often hard-pressed to pay up-front, a firm grasp of TCO that details costs over three-to-five years enables stakeholders to consider various financing options. Hospitals have a low cost of capital – particularly non-profits. Does it make sense for them to essentially loan funds to the physicians and physician organizations to cover their portions of the costs? Would a subscription model be more straightforward in which the hospital pays everything and recovers a portion of the costs through monthly fees? While regulations such as STARK specify what costs hospitals can and cannot pay, there are many acceptable ways to structure financing.
Summary: Empower stakeholders with the cost information they need
A cost model that presents a full spectrum of options and the assumptions they embody empowers stakeholders to participate knowledgeably in making decisions that affect all aspects of an EHR system and how they will interact with it. Best-practice cost modeling not only helps establish accurate multi-year budget forecasts, it prepares physicians for the changes ahead, enables all parties to negotiate fair cost-sharing, and sets the stage for various financing arrangements.
The time and effort spent developing a cost model is not a luxury or academic exercise. The discussions and planning that go into building the model are a strong foundation for detailed project planning. Investments in cost modeling can identify potential savings and prevent costly re-dos. While there may be endless chances for success, only by getting it right the first time can EHR initiatives be implemented on-time and on-budget.
Mike Levinger is President & CEO, Concordant, Inc. (, an eHealth Services firm that engages with healthcare organizations to plan, implement, and manage their HIT (Health Information Technology) infrastructure. Our unique methodology combines an ideal balance of tools, talents, techniques, and cost management. Healthcare IT leaders who are responsible for creating and maintaining a dynamic HIT infrastructure have a reliable partner in Concordant. Hundreds of healthcare organizations rely on our advanced techniques and experienced staff to provide reliable and optimized services for the entire HIT lifecycle to ensure that they have well-designed, efficiently operated technical environments.
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