D'Arcy Gue

Thinking of buying more EHR than you can afford?

February 15, 2017

Healthcare Industry 7 Minute Read

There wasn’t just one cause of the 2008 Great Recession, but certainly a major factor was the creative lending instruments banks used to qualify prospective home buyers. As is now well known, massive mortgage defaults among those homeowners undermined the integrity of mortgage-backed securities and came within a hair’s breadth of tanking both the American and global economies.

Leading up to 2008, people misunderstood what they were buying and didn’t see the potential for financial catastrophe. In 2017, are hospitals facing a similar scenario with healthcare IT, particularly electronic health records (EHRs)?

The potential seems real.

Last May, Becker’s Hospital Review reported on eight large hospitals that experienced a significant financial hit by choosing the same EHR. Of course, each hospital expects improvements in clinical productivity and operations to bring them back to pre-implementation income levels.

But might that still be true if there were, say, millions of fewer insured patients because the Affordable Care Act (ACA) were repealed? Are you so leveraged by an EHR purchase that a shift in the healthcare market would challenge your organization financially?

The benefits of healthcare IT are real but not immediate, requiring organizational and structural changes that could potentially take years to engineer. So what tactics should your organization employ when choosing and implementing healthcare IT that protects your financial solvency?

Be realistic and detailed about the costs of implementation. Completing an EHR implementation on or under budget requires investing time early in the project to accurately plan deployment.

“The accurately projected cost, including changes that need to occur with revenue cycle and clinical practices and the changes the labor force has to undergo, are predictable,” says Mitch Morris of Deloitte’s healthcare division. “But not everyone has the time and energy to predict what they are.”

Planning well—or, not so well—will have a measurable impact on your organization. As you move to new revenue cycle solutions and workflows, accounts receivable (AR) may grow by 60 to 90 days. Work hard to make sure the expansion of AR days is no greater, and plan on having sufficient funds to cover the temporary lag in receivables.

In 2014, Henry Ford Health System in Detroit completed their EHR implementation under budget. During the implementation, income fell 15 percent from 2011 to 2012, but the decrease was manageable and expected, and the health system has since rebounded to perform well. Compare that with Massachusetts-based Leahy Health, which experienced unpredicted EHR-implementation costs and ended up laying off 130 people to close the financial gap.

How much of a bite will EHR implementation take out of income? It depends on a number of factors. Suffice it to say that coming close to Henry Ford’s 15 percent figure is far better than dealing with Houston-based MD Anderson’s 76.9 percent drop in adjusted income over a 10-month period.

Clearly identify system costs post implementation. Some EHR systems are costly to maintain and require numerous additional resources for some time or forever after go live. Scrutinize these costs closely to have a realistic idea of how EHR acquisition will impact your budget.

To gain a realistic perspective on net revenue and total cost of ownership, New Jersey’s Valley Hospital gave themselves a 10-year window.

“… probably the most expensive part of an EHR project is the army of consultants, staff and project managers you need to have to pull everything together,” explains Valley CIO Eric Carey. “Our implementation has involved 20 [full-time equivalents] over at least one year.”

It will take time—Five years? Seven years? Ten?—after implementation to determine whether or not that EHR is earning its keep. How long won’t be the same for every hospital, but no hospital will have a clear idea of value without closely tracking ongoing maintenance costs.

Minimize income dips during implementation. During discussions with your prospective EHR vendors, make sure that revenue cycle is a key topic of conversation. Establish goals and strategies to minimize the financial impact after switching from old system to new.

“Our target was to get back to baseline gross revenue within 14 days of go-live, and we exceeded that at all of our hospitals, getting back to baseline within 10 days,” says Margaret Schuler, revenue cycle vice president at OhioHealth in Columbus. “Now, less than a year after our first hospital go-live, we are exceeding our baseline performance metrics (i.e., under 5 days).”

Preparing for EHR implementation from the net income side is a process that has to be coordinated with actual system deployment, obviously, but with a different focus. Revenue cycle preparations will also look at workflows but with an eye toward performance indicators that directly impact the bottom line.

Subscribe, subscribe, subscribe. While most of the software industry transitions to a subscription business model, healthcare IT remains in the era of buying software and installing it on-site or in a nearby data center. The scenario is changing, to be sure, as vendors move systems onto the cloud and charge hospitals subscription fees for access. But it’s not happening so fast that numerous options are available.

Is an EHR subscription available to your hospital? The benefits may be worth identifying a subscription-oriented vendor.

Accessing an EHR in the cloud means no extensive implementation process on site, which usually requires buying a lot of new hardware. A subscription means you can avoid the typically huge upfront costs to put a system in place, and it also means fewer onsite staff required to keep the system running.

When looking for a new EHR vendor, or even in conversations with your current healthcare IT partner, ask pointed questions about their remote or cloud strategy knowing that it will save you both dollars and the headache of onsite implementation.

Beware the healthcare IT bubble. Returning to the introductory comparison with the 2008 housing crisis, it’s possible that healthcare could also be approaching a bubble that might burst should something dramatically impact revenue streams.

Writing in The Hill, Bryan Rotella of the Rotella Legal Group notes that millions of previously uninsurable (i.e., sick) people are now in the insurance market and driving up premiums, thanks to the ACA. Both insurers and health systems are merging left and right, creating organizations that might be considered, you’ve heard this before, too big to fail. And increased premiums for people previously insured at more modest rates will most likely drive them out of the insurance marketplace, weakening the system.

The question is, can your organization be so leveraged by an EHR purchase that a hit to your revenue stream because of an ACA repeal or a similar event would seriously impact viability? Would it require layoffs? Would it alter care?

Of course, it should go without saying that you also need to think about how much EHR you need and how much you can afford. The better-known systems include many, many bells and whistles that are nice but not essential. When selecting an EHR, make sure that you bring clinicians into the process and weigh their needs and desires against costs. Make the process transparent so that costs and benefits are obvious, leading to a realistic and cost-manageable choice.

Too often in modern society, we have a tendency to focus on what we think or imagine technology should be able to do. While it’s often beneficial to dream of a technology-enabled future and then create the tools that enable it, there has to be an element of financial reality in the program. Evaluate healthcare IT with more cold-eyed reality than starry-eyed imagination to make sure that a bursting bubble or revenue downturn is something your organization can weather.

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