The Cost of an Electronic Health Record

The decision to adopt an Electronic Health Record (EHR) is one of the biggest, if not the biggest, financial investments you will make in the life of your practice. Gaining a clear understanding of both cost and benefits, and ultimately how they tie into your business strategy, will provide you realistic ROI expectations and keep you from making unwise adjustments when looking at numbers.

Three Types of Costs

External Costs

External costs will vary by vendor, practice size, contract negotiation leverage, and how much you do yourself versus how much you use a 3rd party. Costs associated with software, hardware, professional services, and interfaces all fall under external, or hard, costs.

Internal Costs

Internal costs are revenue lost from the time your practice spends working on EHR implementation versus its regular daily tasks. It is important to have clear expectations on lost revenues, including cash out of pocket and lost productivity. Implementation is where you will invest most of your time and resources. It is also where you can control costs and realize benefits by having a well defined plan, the right resources doing the right tasks, identifying issues and making changes quickly, and staying on time.

Miscellaneous 3rd Party Costs

Many features of EHR are 3rd party programs that the vendor has integrated into their product. 3rd party costs include: the clinical content library, eRX software and fees, fax server software, document management software, the patient portal, secure messaging systems, CPT code updates, EDI/ERA set-up fees and training materials. It is important to monitor these costs. If you’re not sure you understand them, have your vendor line-item these features on your invoice every month.

A break down of these costs can be seen below.

"The cost of purchasing EHR is not the price.

Price is inconsequential compared to the cost of change management, training, support... and ultimately using the tool to generate better date."

- David Ehrenberger, MD

There are two groups of costs that a practice needs to budget for at the front end of the decision process: External, or Hard Costs, and Internal, or Soft Costs.

External Costs include hard costs such as your software and hardware and the soft costs associated with the set-up and maintenance of the software and hardware. External costs tend to be minor when compared to internal costs.

Internal Costs include management, staff training and lost revenue resulting from the temporary slow-down in the appointment schedule, especially if not accounted for from the beginning. Underestimating internal costs inevitably leads to failure.

Software Costs

There are three general pricing tiers for EHR software. Top tier products, such as the systems that ALN offers, are designed for practices that plan to be in business for a long time and want a system that will evolve with them to keep up with practice growth, federal mandates, and feature upgrades and improvements. Second tier and lower tier products, while they may be outstanding systems, tend to not offer as much innovation and support as top tier products do. These lower tier products cost less than the top tier products because they require the practice to manage most of the applications and support. In addition, the lower tiered products are not evolving to keep up with changes going on throughout the industry so it is likely that these products will soon be outdated and phased out.

Each tier offers differentiated service so it is important that you don’t make a decision solely based on price. Look for software that fits your strategic goals and provides the level of customization, integration and reporting you are looking for. Furthermore, look for software that is capable of staying afloat amidst the competition. One of the biggest mistakes you can make is to choose a vendor that will not be around a few years from now.

There are two options when purchasing EHR software - buy or rent. Renting is also known as SaaS (Software as a Service). Renting allows a practice to pay a flat, fixed monthly fee while the vendor manages the software, hosting, and support. Purchasing, on the other hand, requires the practice to pay a large upfront purchasing fee, plus annual maintenance fees.

Hardware Costs

You should also understand the impact of hardware costs for running and maintaining the software. Just like software, you can buy or rent your hardware. When making this decision understand the complexity and total cost of building an in-house infrastructure versus renting. If you own your own infrastructure, plan to replace hardware every 3-5 years. You can also expect to spend 18-20% of the hardware price for annual maintenance. In essence, you’ve repurchased your hardware after five years – a little more if you've received services and upgrades in this cost.

In the SaaS model, the cost for software, much of the hardware, and maintenance are bundled in a manageable, consistent fee, eliminating unexpected future investments. Necessary hardware specifications will depend on your PM/EHR software and hosting situation.

As reflected in this table, make sure you include not just the big hardware purchases when building your budget, but smaller purchases as well. Factors such as your wireless internet and bandwidth requirements must be defined if you want to represent the true hardware costs associated with implementing your EHR.

Professional Services

Costs will depend on numerous factors including size of the practice, number of locations, scope, training approach, hourly rate, remote or on-site training, fixed fee or a cost-as-incurred model and demand level.

Professional service fees can range from $80-$225 an hour. You can expect to pay $125-$135 per hour as a typical weighted average for professional services and more for on-site time. Some services may have minimums. In addition, you should budget for travel expenses if not using local services. These costs depend greatly on the approach and can range from minimal to 25% of the professional fees. Actual expenses may be greater than the original quote if the scope of the project expands.

Consider different options for training when using professional services:

We train, you implement (more hours charged).
We train your ‘Super User’ who will train everyone else(requires fewer training hours, but more of your staff’s time).
We train and implement

Economies of scale.

Software, hardware, and licensing are fairly linear – two providers are twice as expensive as one provider. But economies of scale can be realized in some instances.

First, practice size. The most cost effective EHR implementation is usually with a 7-10 provider practice. Price doesn’t adjust down with fewer providers. Fixed expenses such as training and implementation spread over a smaller group results in fewer physicians to bear the cost.

Second, multiple locations. Unless you can bring office staff and providers from other locations together, you will pay additional implementation and training costs.

Hint: When assessing professional service billing rates, remember, paying more now to get it right is far less expensive than paying to recover from bad implementation.

Interfaces

Interfaces enable you to exchange data with other systems such as hospitals, labs, imaging facilities, registries, and referring providers. Exchanging data is a critical part of the HITECH vision for improving administrative efficiency and enhancing patient care and will require bi-directional interfaces. Do your research. Understand limitations of other facilities. Verify the interfaces current capabilities and, if they don’t have it now, timing for bi-directional capabilities. Establish a budget for interfaces and customization of THE EHR up front. As a general rule, the larger the practice, the more integration and customization is needed. Two to three interfaces in a large physician practice is common and a good estimate to begin with.

Hint: Look in your community for financial funding sources for interfaces and information exchange. There are grants for immunization data exchange and some hospitals and lab vendors are subsidizing their interfaces

3rd Party Misc. Costs

It is important to monitor these costs. If you’re not sure you understand them, have your vendor line-item these features on your invoice every month.