Financial analysis projects clear returns from Electronic Medical Records: Demonstrating the economic benefits of an electronic medical record is possible with the input of staff who can identify the technology's benefits - Statistical Data Included

Healthcare Financial Management,  Jan, 2002  by Karl F. Schmitt,  David A. Wofford

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Implementing an electronic medical record (EMR) is a major initiative that should be undertaken only after a thoughtful analysis of the costs and benefits involved. Unfortunately, demonstrating financial returns on an EMR often is regarded as an inexact science at best, which has caused many healthcare executives to avoid adopting this technology. With the right approach, however, it is possible to demonstrate convincingly that the financial benefits will far outweigh the costs. To do this, it is necessary to involve representatives from operational areas throughout the organization, because they are best able to identify the potential for cost savings and additional revenue opportunities.

The electronic medical record (EMR) long has been promoted as a means to reduce costs, provide better patient service, and dramatically improve outcomes. Despite several decades of predictions that the EMR revolution is coming, most healthcare organizations still use paper charts and manual processes.

There are many good reasons why EMRs have not proliferated. First, the vendors' offerings only recently have begun to live up to their promises. And as is always the case with information technology, the temptation to hold out for newer, better, and cheaper products is strong. The volatility within the healthcare information technology market also has served as a strong deterrent, as potential purchasers want assurance that their vendor will be with them through implementation and beyond.

Perhaps the most significant roadblock to EMR implementation is financial. Executives are loathe to commit millions of dollars to a project unless they can be assured of positive cash flows within a reasonable period of time. Unfortunately, demonstrating this return can be challenging because many of the EMR's benefits are either non-financial or inherently difficult to quantify. Nevertheless, it is possible to establish a sound business justification for implementing an EMR using realistic assumptions and verifiable data.

One healthcare organization that accomplished this justification is Virginia Mason Medical Center, which consists of a 280-bed acute care hospital, 16 hospital-based and satellite outpatient clinics, a research institute, and a network of about 400 employed physicians. The hospital and several of its clinics are located in the heart of a major metropolitan area on the West Coast, but the satellite clinics extend into the suburbs and beyond.

When the cost-benefit study was initiated in the spring of 2000, the organization's clinical information systems were badly outdated and not extensively used. Only a small portion of patient medical information (laboratory and radiology test results and progress notes) was stored electronically, and most of that information was in unstructured, nonsearchable text. Although some results were available electronically in a readily searchable format, this capability had not been implemented organizationwide. Consequently, paper charts were the standard in day-to-day practice, and clinical processes such as documentation, order entry, and charge capture all were paper-based.

Benefits-Assessment Process

The healthcare organization established a 24-member clinical advisory team, whose duties included conducting a cost-benefit analysis for the EMR. This team consisted of the following people:

* Eight physicians from a broad range of medical specialties;

* Several representatives from patient care services;

* Directors of the radiology, laboratory, and pharmacy departments;

* The medical records manager;

* Information services (IS) representatives;

* Managers from several clinical departments throughout the organization; and

* Consultants.

After viewing demonstrations of EMRs to learn about their features and capabilities and visiting a healthcare organization that had implemented an EMR, the team identified myriad benefits they believed the technology could help to achieve.

Working with the vendor, the team developed cost estimates and, based on the EMR's anticipated implementation schedule, estimated the timing of both costs and benefits. Costs were assumed to be incurred as the various components of the EMR were installed, with the benefits being realized over time as functions were converted and users became accustomed to the technology. All of this information then was put into a financial model to project costs and benefits over seven years.

Costs

The IS staff worked closely with the vendor to develop hardware, software, and implementation cost estimates for the EMR. Based on patient-volume data and the number of system users, the vendor developed proposals for the various software products and server hardware needed to meet the specified performance criteria, as well as professional services related to installation and training. In addition, the IS department developed cost estimates for desktop devices and monitors, biometric (thumbprint recognition) security devices, imaging hardware and software, additional technical-support staff, and other associated costs.