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

• E-mail
• Print
• Link

EXHIBIT I

SUMMARY OF BENEFITS PROVIDED BY ELECTRONIC MEDICAL RECORDS

Benefit Provided             Methodology and Assumptions Used in
by the EMR                   Estimating Benefit

Laboratory and Radiology
Order Entry

Reduction in time spent      Hospital unit staff and certain clinic
managing laboratory and      staff spend on average 11% of their
radiology orders             time processing orders. Approximately
                             35% of this labor could be translated
                             to staffing reductions, saving roughly
                             24 full-time equivalents (FTEs).

Reduction in                 Currently one laboratory FTE and two
laboratory/radiology FTEs    radiology FTEs are dedicated to
needed to process orders     processing orders. These positions
                             could be eliminated.

Reduction in laboratory      Two FTEs currently are dedicated to
FTEs involved in working     working suspended charges. These
suspended charges            positions could be eliminated.

Pharmacy Order Entry

Reduction in adverse drug    The frequency of ADEs in the inpatient
events (ADEs)                setting, their average out-of-pocket
                             costs, and the potential for their
                             reduction are well documented in the
                             medical literature. This estimate
                             for this project assumed:
                             * 15,412 annual admissions;
                             * 6.7% occurrence rate of ADEs, for a
                               total of 1,033 occurrences;
                             * 28% avoidability through automation,
                               for a reduction of 289 ADEs; and
                             * Average cost per ADE of $3,900.

Reduction in capitated       Instantaneous feedback to physicians
drug benefits cost           regarding the cost-effective prescribing
                             was estimated to reduce capitated
                             prescription benefits costs by 10%.

Reduction in pharmacy FTEs   It was estimated that with the EMR, two
because of streamlined       pharmacists would no longer be needed
order-entry processes        to rework/enter medication orders.

Improved formulary           Current costs associated with inpatient
compliance because of        medications are approximately $7.2
instant access to insurance  million. It was estimated that these
companies' formularies       costs could be reduced by at least 10%.

Documentation

Reduction in documentation   After an initial increase in
costs through the use of     documentation costs as users become
structured documentation in  accustomed to the system, a reduction in
the outpatient setting       documentation costs of 20% was estimated.

Availability of Information
at the Point of Care

Reduction of staff used to   It was estimated that 43 positions in
locate, pull, copy, store,   health information services could be
and transport charts         eliminated. Average salary and
                             benefits varied according to position.

Reduction in nursing,        A total reduction of 31 FTEs in a
hospital unit staff,         variety of positions was projected,
and receptionists            based on the number of staff, the
needed to search for         percentage of their time spent
information and check        searching for information, and the
in/check out charts          percentage of that time that could be
                             translated to FTE reductions. Each of
                             these measures varied by position.

Reduction in chart           It was estimated that historical
supply costs                 expenses could be reduced by 33%.

Charge Capture

Faster submission            Instantaneous charge capture will speed
of claims to payers          the processing of claims by 4.3 days.
                             Time value of money estimate was based
                             on net professional revenues of $154
                             million annually and a discount rate of
                             10%. Claims-processing information for
                             hospital services was not available.

Elimination of staff         Currently, 16 FTEs are employed to
performing manual            perform this function at an average
data entry                   annual cost of $30,420. All of these
                             positions could be eliminated.

Reduction in staff who       Support staff must devote an estimated
batch and track charge       30 minutes per physician per day to
slips                        this function, of which 50% could be
                             translated to staffing reductions.
                             Based on 380 physicians, this results
                             in approximately 12 FTE reductions.

Enhanced charge capture      A 2% increase in collections was
                             estimated resulting from the following:
                             * More complete documentation of care;
                             * Reminders notifying physicians and
                               managers when encounters have taken
                               place but no charge has been entered;
                             * Elimination of lost charge slips;
                             * Improved management of advance
                               beneficiary notices;
                             * Reduction in denials that result from
                               incorrect coding and other errors; and
                             * Improved ability to match ancillary
                               services claims to hospital-based
                               outpatient visits, as required under
                               Medicare's ambulatory payment
                               classification methodology.

Total Annual Benefit

Benefit Provided              Eventual Dollar
by the EMR                   Benefit (Annual)

Laboratory and Radiology
Order Entry

Reduction in time spent              $921,044
managing laboratory and
radiology orders




Reduction in                          $93,600
laboratory/radiology FTEs
needed to process orders


Reduction in laboratory               $62,400
FTEs involved in working
suspended charges

Pharmacy Order Entry

Reduction in adverse drug          $1,127,604
events (ADEs)











Reduction in capitated             $1,087,958
drug benefits cost



Reduction in pharmacy FTEs           $200,000
because of streamlined
order-entry processes

Improved formulary                   $720,000
compliance because of
instant access to insurance
companies' formularies

Documentation

Reduction in documentation         $1,027,547
costs through the use of
structured documentation in
the outpatient setting

Availability of Information
at the Point of Care

Reduction of staff used to         $1,257,413
locate, pull, copy, store,
and transport charts


Reduction in nursing,              $1,068,981
hospital unit staff,
and receptionists
needed to search for
information and check
in/check out charts



Reduction in chart                   $418,440
supply costs

Charge Capture

Faster submission                    $180,215
of claims to payers






Elimination of staff                 $486,720
performing manual
data entry


Reduction in staff who               $422,826
batch and track charge
slips




Enhanced charge capture            $8,512,646
















Total Annual Benefit              $17,587,393
EXHIBIT 2

COST ANALYSIS PROJECTION FOR AN ELECTRONIC MEDICAL RECORD SYSTEM

                         Year 1        Year 2      Year 3       Year 4

Total Benefits               $0    $3,455,753  $7,031,681  $10,710,363
Total Costs          $1,917,597    $4,568,313  $2,929,110   $3,705,710
Net Benefits       $(1,917,597)  $(1,112,560)  $4,102,571   $7,004,653
Present Value (*)  $(1,917,597)  $(1,011,418)  $3,390,554   $5,262,700

                        Year 5       Year 6       Year 7        Total

Total Benefits     $14,826,636  $15,731,199  $16,695,407  $68,451,039
Total Costs         $2,461,461   $1,948,318   $1,401,435  $18,931,945
Net Benefits       $12,365,175  $13,782,881  $15,293,972  $49,519,094
Present Value (*)   $8,445,581   $8,558,084   $8,633,048  $31,360,953

(*)Assumes a discount rate of 10%.

COPYRIGHT 2002 Healthcare Financial Management Association
COPYRIGHT 2002 Gale Group