How much EHR costs and how to set your budget

38% of healthcare CIOs listed ‘EMR optimization’ as the top area of capital investment over the next three years.

So, needless to say, EHR selection, implementation and optimization have become an intrinsic part of healthcare organizations’ capital budgeting process.

Yet despite the demonstrated importance of EHRs in modern healthcare practice, a great deal of uncertainty exists as to how to properly understand the financial case for EHRs, or how to build an accurate and workable budget for system selection.

This guide will address issues related to EHR cost and constructing an EHR budget particularly:

  • Justifying the cost of an EHR.
  • Identifying the benefits of a new EHR
  • Compiling EHR costs
  • Creating an EHR budget

1. Justify the cost of an EHR investment

One of the major obstacles provider organizations face when planning an EHR investment is an unclear understanding of whether the investment in an EHR is justifiable, particularly if a practice is operating on thin margins.

First, and obviously an EHR investment must fit into a practice’s existing short-term budget; however, one should not simply assume that the capital investment made into an EHR simply represents a regulatory requirement practices must fulfil. Rather, EHRs can provide significant benefits in the form of cost reductions when properly leveraged to:

  • enhance service delivery
  • reduce costs
  • increase revenue  

Accordingly when making the case to justify the cost of an EHR investment the following strategies can be effective in creating buy-in from decision makers in your practice:

  • A cost-benefit analysis focusing on specific elements of your practice such as quality of care, customer service or efficiency.
  • An ROI forecast featuring short-term and long-term projections.
  • An analysis that features the total cost of ownership in the short-term and long-term so that decisionmakers can be fully apprised of EHR-related costs.    

2. Consider the benefits of EHR use

According to Health Affairs, practices can expect to cover the cost of an EHR in approximately 2.5 years, and then receive an average of approximately $23,000 per year per full-time employee in net benefits. 

Considering these findings practices in various settings, sizes and financial conditions can find some justification beyond simply complying with regulations.

Further evidence shows that when properly incorporated into a practice an EHR can provide an array of tangible benefits for a practice. The study outlined several areas in which an EHR can provide tangible benefits to a practice including:

  • increased efficiency 
  • increased quality of care 
  • reduction of waste
  • fewer medical errors 
  • better organizational outcomes (e.g., financial, and operational benefits)
  • better societal outcomes (e.g., improved ability to conduct research, improved population health, reduced costs)

When viewed considering these findings, the decision to invest in an EHR can be justified on a metrics beyond a simple financial benefit.

Despite a variety of clear evidence in supporting EHR’s benefits, sorting out whether an investment in EHR can be justified can be a difficult task to undertake. This is because budgeting for EHR-related capital expenses and modelling return on investment for electronic health records can be a difficult and imprecise process if not engaged carefully.

When deciding whether to invest in an EHR a practice can rely on two tools:

ROI is a calculation of the most tangible financial gains or benefits that can be expected from a project versus the costs for implementing the suggested program or solution. 

Use this EHR pricing guide to get accurate baseline prices for ROI calculations

An EHR Cost Benefit Analysis (CBA) is more comprehensive than ROI, and attempts to quantify both tangible and intangible costs and benefits. Whether a practice chooses to use an EHR systems benefit analysis or rely on an ROI (or both methods) it is important to view all the direct and indirect costs that can impact the EHR investment decision and decide accordingly.  

3. Compile your EHR costs

Asking how much an EHR costs is the sort of general question that often results in an answer that begins with the phrase planners and project managers dread: “it depends.”

The answer to how much an EHR costs depends on what one is buying and how long they intend to use it. Accordingly it can be difficult to engage in an EHR price comparison without fully examining the variables that can affect the price of an EHR such as:

  • the exact features a practice requires
  • add ons such as practice management or patient portal
  • cloud or on premises deployment
  • updating hardware to support the system
  • the scale of the installation

With the goal of creating a comprehensive model of costs, the cost of an EHR should be expressed in terms of not just the “out of the box” price, rather in terms of long-term and comprehensive cost estimates.

One of the most comprehensive and efficient measures for modeling long-term costs involves calculating the total cost of ownership (TCO). TCO is defined as a full assessment of information technology and services costs over time, representing an accounting of all costs (both short term and long term, and direct and indirect).

To illustrate,  the following chart provides estimated average upfront cost, yearly cost, and five year total cost of ownership total cost of ownership for for on-site and SaaS EHR deployment. However, it is important to note that costs may vary based on scale and EHR features.

  Upfront cost Yearly cost 5 year TCO
Cloud EHR $26,000 $8,000 $58,000
On-premise EHR $33,000 $4,000 $48,000

(Source: Michigan Center for Effective IT Adoption)

 

Although most organizations can pin down basic EHR-related cost estimates TCO calculations are subject to variance based on the  factors outlined above.

Choosing your EHR deployment method  (cloud vs on-premise) and factoring in associated costs

Furthermore,  the cost of an EHR over the long-term can also vary according to the method of software deployment.  

As illustrated above, the five-year TCO for office based and cloud based systems show that the cloud-based option cost $58,000 while the office-based option cost practices $48,000. Upfront costs for the cloud-based system were less at $26,000 while the office based system showed up front costs of $33,000.

However, when looking beyond the TCO of a cloud or on-premises system a number of factors such as reliability, hardware investment, EHR maintenance cost and security all factor heavily in overall cost estimates not reflected un the study above.  

In addition to TCO estimates, practices should also be aware of implementation costs, related to setting up and launching an EHR:  

What is the cost of a top EMR/EHR software implementation?

Implementation costs vary according to context and the implementation plan, as such it is difficult to provide an average cost of EHR implementation.

However, case-specific examples can offer limit insight with regard to implementation costs. For example, the Health Affairs study cited above found that a typical multi-physician practice would spend about $162,000 to implement an EHR, with $85,500 for first-year maintenance costs.

They also estimated that the implementation teams spent approximately 611 hours "preparing for and implementing" the EHR system. Whereas according tp a Medical Economics study of thirty primary care practices, average spemd was $5,900 on purchases related to hardware, software, peripherals, and network connections and about half of the practices averaged $3,094 for "IT and other outside support" costs.

The average cost of hospital EHR implementation would be higher given the larger scale. Estimates show that Those costs vary widely for community hospitals, according to a survey from Community Hospital 100 and Anthelio, with some organizations paying less than $5 million and others more than $20 million to implement an EHR.

What are the hidden costs of an EHR implementation?

When engaging in an EHR implementation cost breakdown it is important to consider that implementation budgets should include direct costs such as:

  • software licensing, 
  • projected maintenance
  • consulting and training fees
  • labor including overtime
  • hardware (if required - usuallu only required for on-premise installations)

Further it is important to also consider indirect costs such as:

  • decreased revenue
  • lost productivity
  • decreased patient visits

When quantified, these can have a significant impact on how an implementation impacts the overall EHR budget.

For more on EHR implementation, check out our step-by-step EHR implementation whitepaper

Cost, incentives and deciding which EHR features you need

When considering the types of features needed you should determine which features can best further organizational goals. If your practice currently participates in the Meaningful Use program, your new EHR’s features will need to ensure that a practice continues to qualify for incentive payments over the long-term.

Get ideas for new EHR features using this guide to 40 features to look for in your next EHR

Incentive payments for eligible professionals who demonstrate meaningful use of certified EHR technology can reach up to $43,720 under Medicare over five consecutive years and under the Medicaid EHR Incentive Payments.  

Eligible professionals who do not successfully demonstrate Meaningful Use will be subject to a downward adjustment to payments for covered professional services.     

4. Compile costs into a complete EHR budget

The process of budgeting for an EHR differs from budgeting from constructing a practice’s normal operating budget in that an EHR budget contains several uncertainties that, if not considered can result in costly mistakes.  However, when approached in a methodical manner which considers all potential contingencies, the risk of problems arising from a flawed can be reduced significantly. An EHR budget should contain, at a minimum the following components:

  • Hardware: Servers, computers, printers, scanners, and other peripherals.
  • EHR software: All software costs including, additions and upgrades 
  • Assistance: IT contractors, legal support, system maintenance and installation consulting support; data conversion and workflow redesign support. 
  • Training: Initial and ongoing training for clinical staff and office staff. 
  • Contingencies: Potential productivity, revenue and patient-related gains and losses
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Jeff Green

About the author…

Jeff Green, MPH, JD works as a freelance writer and consultant in the Healthcare information Technology Space.

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Jeff Green