How to conduct an EHR cost benefit analysis in six steps

Creating an exact cost-benefit analysis for an EHR over both the long-term and short-term can be an imprecise art. However, any perceived difficulty in modelling the costs and benefits of an EHR can be overcome by relying on a methodical and accurate process, through which your practice can weigh the costs and benefits of an investment in healthcare information technology.

Best practices dictate that a cost-benefit analysis should not only model tangible benefits and costs but also can quantify intangible items and incorporate opportunity costs into its equations. Further, a cost-benefit analysis should not just serve as a snapshot of costs and benefits at the time of EHR selection; rather it should consider how the cost/benefit balance would evolve over the long-term.

Conducting an EHR cost-benefit analysis can be simplified into the following six major steps.

1. Calculation of system costs

System costs include the direct costs set up the EHR infrastructure.  A newly implemented EHR system created will create added costs that were not incurred under the previous system or a paper-chart system. Further, system costs would include costs incurred beyond implementation that would include keeping maintaining and updating the EHR.

2. Calculation of induced costs

Induced costs are costs associated with carrying out EHR implementation. These costs can include anything related to preparing your practice to select and implement an EHR including costs related to training and potential losses in productivity.

Use this EHR pricing guide to estimate base system cost for your cost-benefit analysis

3. Opportunity costs

Opportunity cost refers to the benefits your practice could have received, but gave up, to take an alternative course of action. The opportunity cost calculation can be somewhat murky. However, it is an important tool when weighing the cost and benefits of choices.  

4. Cost reductions  

Cost reductions refer to savings due to the adoption of an EHR in the form of such savings as increased efficiency, quality and reduction of waste.  

5. Additional revenues

Additional revenues are considered from the perspective of increases in revenue generating activities directly attributable to the implementation of an EHR.

6. Arriving at a final calculation

The final step of the cost-benefit analysis involves accurately aggregating costs and benefits to determine if the benefits outweigh the costs. If the final analysis skews toward the benefit side, the project should warrant.

However, it is important to note that a cost-benefit analysis should always consider immediate, short-term and long-term projects which could bear different results. Further, if a project skews toward the cost side, the proper response would either rest in making adjustments to increase benefits and decrease costs to make the project viable, or just abandoning the project.

Accurately modelling the costs and benefits of an EHR not only places an organization on sound financial footing by creating a clear picture by which a practice may weigh its options regarding an EHR investment.

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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