How to conduct an EHR cost-benefit analysis in six steps

Organizations considering a new or replacement EHR or shifting their technology strategy will be faced with determining the costs and benefits of these actions. To calculate the costs and benefits of a project, financial planners rely on a cost-benefit analysis.

What is an EHR cost-benefit analysis?

An EHR cost-benefit analysis measures and compares the costs and benefits of a healthcare software project.

Creating a cost-benefit analysis for an EHR can be challenging, but the process becomes manageable with a methodical approach. This allows your practice to weigh the costs and benefits of investing in healthcare information technology. A CBA helps planners decide if a project's total benefits outweigh its costs.

The importance of a cost-benefit analysis

Conducting a cost-benefit analysis can help decision-makers reduce financial uncertainty in EHR projects. However, it’s only effective if it accounts for the full range of potential costs and benefits.

Best practices recommend including both tangible and intangible costs and benefits, as well as opportunity costs. A cost-benefit analysis should also go beyond a one-time assessment and consider how the cost-benefit balance will change over time.

Applications for cost-benefit analyses

As mentioned previously, a cost-benefit analysis provides decision makers with information in evaluating an EHR project. In addition to offering a comprehensive picture to aid decision making, a cost-benefit analysis also offers information that can provide valuable insight for planners when developing benchmarks and milestones for a project,  measuring social or other intangible benefits related to an EHR project, or evaluating a project’s effects on stakeholders in an organization. 

How to do an EHR cost-benefit analysis  

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

1. Calculation of system costs

EHR system costs include the direct costs of setting up the EHR infrastructure.  A newly implemented EHR system will create added costs that were not incurred under the previous system or a paper chart system.

System costs include expenses beyond implementation, such as maintaining and updating the EHR, as well as updating, maintaining, and altering an existing system. 

These costs, generally, provide budget planners with a level of certainty in that these costs can be estimated. Except for unexpected maintenance or replacement costs, system costs that occur can be anticipated and thus included in the prospective budgeting process.  

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. Induced costs can include a wide range of costs that, under certain circumstances, can change as projects progress. As such, it is important to be flexible in calculating costs and be able to incorporate unanticipated costs into their analysis.

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

3. Opportunity costs

Opportunity cost is the benefit your practice misses out on by choosing an alternative action. While calculating opportunity cost can be tricky, it’s a valuable tool for weighing the pros and cons of decisions. By considering opportunity costs, planners can evaluate multiple options and choose the best course of action.  

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. Calculating cost reductions presents challenges to budget planners in that these cost reductions are primarily hypothetical. A further confounding factor rests on the fact that the final calculation of a cost reduction depends largely on several contingencies occurring or not occurring.  

5. Additional revenues

Additional revenues are considered from the perspective of increases in revenue-generating activities directly attributable to the implementation of an EHR. Just as calculating cost reductions involves significant uncertainty, calculating benefits derived from additional revenues is also fraught with challenges in that it is an exercise clouded by speculation and assumptions.

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.

A cost-benefit analysis should consider immediate, short-term, and long-term projects, as these can yield different results. If a project leans toward higher costs, adjustments can be made to increase benefits, reduce costs, or abandon the project altogether.

Accurately modeling the costs and benefits of an EHR ensures sound financial footing and helps a practice clearly evaluate its options regarding an EHR investment.