How to calculate cloud EHR TCO correctly

When preparing a budget during EHR selection or calculating the ROI of an EHR, you should treat an EHR as a continuing cost, rather than a snapshot of cost at the time of purchase or upon paying a periodic fee for service. Rather practices should consider the most comprehensive approach to modeling costs found in the total cost of ownership (TCO). TCO takes into account both direct and indirect costs of purchasing and operating an EHR over a long term period. For practices purchasing a cloud-based EHR, TCO can often be miscalculated and can result in a failure to account for the "real" cost of ownership which often occupies many overlooked expenses.  Obvious costs related to TCO involve purchase price, any additional software, and hardware needed to implement and operate the EHR and setup and maintenance costs.  However, when considering TCO, a number of costs are often not considered, and can result in unexpected cost overruns in the future.

1. Productivity loss during implementation

As staff becomes acclimated to new software, some level of productivity loss is inevitable when switching an EHR. As staff adapts to alterations in their workflow some drops in productivity should be expected. As a tangible economic cost to practice, the TCO should consider costs for the training and technical support needed to not only implement the system but to allow staff to learn the new system.  Further, lost productivity after implementation will need to be considered particularly if changes in the cloud EHR system disrupt the current workflow.

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2. Software maintenance fees

The software maintenance fees an EHR vendor will charge are often a fixed, monthly cost that is calculated as a percentage of the software product fee. Although, cloud-based EHRs do not incur hardware maintenance fees, they do carry costs related to software maintenance, staff education and other support costs. In some sense a cloud EHR can cause a misplaced sense that these costs should not be considered in a TCO, when in fact the opposite is true. A 2015 article published in Becker’s Hospital Review, illustrates that the failure to accurately account for maintenance fees, even as little as a half of a percentage point over a ten year TCO can result in an underestimation of $1.2 million in maintenance fees over a ten-year period.  

3. Meaningful Use attestation

As the Meaningful Use program continues to progress into Stage 3, practices should consider what resources will be devoted to meeting and attesting to Meaningful Use standards. Given the standards contained in Meaningful Use Stage 3’s emphasis on population health management and patient engagement, practices should consider their current capabilities under these standards and whether resources will need to be devoted to compliance in the future in the form of upgrades or purchasing additional software to compliment their existing EHR.

When making long-term forecasts, the TCO for a cloud-based EHR provides the most comprehensive method of modeling costs that can arise from the acquisition and use of an EHR. Further for practices purchasing an EHR, TCO provides an accurate method of determining whether an EHR system can be justified from an ROI perspective. However when the true TCO cannot be represented due to the failure to account for all costs the exercise of calculating a TCO may be for naught. As such, the costs presented above represent some of the most obvious omissions. However, the list of potential omission can be longer given individual circumstances.

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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

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