How to measure the cost benefits of an EHR

When a healthcare organization is involved in the financial planning and budgeting process, often questions arise involving how to accurately measure EHR-related costs and benefits. Practices that have either engaged the planning process before making a capital investment in an EHR, or have been involved in the process of financially analyzing an existing system can attest to the difficulties in accurately modelling the range of tangible and intangible costs and benefits associated with an EHR. If not done properly, a healthcare practice runs the risk of placing itself in financial jeopardy or minimizing the potential benefits an investment in EHR technology can bring.

For organizations attempting to justify existing or further investments in EHR, or those evaluating the financial performance of an existing system, the methods used to analyze must be sound and present a clear financial picture. A cost-benefit analysis (CBA) and a return on investment (ROI) analysis provide practices with effective tools to measure the cost and benefits of an EHR.

EHR cost-benefit analysis

A CBA is a financial decision-making tool that estimates the total monetary value of the benefits and costs of a project.

The process involves the following measurements:

1. Calculation of present costs: present costs include the direct, indirect costs and opportunity costs related to an EHR

2. Calculation of present benefits: benefits can be either direct or indirect. For example, direct benefits include additional cash flow whereas indirect benefits include more intangible goods such as cost reductions, increased efficiency and quality, and reduction of waste.  

3. Final calculation: the final step of the cost-benefit analysis involves accurately aggregating costs and benefits to determine if the benefits outweigh the costs. The product of the cost benefit analysis is a ratio that is the value of benefits realized for each dollar spent. In an EHR adoption project, the goal of the cost-benefit analysis is to study if and when EHR adoption will bring net profit to the healthcare organization.

Return on Investment

ROI is a financial planning tool used to determining the rate of return earned on an investment. To calculate ROI planners first determine the amount spent on a particular investment, including direct and indirect costs, and then the value of the direct and indirect benefits that are realized from this investment. With these values, total costs are subtracted from the total benefits realized and then divided by the total costs and multiplied by 100. The final number is a percentage rate of return.

Despite the difficulties related to measuring the EHR-related benefits, for healthcare organizations constructing budgets on existing systems, or contemplating an investment in an EHR, it is vital to be able to accurately measure benefits an organization may realize. Given that total EHR cost and EHR prices vary based on context, an implementation can cost anywhere from hundreds of thousands to millions of dollars depending on the scale. Therefore, miscalculations that arise from not properly measuring financial metrics can be a serious (but avoidable) misstep.

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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