Three factors you should consider when creating an EHR budget

At the risk of stating the obvious, budgeting for an existing or prospective EHR implementation is an exercise that should not be taken lightly. Given the financial pressures, many healthcare organizations face and the fact that the EHR budgeting process is fraught with pitfalls getting an EHR budget right on the first go around can be accomplished with proper planning and the use of sound methods. 

Although the process of EHR will vary according to a wide variety of factors, one can arrive at three factors to be considered when creating an EHR budget.

Total Cost of Ownership

The budgeting process should adopt a holistic approach in that an organization must consider the total cost of ownership (TCO). TCO represents both the short-term and long-term and the direct and indirect costs of purchasing and operating an EHR. TCO represents a projection of the "real" cost of ownership, which often occupies many overlooked expenses. 

According to recent EHR research, the average cost per user of an EHR was $6,200 per year; this was calculated as the TCO per year over a five-year period. The obvious costs related to TCO involve purchase price, any additional software or hardware needed to implement and operate the EHR, and setup and maintenance costs.  However, when considering TCO, several costs are often not considered and can result in unexpected cost overruns in the future.

Revenue and productivity

EHR budgets often fail to accurately model EHR-related increases and drops in revenue and productivity. On the positive side studies show that, when deployed and used correctly, an EHR can create gains in revenue generation and productivity. However, during implementation, the deployment of an EHR may result in declines in productivity and revenue.

Further, an EHR that is not being used effectively or is not fit for purpose may also result in drops in both revenue and productivity. Therefore, the budgeting process should employ sound methods to model these potential gains or losses.

Unanticipated costs

When constructing an EHR budget, one of the factors that can give budgetary planners nightmares is unexpected costs. The best advice in this context is to be a bit of a pessimist and assume the worst when considering hidden costs rather than let hidden costs poke holes in your calculations when you least expect it.     

Budgeting for unanticipated costs is an imprecise art given that one cannot accurately predict costs that are not anticipated. However, some accuracy in predicting these costs can be achieved by considering the realm of costs that may arise. 

For example, a survey reported in Medical Economics tracking unanticipated costs found in the first six months of an implementation averaged $6,516 in unintended costs consisting primarily of about half of the practices averaging $3,094 for "IT and other outside support" costs.

When unpacking the types of unexpected costs, a practice may encounter rather than worry about the types of costs that may arise. A more prudent approach would involve setting aside a percentage of one’s EHR budget for unanticipated costs. Medical Economics advises that an organization should set aside an additional 20 percent of the total implementation budget for unanticipated expenses or underestimated costs. 

When constructing an EHR many factors (known or unknown) should be considered, however with a methodical and comprehensive approach a great deal of budget-related problems can be avoided.


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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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