How to Calculate and Achieve EHR ROI
Will EHRs actually pay off and bring a return on investment (ROI)? Some physicians fear that even after enduring a costly and difficult implementation, their practices simply won’t be able to absorb the expenses. This fear and uncertainty about ROI continues to hinder adoption even despite Meaningful Use incentives.
Approximately 41% of the 1,442 respondents who completed the Physicians Practice 2014 Annual Technology Survey sponsored by Kareo reported they have seen an ROI as a result of their EHR.
Other studies also indicate an improvement in terms of ROI after EHR implementation. For example, researchers surveyed physician practices in Massachusetts about ROI after they participated in an EHR pilot program. During the pilot that took place between March 2006 and December 2007, the Massachusetts eHealth Collaborative worked with 80 ambulatory care practices in three diverse communities to help them adopt EHRs. The collaborative paid the cost of each practice’s EHR, employed consultants to assist with implementation, and also assisted with vendor selection and contract negotiation.
Julia Adler-Milstein, assistant professor in the School of Information with a joint appointment in the School of Public Health at the University of Michigan was one of three researchers who subsequently surveyed these practices in order to determine the average five-year ROI as well as how ROI may vary by practice type and specialty. The survey required practices to report retrospective financial data from fiscal years 2005 (before EHR adoption) and 2008 (post-EHR adoption). This data was then used to create five-year ROI projections.
According to the study, which was published in the March 2013 issue of Health Affairs, only 27% of practices experienced a positive ROI after five years. Many practices actually saw a negative return of $43,743 per provider over five years, the study found. Another finding was that smaller practices struggled more than larger practices to reap the benefits of the technology. Thirty-eight percent of practices with six or more physicians had a positive average ROI compared to 26% of practices with only one or two physicians. The study also found that specialty practices fared slightly worse than those working in primary care.
What’s the story behind these findings, and are they still relevant today?
It all comes down to how practices incorporate the EHR into their workflows, says Adler-Milstein. The goal is to cut costs, where possible, and increase efficiency and patient volume. If practices can accomplish either or both of these goals, they’ll likely see a positive ROI.
“The point is that it’s not automatic. You have to work hard and make a bunch of changes in order to get a positive ROI,” she says.
She says that primary care practices may have achieved a higher ROI simply because they were able to increase the volume of patients seen in their practices. This can be attributed to both the increased efficiency with EHRs as well as a Massachusetts healthcare reform law passed in 2006 that required all residents ages 18 and older to maintain health insurance.
“There were a lot more patients demanding primary care services, so that helped on the revenue side for these practices,” says Adler-Milstein. Larger practices fared slightly better because they were able to spread out the fixed cost of EHR adoption across more providers, she adds.
Surprisingly, vendor selection didn’t play a large role in outcomes. In other words, ROI wasn’t correlated to a specific vendor, but rather it was more about how the practice actually used the technology in its daily work, she adds.
However, Meaningful Use is an important factor in the discussion of ROI, and it may be one that will continue to shape data going forward. After completing the survey and analyzing results, Adler-Milstein and her colleagues applied the Meaningful Use incentives to determine how much—if any—these incentives would have offset costs and improved ROI. Using the maximum Medicare incentive of $44,000, they determined that an additional 14% of practices would have broken even after five years, had the incentives been applied. Doubling the incentive would have meant that 59% of practices would have broken even. Tripling it would increase this percentage to 67%.
“The Meaningful Use incentives help, and they help certain practices a lot more than others,” she says. “But they don’t offset the costs. Don’t assume that this amount is going to be enough to offset the true cost. Practices need to work to find ways to save money over and above the Meaningful Use incentive payments.”
The good news is that these statistics and findings don’t necessary need to seal your practice’s fate, says Adler-Milstein. Practices that work consciously to achieve ROI will likely be happy with the results, she adds. Those practices that did experience positive ROI increased revenue by more than $100,000 per physician over five years, the study found.
How to calculate ROI
Adler-Milstein says ROI is a multi-dimensional calculation that takes into consideration costs/expenses related to the EHR system vs. benefits. She says practices can gauge ROI using these two questions:
- Is the practice able to see more patients because of greater efficiency with the EHR?
- Can the practice cut major costs as a result of the EHR? These costs could include paper costs, transcription costs, or even FTEs.
“Identify what cost buckets you think you can reduce, and monitor to make sure that these costs really are going away,” she says.
How to achieve ROI
Achieving ROI is all about using a thoughtful approach to implementation. Adler-Milstein provides the following tips:
- Appoint a savvy practice manager who can oversee the EHR effort. Invest in this individual and ensure that he or she has all of the resources necessary to drive change within the practice.
- Make the transition to a fully electronic record. Many practices continue to keep paper records while also moving to the electronic record. This defeats the purpose of the technology and fails to reduce costs.
- Cut positions that are no longer needed. Though this is a difficult task, particularly in smaller practices, it helps practices achieve a positive ROI.
- Ask medical assistants (MA) to load information in the EHR before physicians enter the exam room. MAs may also be able to input basic patient data as well. Anything that can streamline efficiency and maximize the physician’s time with the patient will be beneficial.
- Think of the EHR as a long-term investment in the practice and work over time to optimize how it is used.
“There are going to be lots of different ways in which you’re going to need to use your EHR to provide better care,” says Adler-Milstein. “Eventually, we’re going to stop having the conversation about ROI for EHRs because it’s going to be obvious that you can’t be a practice in the 21st century without one. In the long run, this is going to be a cost of doing business. In order to provide high quality care, you need to have an electronic health record.”