Return on Investment in EHRs


Meaningful Use Is Only the Beginning: Efficiency and More-Appropriate

Coding Bring Savings and Increase Revenues

Today, the hope of receiving “Meaningful Use”

rewards is motivating some physicians to begin

using electronic health records sooner rather

than later. But the government incentives will not

cover all of their EHR-related costs, and there are

many other reasons to get an EHR now.

Properly implemented, an EHR system with superior features can:

• Improve practice efficiency. By replacing paper

records with EHRs, for example, practices can

reduce record handling and access data more

quickly for both clinical and billing purposes.

• Help improve quality of care. Decision-support

features can help avoid medical errors, while

reporting and registry functions allow practices

to track and reach out to patients who need

preventive or chronic care.

• Be a building block for a medical home. Many

payers are now giving incentives to encourage

physicians to create patient-centered medical

homes, which require EHRs.

• Prepare practices for accountable care: EHRs

in interoperable networks are essential to

accountable care organizations (ACOs).

• Help recruit new physicians. Young doctors

who trained on EHRs in residency want to work

in computerized practices.

Sources Of Return On Investment (ROI)

According to experts, the incentives for

Meaningful Use — up to $44,000 per provider

through Medicare or nearly $64,000 through

Medicaid — will cover only a portion of the longterm cost of an EHR system. Estimates of the fiveyear cost of EHR hardware and software range

from $30,000 to $80,000 per physician, depending partly on practice size. And that doesn’t

include the cost of training, interfaces, patient

portals and conversions from other systems.

So a business plan for an EHR system

acquisition must include sources of ROI that go

beyond Meaningful Use rewards. A short list of

these would include:

• Tax write-offs (in 2011 and 2012)

• Savings in labor and supplies

• More accurate and complete coding, which

usually results in higher revenue

• Improved accounts receivable (A/R) management

• Conversion of space currently used for chart


• Rewards from Medicare’s Physician Quality

Reporting Initiative (PQRI)

• Pay for performance and medical home incentives

Except for depreciation, all of these ROI sources

can be facilitated by the use of an integrated

EHR and practice management (PM) system with

a single database. The government’s regulations

also allow physicians to show Meaningful Use

by employing a combination of certified EHR

modules — for example, electronic prescribing,

document management, and charting systems.

But if these systems are from unrelated vendors,

it will be very difficult and expensive to connect them with a single interface so they can

work together. So, even though these modules

may enable some practices to meet the Stage

1 Meaningful Use requirements, they will slow

physicians down and make practices less, rather

than more, efficient.

Government Incentives

To obtain financial incentives, physicians must

demonstrate Meaningful Use of an EHR system

certified by a government-approved certification

body. In Stage 1 of Meaningful Use, a physician

or other eligible professional (EP) may attest to

Meaningful Use for a 90-day period in either

2011 or 2012. That attestation will entitle the EP

to a payment of $18,000. Further payments follow over the next four years if the EP meets the

Stage 2 and 3 criteria for Meaningful Use, which

have yet to be specified. UBM TECHWEB WHITE PAPER | Return on Investment in EHRs


If a physician does not show Meaningful Use of

an EHR by 2015, his or her Medicare reimbursement will be reduced by 1 percent. In later years,

the reduction could be as high as 5 percent.

An EHR can also help physicians qualify

for rewards under Medicare’s Physician Quality

Reporting Initiative (PQRI). Physicians can provide

quality data by submitting special billing codes

or by sending data to CMS from approved EHRs

or electronic registries. Practices that report PQRI

data successfully receive a bonus equal to one

percent of their Medicare Part B charges for the

measurement year.

Aside from Meaningful Use, the biggest

incentive to buy an EHR system now is the ability to write off the cost on a doctor’s federal

tax return. If the physician purchases the system

by Dec. 31, 2011, he or she can write off 100

percent of the cost of hardware and software

as “bonus depreciation.” That write-off drops to

50 percent of the cost in 2012 and reverts to the

regular depreciation schedule the following year.

One caveat: For the cost to be deductible,

the EHR needs to be “in service” before the end

of the year. So that means a practice must not

only buy the EHR but must also implement it

by then.

Tax considerations are also important in

deciding whether to lease or buy an EHR. A physician may be able to expense the entire amount

of the lease payments. But if he or she takes out

a bank loan to purchase the EHR, only the interest is deductible. Technology companies such as

HP and GBS can offer financial services for leasing or financing an EHR system to defray the cost

of implementation.

The EHR Business Case

While the business case for an EHR system should

include government incentives, many practices

have achieved a return on investment in their

EHRs without any kind of external aid.

A study published in Health Affairs in 2005—

long before Meaningful Use — looked at 14 solo

and small-group practices that had purchased

EHRs from either of two vendors. Here’s what

the researchers found:

“Initial EHR costs averaged $44,000 per

full-time-equivalent (FTE) provider, and ongoing

costs averaged $8,500 per provider per year.

The average practice paid for its EHR costs in 2.5

years and profited handsomely after that.”

Notably, 11 of the 14 practices had “tightly

integrated” EHR and practice management systems — a major factor in their efficiency. All of

the providers used the EHR for common tasks,

such as prescribing, documentation, viewing

of data, and internal messaging, and almost all

used it to assist in billing. Transcription was rare,

and 10 of the practices no longer pulled paper

charts at all.

“One thing that really swayed us toward

GBS was that they sold and serviced both

hardware and software,” said Melody Gray,

Practice Administrator, Medical Associates of

Cambridge, Inc. “The NextGen product itself has

Electronic Medical Records in addition to Practice

Management, so you don’t have to worry about

an interface between the two systems, they run

on one platform. Some of the templates that are

available through NextGen are very customizable, so you can make it do just about anything

you want.” She added, “GBS brought HP Servers

with Intel processors, which had a very good

reputation for reliability, so those were the reasons that we made the choices we did.” (see

diagram, p. 4).

Financial benefits averaged $33,000 per

FTE provider per year. The two main sources of

these benefits were increased coding levels and

efficiency-related savings or revenue gains. Three

practices in which physicians had previously

dictated their notes also saw a major savings in

transcription costs.

More Appropriate Coding

Many physicians habitually undercode, often

because they’re not sure whether their documentation supports appropriate billing codes.

National studies have shown that, on average,

physician undercoding results in a loss of 7 to 9

percent of revenue.

The NextGen EHR automatically gives the

user the appropriate level of evaluation and management, based on the documentation entered

during a patient encounter. That not only helps

a clinician determine whether the visit should be

coded at level 1, 2, 3, 4 or 5, but also reminds the

provider to complete the necessary documentation. By using these prompts, a typical family

   While the business case for an EHR system should

include government incentives, many practices have achieved a return

on investment in their EHRs without any kind of external aid.UBM TECHWEB WHITE PAPER | Return on Investment in EHRs


practice can increase its average coding level by

3.5 percent — without running a risk of failing

payer audits.

EHRs also offer other revenue-side advantages, starting with improved charge capture.

The NextGen EHR, for instance, alerts providers to select charges as an integral step in the

documentation and ordering process so that they

don’t overlook anything. This feature can raise

practice charges by 5 percent.

If an EHR is integrated with a top-notch

PM system, the latter can track A/R so that billing issues are dealt with in a timely manner.

NextGen’s enterprise PM system, for instance,

has a Worklog Manager feature that identifies

delinquent accounts and sends them to billing

personnel to handle. The assignment of these

accounts can be tracked and reported to ensure


Efficiency Savings

If the providers in a practice dictate their notes,

the cost of transcription can be up to 11 percent

of collections. That cost mostly disappears after a

practice gets an EHR system if all of the clinicians

use point-and-click templates for documentation. Alternatively, NextGen and other leading

EHR vendors incorporate voice-recognition software that allows clinicians to dictate certain parts

of the note and have the free text go into the

record automatically. By using these methods,

practices can eliminate 75 percent or more of

transcription costs.

As practices transition from paper to electronic documentation, the costs of pulling, routing and filing charts eventually go away, although

staff must still scan paper documents from outside sources or fax them to the EHR’s document

management module (see the accompanying

case study). In the long run, most practices can

either reduce their staff or reallocate people to

more productive roles.

EHRs also greatly reduce costs for paper and

supplies. Assuming an average cost of $5 to create a paper chart, if the providers in a practice

see just five new patients a day, an EHR can cut

supply costs by $6,500 a year.

Reductions In “Soft Costs”

EHRs also lower many “soft costs” that are

hard to measure. For example, when physicians

prescribe electronically and the practice is online

with local pharmacies, it takes less time to do

refills, and front-desk staff field fewer pharmacy

calls. Using the internal email and tasking functions of an EHR can help clinicians work together

more effectively. And patient portals allow easier

communication with patients on everything from

As CMS and private payers move toward “pay for

value” reimbursement methods, an EHR system will be more essential

than ever.



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Medical Associates of Cambridge, an eight-provider primary care practice in

Cambridge, Ohio, was growing rapidly and had run out of space to store its

charts. To solve this problem and to improve quality and efficiency, the practice’s leaders purchased a NextGen EHR and practice management system.

The group went live on the new system in May 2006 and gradually implemented its component parts over the next two years.

Since then, the EHR has helped the group reduce its overhead by 8 to 10

percent, according to practice administrator Melody Gray. “The biggest efficiency and cost savings has been from the reduction of staff,” she says. “We

are down eight employees across the board. We have one less lab person

and have reduced our clinical staff by three and our clerical staff by four.”

In addition, she notes, the practice has achieved considerable savings on

supplies, because it no longer buys chart folders, other paper products and

printer toner.

The labor savings came in two areas: In the clerical area, the practice no

longer needs a transcriptionist and has sharply reduced record handling.

The paper charts still in storage are hardly ever consulted any more, and

most incoming documents are computer-faxed to the practice and routed

to NextGen’s document management module. The staff also faxes incoming

paper to the EHR system rather than scanning it in.

The efficiency of the practice has also increased on the clinical side. “By

nurses having access to every doctor’s messages through the messaging system in the EHR, they’re able to get messages done a lot faster,” Gray points

out. “You can check patients in faster. Things just move much quicker. There

are interfaces with EKGs, Holter monitors, spirometers. All patient data is in

a single record.”

Because of their EHR access, receptionists and nurses can answer patient

questions faster, reducing time on the phone. Similarly, nurses don’t have to

call in prescriptions that go online to the pharmacies. The decrease in calls

from pharmacies has lowered pressure on the phones as well, Gray notes.

The physicians usually are finished documenting visits and answering messages by the end of the normal business day. That means nurses don’t have

to wait for doctors to complete their work, so the practice pays less for

overtime. And the physicians are happy to be able to go home at 5:30 p.m.

on most days, Gray observes.

appointment and refill requests to simple queries

about medications or self-management.

Once physicians learn how to document

efficiently in an EHR system, they can complete

most of their notes during or between visits.

This and other efficiencies created by the EHR

may allow them to see more patients per day.

Alternatively, they can go home earlier.

EHRs offer other possibilities for improving

a practice’s bottom line. For example, EHRs can UBM WHITE PAPER | Return on Investment in EHRs


help doctors reduce malpractice risk, leading to a

lower rate of paid settlements. As a result, some

liability insurance carriers offer discounts to EHR

users. In addition, CMS lets providers use certain

EHRs — including NextGen — to report PQRI data,

reducing the administrative burden on practices.

And the use of an EHR’s health-maintenance features enables providers to call back patients for

needed preventive and chronic care, improving

quality and generating new revenue.

Changing Environment

As CMS and private payers move toward “pay for

value” reimbursement methods, an EHR system

will be more essential than ever. This will not happen right away. For instance, Medicare will not

start putting a small portion of physician payments

at risk for meeting quality goals until 2015. CMS’

shared-savings program for ACOs, also partly

based on quality benchmarks, starts in 2012, but

it will take a few years for ACOs to be formed in

most parts of the country.

Nevertheless, when these programs begin to

have an impact, practices that know how to use

EHRs for quality improvement and reporting will

be way ahead of the game. And, since Meaningful

Use requires reporting of quality data, practices

that are ready to attest to Meaningful Use of their

EHRs should be able to do that for other performance-based programs, as well.

Meanwhile, EHRs can help practices reap

rewards in pay for performance (P4P) programs

and medical home pilots, where those exist. In

California, for example, the Integrated Healthcare

Association, representing providers and plans, pays

millions of dollars in P4P incentives to group

practices and independent practice associations

(IPAs). And Blue Cross Blue Shield of Michigan is

providing medical home payments to 1,800 doctors across Michigan.


There is no better time to buy an EHR system than

today. Aside from the Meaningful Use rewards,

there are numerous other public and private

incentives and tax breaks available to physicians

who acquire EHRs now.

While these incentives will help pay for an EHR

system, they won’t cover the total cost. But a stateof-the-art, integrated EHR/PM system can generate

more than enough cost savings and extra revenue

to bring a return on investment.

A combination of EHR modules may enable

practices to attest to Meaningful Use, at least in

Stage 1. But in the long run, physicians who rely on

a collection of disparate systems won’t garner full

government incentives and won’t be prepared for

the much more arduous process of building medical homes and accountable care organizations.

Physicians who are now shopping for an EHR

system should buy a first-class, integrated system

from a well-established vendor. They would also

be well-advised to work with a recognized valueadded reseller or technology company which can help them implement and maintain their EHR system over the long haul.

If physicians already have an EHR, they might

consider some ways to enhance the usability and

security of their system. These might include:

• A backup/archival solution to protect their data,

or a cloud-based archival service.

• A security solution or assessment to protect their

enterprise from hackers and data corruption.

• A virtual desktop infrastructure to improve the

efficiency of the system.

If physicians do their due diligence, select the

system that is right for their practice, and implement it fully, the EHR system will more than repay

their investment.     n