A Tale of Two Studies: What are the actual costs of an EHR?

Posted on: January 10th, 2013 by Edmund Billings, MD 3 Comments
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Does anyone in their right mind believe that these are the best of times in healthcare or health IT?

Scratch that.

Does anyone besides Judy Faulkner and Neal Patterson believe these are the best of times? (I mean, everyone knows that Dramatic Transition + Industry-wide Upheaval + Piles of Cash = Satisfaction / Contentment, proving the point mathematically.)

The question: At what cost to overall healthcare improvement do Epic and Cerner (and others, to be fair … except you, Allscripts) reap massive profits?

The short answer: We don’t really know.

While it is generally acknowledged by most (certainly not all, which you know if you’ve spent any time on HIStalk) that the ready availability and automated cross-checking of electronic health records improves care, there is no definitive study showing dramatic clinical improvement, demonstrable return on investment, etc.

Indeed, we now have a number of studies suggesting exactly the opposite:

  • The implementation of an EHR upends organizational structure and often slows down the provision of care.
  • The introduction of an EHR into a dysfunctional organization tends to exacerbate, not alleviate, said dysfunction.
  • Much of the promise of health IT is in interoperability, and the industry is a long way from reaching that goal.
  • Physicians generally dislike most health IT solutions.
  • Patients would rather the doctor look at them instead of the monitor.

This is not to say that healthcare should bring the EHR train to a screeching halt. We know how technology has transformed other industries. We know that paper records are archaic and put patients at risk while asking them to maintain endless patience when the same test has be performed a third time. And we know that electronically is the only way information can be shared in a timely manner.

So, while we may not know what the overall cost of corporate profits are to healthcare, we do know that they are really, really high. You’ve seen the figures associated with Epic contracts.

The truly important point is that the initial value of Epic and Cerner contracts isn’t even a reliable indicator of overall cost. According to a recent study by the consulting firm Katalus Advisors, hospitals that adopt Epic can expect to pay an additional 40-49 percent of initial contract value for “varying upgrade costs.” For Cerner, estimates were a slightly more reasonable 30-35 percent of contract value.

Based on these figures, Duke University Health System and Partners Healthcare can expect to pay an additional $350 million to Epic on top of the $700 million contracts they already signed. UC San Francisco will probably pay an additional $75 million for their Epic relationship.

Generally speaking, what they will get for that investment is not lower costs and greater efficiency. According to a report by the RAND Corporation that evaluates predictions made by a 2005 vendor-financed RAND study, expected cost savings and productivity benefits associated with EHR implementation have not materialized.

Why not?

In a nutshell: Sluggish adoption. Clinician intransigence. Poor planning and change management. Lack of interoperability.

Other than interoperability, these are organizational constraints, which are the constant in the EHR adoption equation. Which begs the question, why spend multi-millions of dollars—plus as much as 50 percent of contract value on top of that—for systems that are not interoperable and may threaten the financial viability of your hospital and organization?

The simple truth is that EHR systems do not currently offer cost savings equal to purchase price. With some solutions, there’s an uncrossable chasm between sticker price and ROI. And we’re talking about the financial viability of hospitals, here, not breakfast cereal. If those Lucky Charms disappear from the shelves, your kid may throw a tantrum, but nobody will get hurt.

Purchasing an EHR is not like a buying a car that you just get in and drive away. It’s like buying a car that you have to stop and recalibrate every mile with the assistance of the trained experts in the back seat who charge you a fee every time they have to listen to you speak or look under the hood. In this situation, paying less for the car is probably a good idea.

We have the most fractured and expensive healthcare system in the developed world, and the way we’re pursuing health IT adoption is making that worse, not better.  Hospitals and health systems must show some restraint and take control, forcing health IT vendors to behave in a way that at least adds as much value to American healthcare as it takes out in cash.

Edmund Billings, MD, is the chief medical officer for Medsphere Systems Corporation. www.medsphere.com

3 Responses

  1. Dan Haley says:

    Don’t disagree with a word of this – and I spend my days toiling away for an HIT vendor. Of course, athenahealth (my employer) is cloud-based, and in many ways we consider ourselves to be the ‘Un-Epic,’ including on many of the characteristics you appropriately take them to task for here. If I may take the liberty of encapsulating the complaints voiced above, they boil down to this: for some reason we passively accept the fact that information technology in wide use in healthcare lags a decade or more behind the rest of the economy. Why do we do this? I don’t know! And it drives me nuts. Ponder: we all (DC policymakers included) every day casually send enormously complex data back and forth through the cloud to recipients all over the world. We don’t stop to wonder if the smart phone on the other end will be able to receive what we send. Those days are over… except in healthcare. In healthcare when our static software-based competitors got to DC and somberly tell policymakers that it is impossible in healthcare to do precisely what we do in every other facet of our lives – from sleek little devices carried in our pockets, no less – for some reason (reality distortion field?) the policymakers buy it.
    “The industry” is “a long way from interoperability” because the dominant players (for now) choose to have it that way. Among many other things, the cloud has the power to enable interoperability – we just need to pull HIT up there with the rest of the economy.

    • Edmund says:

      Dan, thank you for your insightful comments.

      Our industry will catch up as policy shifts our health care system from an illness system to a health care system and the business model rewards quality and continuity of care. It’s slow, but it is happening. We are seeing a replacement market emerging where leaders are feeling just like you. They are looking at the total cost of ownership and complexity of their systems and are dissatisfied with their vendors … they are saying “there must be a better way”.

  2. Jonena Relth says:

    Dan,
    You nailed the issue: ““The industry” is “a long way from interoperability” because the dominant players (for now) choose to have it that way. Among many other things, the cloud has the power to enable interoperability – we just need to pull HIT up there with the rest of the economy.”

    Untill we come to the conclusion that we must move our data from closed systems and into the cloud, US Healthcare will lag behind first-world countries.

    And while I’m ranting… Why should Americans pay more for healthcare than anyone else? Why should we pay more for prescrition drugs than any other country? The answer is that people in power want it this way because they make higher profits from Americans!

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