Electronic Health Records cost savings: Fact or fiction?

by Modis on April 19, 2012

Many people and studies have touted Electronic Health Records (EHR) as a potential source of significant savings. For example, while on the campaign trail in 2008, President Obama claimed the technology would contribute to families saving an average of $2,500 a year. RAND Corporation, a global think-tank, projected that EHR would generate $80 billion in savings every year.

However, not all the forecasts are quite so sunny. A recent study featured in the journal Health Affairs indicated that EHR adoption and implementation will actually increase costs, especially those related to advanced tests.

So which stance is true? Will EHR increase – or decrease – costs to the healthcare economy?

In the short run, we think the costs will increase.

For large hospitals and multi-hospital health systems, the purchase of EHR software and related implementation services are significant. These initial costs can soar to hundreds of millions of dollars.

Even after EHR systems “go live,” continuous changes will need to be made to meet the evolving criteria of meaningful use. And, if there ever is such a thing as steady state, the healthcare industry will incur the costs of ongoing maintenance and support, hardware purchases, replacements, etc.

Beyond these costs, there are many contributing factors that can add up quickly. Some obvious questions help shed light on these factors:

  • Do healthcare providers want more or less revenue?  Healthcare still operates on a fee-for-service model. Thus, the more office visits, lab tests, imaging orders, and procedures given, the more costs are generated by the system.
  • Do health insurance companies want more or less revenue?  While the Patient Protection and Affordable Care Act (PPACA), or Obamacare, puts new pressures and restrictions on the insurance industry, the most likely effect is cost shifting, not cost savings.
  • If you have health insurance, how often do you ask what the cost of an imaging test or procedure will be?  If you are like most people, the answer is seldom or never. Until patients have a significant incentive to compare the costs and benefits of a service, or until providers offer clear cost comparison choices for similar services, costs will continue to rise.
  •  What about preventive medicine?  Doctor visits, screening, and tests may help prevent more costly treatments over the long run, but in the short run they generate added costs. As one doctor told me, “You treat what you find,” so the more we proactively look for stuff, the more we are going to find.
  • Is the industry ready for change?  Changing the workflow for hospitals and clinicians that have operated the same way for decades is no easy task. Learning EHR and devoting additional hours performing data entry tasks means less patients can be seen. Doctors and providers may not be ready for such a loss in productivity and patient care.

Healthcare is unique in that, while revenues are important, patient care and outcomes truly drive the industry. EHR offers the potential to enhance revenues and patient care and outcomes.  In fact, the potential value of EHR is nothing short of extraordinary. However, today we have just begun to tap into that potential, and the costs are currently outweighing the benefits.

Next month, we’ll take a look at the other side of the argument and explore various factors that will eventually drive the cost of healthcare economy down.


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