Love them or hate them, everyone can agree on one point: EHRs are expensive.
Hospital and health system EHR implementations come with price tags ranging from the low millions to more than a billion dollars. These projects span multiple locations and years, making dollar estimates a seemingly imperfect science.
Stories of bloated budgets and costs spiraling out of control are hardly uncommon. Just this summer, four executives with New York City Health and Hospitals Corp. lost their jobs over an EHR implementation that blew past its budget point with no signs of slowing. Even across the pond, the CEO and CFO of Cambridge University Hospitals NHS Foundation Trust in the United Kingdom stepped down from their positions in light of the system's financial trouble, part of which may be linked to a $300 million EHR implementation.
Given the scope and unpredictable nature of long-term projects, can EHR implementations be pulled back from the brink of overspending or even stay on budget?
Setting the budget
No two hospitals or health systems are exactly alike, as no IT project budget will be the same. "All [hospitals and health systems] have different outcomes they are looking for, which inevitably drives change in what the EHR implementation will actually look like," says Mike Neal, senior vice president of consulting and application services with Cerner. "We develop a detailed list of scope of solutions and work processes. Clients have predictability in what their out-of-pocket costs will be."
Executives need to consider both one-time and recurring fees. One time fees often include:
• Software license
• Hardware
• Training
• Implementation fees
• Consulting fees
Recurring fees include:
• Software license upgrades and support fees
• Hardware refreshes
Though many EHR vendors with significant market share rely on a hardware model, some vendors focus on a different model. A number of cloud-based EHR vendors, such as eClinicalWorks, offer payment models based on monthly fees, rather than an upfront capital investment. eClinicalWorks is active in the physician and ambulatory spaces, with plans to expand into the inpatient market within the next year. "We have three different packages that focus on a per-user, per-month fee. They range from $310 to $649 per-physician, per-month," says Girish Navani, CEO of eClinicalWorks. Cloud-based vendor athenahealth charges clients a percentage of their collection. Under this scenario, vendor and client incentives are aligned, and athenahealth gets paid only if its client is achieving financial results. The cloud-based model is still emerging, particularly in the inpatient space, but it is becoming increasingly popular. "If companies are capable of delivering cloud-centric solutions for both inpatient and outpatient that can run on any platform and cost less to deploy, that value proposition will eventually win," says Mr. Navani.
Taming the budgetary beast
An IT project as large in scope as EHR implementation can quickly gobble up even the most carefully planned budgets, but it is possible to stay on target and achieve financial and performance goals. Beebe Healthcare, based in Lewes, Del., went live on the Cerner EHR in March 2014. The entire project was set on a $33 million budget. "This included a small army of consultants, new hardware and almost 30 solutions implemented in a nine-month period," says Mike Maksymow, vice president and CIO of Beebe Healthcare. The health system met its go-live goal, achieved meaningful use and stayed on budget.
The process of vendor selection and due diligence took approximately two years, but once the contract was signed with Cerner Mr. Maksymow and his team aggressively worked toward go-live on a nine-month deadline. "We kept our project on track. One of the biggest things was to not think of this as an IT project," he says. "It is an organizational program that needs a multidisciplinary team." Beebe's multidisciplinary team pulled resources from a physician advisory group and every corner of the system's governance structure.
Mr. Maksymow's advice for staying on target? Rigor upfront. "Understand the scope, set expectations and engage your physicians and governance," he says. "Limit scope creep; you need laser focus on your project."
Even the best laid budgetary plans can go astray. Instead of allowing this possibility to lurk unaddressed, actively plan ahead. Ensure an appropriate level of contingency is budgeted within the capital investment forecast, says Eric Goodwin, vice president of information services at Charlotte, N.C.-based Carolinas HealthCare System. Cerner is the foundation of the EHR in place at Carolinas. Over the multiyear, multiphase project, Carolinas HealthCare invested approximately $250 million in capital, an amount within the health system's forecasted budget.
"Each phase of our EHR journey was relatively focused in terms of our objectives; our budgets were realistic and forecasted over multiple years. Budgets accounted for the initial capital investments in hardware, software, internal and external services," says Mr. Goodwin. "Additionally we projected the incremental annual operating costs that would be necessary to ensure ongoing customer education as well as support and upgrades."
Carolinas held monthly senior staff-level budget conversations to ensure the project remained on track. Each conversation focused on a review of expenditures, financial forecasts and analysis of available funds. Mr. Goodwin and his team also explored ways to compensate for the significant cost of the EHR. "Financially, we committed to our board-specific measures and goals that helped offset our EHR investment. These included, for example, reduced transcription expense as well as CMS' meaningful use incentives," he says.
Why EHR implementations overshoot the budget
Millions of dollars on the line leave little margin for error, and no one is quick to accept responsibility when costs creep up. "Some vendors are intentionally opaque, but there are far more unintentional than intentional budget overruns," says Paul Merrild, senior vice president of enterprise solutions with athenahealth. "The far more common scenario is a legitimate misforecast of related costs, and especially of the personnel required to run the technology post go-live. Three common reasons EHR implementations stray from the budget include:
• Change in scope. If a project's scope changes mid-implementation (i.e. a hospital decides to implement the EHR at additional locations), the price point changes.
• Shortage of client resources. "A client may not be able to allocate as many resources as they thought they could," says Mr. Neal. "They may need to go to a third party to get those additional resources." Resources on the client end could range from time to manpower.
• Training expectations. "A major [budget] deviation could be when you come to the point of training and educating end-users," says Mr. Neal. "The original expectations might not be sufficient for training thousands of nurses and physicians."
One of the biggest budgetary mistakes is planning only up to the go-live date. IT is a means to an end, rather than an end to itself. If an EHR is implemented by its go-live date, but doesn't deliver on results — more spending is inevitable. "Software vendors have a massive misalignment of incentives," says Mr. Merrild. "They get a huge check upfront for licenses and consulting. They are incented to get customers live on their product, not to get them to high-performance after the go-live date like a vendor charging a percentage of collections."
Handling budgetary derailment
Hospital and health system leaders may play a role in budgetary drama, but it is important vendors have skin in the game. "Hold vendors accountable. Set success milestones and payment milestones," says Mr. Merrild. Make expectations clear upfront, and ensure vendors understand their role in keeping the implementation on track, not only from a budget and timeline perspective, but from an outcomes perspective as well. "Anchor the project on the value you expect to achieve, whether clinical or financial," says Mr. Neal.
Governance plays an essential role in the success or failure of a large scale project like this. Is leadership prepared to make difficult decisions quickly? Indecision can be a budgetary bane. Is leadership prepared to listen to and incorporate vendor best practices? "It is human nature to think what you have done before is the best thing for the future, but there is a set of guidelines that come with the EHR system you chose. Question them and understand them, but they are there for a good reason," says Mr. Neal. Governance that can react quickly and listen is more likely to stem budget leakage and steer EHR implementation back toward its original price point.