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EMRs and the Bottom Line

July 7, 2011
by John DeGaspari
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HFMA: CFOs view EMRs through the lens of cost and value

As many hospitals embark on the task of selecting and implementing an electronic medical record (EMR), CFOs are confronting two key questions: what funding strategies are available, and once a system is implemented, what is the value proposition that can be expected of the EMR. Both related issues were addressed in separate financial management presentations at the Healthcare Financial Management Association’s ANI conference, held in Orlando, Fla. last week.

M.J. Klimas, managing director of healthcare, Institutions and government finance, Bank of America Merrill Lynch, Wexford, Pa., led a panel discussion between healthcare providers as well as financial experts. She noted that 40 percent of healthcare providers today indicate that EMR represents a majority of their capital budget. Many hospitals will turn to banks to provide financial solutions to fund their capital expenditures in 2012, she said.

According to Brad Swenson, vice president and national healthcare leader of the Minnetonka, Minn.-based Winthrop Resources Corp., a financial consultancy, said the challenge of the American Recovery and Reinvestment Act-Health Information Technology for Economic and Clinical Health (ARRA-HITECH) Act will be to implement all of the systems, pay for them today, and for the next few years, figure out how to use them in a meaningful way each year. He believes that Stage 2 meaningful use requirements should be delayed for hospitals that have already attested for Stage 1.

As hospitals progress through meaningful use, they must implement EMR systems that are interoperable, and capable of exchanging data via health information exchange and bi-directional communication between physician and patient, he said. While health reform, ARRA incentives and definitions of Stages 2 and 3 are known forces of change, hospitals will also encounter unknown issues, such as additional technological requirements for software requirements, infrastructure changes and new integration technologies, as well—all of which have cost factors. “It’s important to have a strategic plan, but there is a lot we don’t know,” he said.

Swenson advises hospitals selecting an EMR to think of its requirements in terms of “buckets”: hardware infrastructure, clinical equipment, services, and applications, and to form a financial strategy around each of those areas; for example, the kinds of maintenance costs around certain pieces of technology, he said. In addition, he said hospitals should consider the costs associated with changes to maintain acceptable technology.

Tim Brooks, senior vice president of healthcare and institutions finance at Bank of America Merrill Lynch, Baltimore, said it is important to know who the stakeholders are in the hospital when forming a strategic plan around costs. He noted that an EMR is an enterprise-wide project and will be an ongoing expense. “Whether it’s the IT shop, the physicians, finance or the operators, they need to have a look and everybody buy into it. That’s the key to understanding where we need to budget and make sure that we operate within the capabilities that we say are going to happen—particularly for physicians,” he said.

He said hospitals have various debt term financing options to meet short- medium- and long-term capital requirements for paying for an EMR system. Options range from a line of bank credit for short-term capital to bond issues for long-term strategy, and tax-exempt solutions and fair-market value financing for medium-term capital needs, he said.

Part of the discussion that needs to take place is the fit from a legacy perspective: how long the hospital will use the piece of equipment. “That decision needs to be made by the operators, the finance staff, and the IT staff, what makes sense from the equipment standpoint,” he said.

Britt Tabor is senior vice president and CFO of Erlanger Health System, Chattanooga, Tenn., an 800-bed academic health center with 120 employed physicians. He said that getting all of the stakeholders in the hospital on board was a key to successful implementation of the system’s EMR. He added that productivity at the department level was also a concern, with training requirements and integrating certain departments. One additional challenge was certification of the software interfaces. “Erlanger has over 100 interfaces, and we realized that needed to be upgraded. It took a lot of extra set-up time and staff to do that,” he said.

Tabor said that Erlanger negotiated financing that was flexible, allowing it to change equipment without being penalized. “We wanted to make sure that we were at the most effective piece of software and equipment at any point in time,” he said.

Dennis Scanlon, CFO and vice president of finance of Doctor’s Community Hospital, Lanham, Md., a 200-bed community hospital with about $210 million in revenues. He said that good communication, from the president’s office down to everyone in the organization, is the key to successful EMR implementation. “Every department has its own idiosyncrasies, and we have to make sure each department is served well and their needs are met,” he said.

Scanlon also said that better outcomes, and sharing information among professionals inside and outside the hospital, are key factors as the hospital moves forward on meaningful use. He said that reimbursements are projected to be $6.7 million over the next four years.

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