a cost-benefit analysis of electronic medical

Question

A cost-benefit analysis of electronic medical records in primary care

There are two categories of costs associated with electronic medical record implementation: system costs and induced costs (Table 1). System costs include the cost of the software and hardware, training, implementation, and ongoing maintenance and support. Induced costs are those involved in the transition from a paper to electronic system, such as the temporary decrease in provider productivity after implementation.

Table 1. Costs of Electronic Medical Record System Used in the Model (Per Provider in 2002 U.S. Dollars)

	Base Case	Sensitivity Analysis (Range)	Reference
System costs
Software (annual license)	$1600	$800-$3200	*
Implementation	$3400		†
Support and maintenance	$1500	$750-$3000	*
Hardware (3 computers + network)	$6600	$3300-$9900	*
Induced costs
Temporary productivity loss	$11,200	$5500-$16,500	*

The software costs of $1600 per provider per year were based on the costs for our electronic medical record system at Partners HealthCare on an annual per-provider basis (as an "application service provider" model); this figure includes the costs of the design and development of the system, interfaces to other systems (e.g., registration, scheduling, laboratory), periodic upgrades, and costs of user accounts for support staff. Although these software costs were based on our internally developed system, they are consistent with license fees for commercially available systems, which have been estimated at between $2500 and $3500 per provider for the initial software purchase, plus annual maintenance and support fees of 12% to 18% (K. MacDonald, First Consulting Group, Lexington, Massachusetts, written communication, 1999). In sensitivity analyses, software costs were varied from 50% to 200% of the base value.
Implementation costs, estimated at $3400 per provider in the first year, included workflow process redesign, training, and historical paper chart abstracting. Ongoing annual maintenance and support costs were estimated to be $1500 per provider per year and included the costs of additional technical support staff and system/network administration.

Hardware costs were calculated to be $6600 per provider for three desktop computers, a printer, and network installation. We assumed that hardware would be replaced every 3 years.

Based on our experience, we modeled the induced costs of temporary loss of productivity using a decreasing stepwise approach, assuming an initial productivity loss of 20% in the first month, 10% in the second month, and 5% in the third month, with a subsequent return to baseline productivity levels. Using the average annual provider revenues for our model patient panel, this amounted to a revenue loss of $11,200 in the first year.

Benefits

Financial benefits included averted costs and increased revenues. We obtained figures for average annual expenditures for a primary care provider at our institution before the implementation of an electronic medical record, and applied to this the estimated percentage cost savings after implementation (Table 2). For each item, the estimated savings was varied across the indicated range of values in the sensitivity analysis. Benefits were divided into three categories: payer-independent benefits, benefits under capitated reimbursement, and benefits under fee-for-service reimbursement 32, 33, 34, 35, 36, 37, 38, 39, 40.

	Annual Expenditures before Implementation		Expected Savings after Implementation
	Amount	Reference	Base Case Estimated Savings	Sensitivity Analysis (Range)	Reference
Payer independent
Chart pulls	$5 (per chart)	*	600 charts	300-1200	*
Transcription	$9600	*	28%	20%-100%	*,32
Capitated patients
Adverse drug events	$6500	33-36	34%	10%-70%	‡
Drug utilization	$109,000	†	15%	5%-25%	‡
Laboratory utilization	$27,600	†	8.8%	0-13%	37-39
Radiology utilization	$59,100	†	14%	5%-20%	‡
Fee-for-service patients
Charge capture	$383,100	†	2% (increase)	1.5%-5%	25, 40
Billing errors	$9700	†	78%	35%-95%	‡

*Primary data from the Partners HealthCare Electronic Medical Record System, Boston, Massachusetts.
†From the Department of Finance, Brigham and Women's Hospital, Partners HealthCare System.

‡Expert panel consensus.

Payer-independent benefits, which apply to both capitated and fee-for-service patients, come from reductions in paper chart pulls and transcription. The average cost of a chart pull at our institution is approximately $5, accounting for the time and cost of medical records personnel to retrieve and then re-file a paper chart. After conversion to the electronic medical record system, chart pulls can be reduced by 600 charts (range, 300 to 1200) per year, based on the experience at one Partners HealthCare clinic. Transcription costs were reduced by 28% from partial elimination of dictation. In the sensitivity analysis, we varied the savings from 20% to 100% based on the experiences from other implementations.

Benefits under capitated reimbursement accrue to the practice and health care organization primarily from averted costs as a result of decreased utilization. Clinical decision support alerts and reminders can decrease utilization by reducing adverse drug events, offering alternatives to expensive medications, and reducing the use of laboratory and radiology tests 37, 38, 39, 41, 42, 43, 44. The expert panel consensus was that adverse drug events would be reduced by approximately 34% (range, 10% to 70%) as a result of basic medication decision support. We used standard financial benchmarks 33, 34, 35 to assign baseline costs for adverse drug events, which took into account additional outpatient visits, prescriptions, and admissions due to adverse drug events.

The expert panel estimated that alternative drug suggestion reminders would save 15% (range, 5% to 25%) of total drug costs per year, and this was applied to the baseline annual drug expenditures for the capitated patients in the panel. We estimated that laboratory charges could be reduced by 8.8% (range, 0 to 13%) using decision support 37, 38, 39. Based on information from other studies, the expert panel estimated that decision support for radiology ordering would achieve average savings of 14% (range, 5% to 20%).

Benefits under fee-for-service reimbursement included increased revenue and reduced losses. Computerizing the encounter form process can improve the capture of in-office procedures that were performed but not documented. Based on other studies 25, 40, we projected a 2% improvement in billing capture (range, 1.5% to 5%). By using an electronic medical record system that either supplies or prompts for certain required fields, billing error losses can be reduced. The expert panel estimated that computerizing the encounter form could decrease these errors by 78% (range, 35% to 95%).