A Retrospective Look-Back
By Richard J. Mata; MD, CIS, CMP™
Studies by the Organization for Economic Cooperation and Development (OECD) show that healthcare spending in the U.S. accounts for 16-17% of GDP, which is more than six-seven percentage points higher than the average of 8.9% in other OECD countries. This translates into per capita health spending of $5,635 in the U.S. compared with median costs of $2,280 in other OECD countries.[1] Suggestions as to the economic drivers of U.S. health spending include excessive service use, administrative complexity, population aging, threats of malpractice litigation, defensive medicine practices, and the lack of patient waiting lists. In further comparisons with the OECD countries, it appears the U.S. overpays for physician visits, hospital stays, and pharmaceuticals.
In the Year 2004
A 2004 OECD paper suggested that one way of improving performance would be to move towards EHR:
Health systems should invest in automated health-data systems, including electronic medical records and systems to automate medication orders in hospitals. Better systems for recording and tracking data on patients, health and health care are needed to make major improvements in the quality of care.[2]
In the U.S., possible savings from the adoption of EHR have been projected to reach $142 billion in physician office visits, and $371 billion in hospital costs over a 15-year period. These projections have not been validated by the experience in other OECD countries where the adoption movement is ahead of U.S. efforts by anything from four to thirteen years.
Nevertheless, the U.S. began its quest to move towards EHR in 2004 as medical software companies began actively marketing their systems, although funding for this endeavor did not come through until 2006. In spite of this effort, the U.S. has the lowest percentage of physician providers using any EHR compared to Germany, Canada, United Kingdom, and Australia. The U. S. physicians’ low adoption rate involves fear of the loss of productivity, lack of financial incentives, and high startup costs of as high as $40,000 per physician EHR adoption.
When spending on IT implementation in the healthcare system is compared on an international level, the U.S. lags dramatically behind the major OECD countries. The U.S. spends $0.43 per capita compared to a high of $193 in the U.K. This difference is even more dramatic when compared with the German experience, where IT adoption in the healthcare system is almost universal. In thirteen years, Germany has spent $1.88 billion. Their annual per capita cost has been $1.63. The U.S. has reached only 25% of that expenditure so far.
Barriers to Adoption
The greatest barrier to adoption of EHR in most OECD countries has been the need to simplify the health insurance contracts payment structures with standard nomenclatures that can be adapted to EHR. The major OECD countries also report that there must be a national adoption of IT standards in the healthcare system as well as a national effort to focus on privacy and confidentiality standards. This assures better coordination of implementation and provides better strategies for adoptions through public incentives and grants.
Domestic 5 Year Costs
In the U.S., the five-year costs for a national IT healthcare network have been estimated to be as high as $103 billion in capital and $53 billion in interoperability. Hospital costs for functionality were estimated to be $51 billion, skilled nursing facilities would bear $31 billion of costs, and physician offices would bear $18 billion of the costs. (Anderson, 2006) EHR systems that have been implemented have been used mainly for administrative rather than clinical purposes.
In the Year 2005
A 2005 study by Richard Hillestad and colleagues at RAND[3] estimates that implementation of a nationwide EHR network would take about 15 years and cost hospitals about $98 billion and physicians about $17 billion. Over the 15-year period, the average annual cost to hospitals would be $6.5 billion and the average annual cost to physicians would be $1.1 billion (CQ HealthBeat [1], 9/14). However, if 90% of providers adopted such a network, annual savings would total $81 billion, including $77 billion from improved efficiency and $4 billion from reduced medical errors, the RAND study found. The study estimates that an EHR network would reduce adverse drug events in inpatient hospital settings by 200,000 annually and reduce such events in ambulatory settings by two million annually, saving $1 billion annually in hospitals and $3.5 billion in ambulatory settings. For hospitals, about 60% of these savings would be from reduced adverse drug events in patients ages 65 and older, while 40% of savings to ambulatory practices from reduced medication errors would be in patients 65 and older (CQ HealthBeat [1], 9/14).
Assessment
In addition, the study estimates that a national EHR network would save Medicare about $23 billion annually and save private insurers about $31 billion annually. The study projects that the estimated total annual savings of $81 billion would double if providers followed all checkup reminders and other prompts from the system (AP/Las Vegas Sun, 9/14). Currently, about 20% to 25% of hospitals and 15% to 20% of physician offices have EHR systems, according to the study (CQ HealthBeat [1], 9/14).
But, what is the estimated cost in 2010?
Conclusion
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References:
[1] For details of the report, see www.oecd.org/dataoecd/29/52/36960035.pdf.
[2] OECD, Towards High-Performing Health Systems, see http://www.oecd.org/document/26/0,2340,en_2649_37407_31734042_1_1_1_37407,00.htm.
[3] See www.rand.org/health/feature/2006/060414_shekelle.html. The report is also discussed in some detail in Neergaard, AP/Las Vegas Sun, 9/14/05. See www.ihealthbeat.org/index.cfm?Action=dspItem&itemID=114707.
Filed under: Health Economics, Information Technology, Practice Management, Subscribe CD-ROM Journal Tagged: | EHRs, EMRs, GDP, HIT, HIT costs, HIT expenditures, OECD, Richard J. Mata, Richard Mata, www.healthcarefinancials.com
The Effects of Health Information Management Systems [not physician eHR systems] on the Cost of Medical Care
To justify the cost of a hospital based HIMS, management should calculate the following:
• Reductions in labor costs: Factors that contribute to cost reductions include a decrease in manual or clerical tasks and streamlining the work processes of clinicians. Productivity gains can be in the neighborhood of 10%.
• Reductions in the need for equipment and supplies: Standardization and better inventory management through computerization is beneficial in this area.
• Increased revenue generation: Improved charge capture and elimination of lost charges occurs through a CPOE system, along with a decrease in outstanding days of receivables, which can improve revenue generation. Elimination of written charge slips and the passing of charges from used services directly to the accounting system through a computer interface also can result in revenue generation. Expected charge revenue increases can amount to 10% to 30% over a previous manual system.
• Improved employee satisfaction: Once past the “learning curve,” increased employee satisfaction (e.g., through streamlining processes and eliminating redundant tasks) contributes to employee retention and decreases turnover costs.
• Improvements in LOS and healthcare charges per admission: Decreased charges and reduced average LOS may lead to a contractual advantage with managed care and other payors as they direct more patients to the cost-favorable institution. For “at-risk” reimbursement, such as capitation, per diem, and case rates, reduced resource utilization can lead directly to more relative revenue for the hospital or medical center.
• Enhancements in quality of care: Although hard to quantify financially, quality of care improvements, especially if publicized outside the hospital, may lead to physicians steering more patients to the institution. In addition, given the new consumerism in healthcare, the importance of patients feeling comfortable with the quality of care in an institution may further enhance revenue if patients say “I choose this hospital since they use the latest advances to care for patients.”
• Legal and regulatory: An increase in care quality, including a reduction in errors due to an information system, may lead to a reduction in malpractice insurance premiums. Reporting of quality of care measure results to regulatory institutions such as the Joint Commission and CMS may be streamlined, saving the cost of preparing the reports manually.
Assessment
There are several ways that HIS can show a positive ROI. One means is through an increase in workflow efficiency. Although this increase in efficiency may be hard to quantify using reduction in FTEs, the improvements are real and are cost saving.
For example, in an integrated system tests performed and services rendered can be automatically invoiced to payors or to patients, thus eliminating the need for clerical personnel to perform such tasks.
Source: http://www.HealthcareFinancials.com
Electronic health records become increasingly costlier — Even though a return on investment for eHRs is already doubtful, storing PHI on computers in dental offices will never be any cheaper — Here is an article that was posted today on Chief Security Officers Website.
http://blog.chiefsecurityofficers.com/2010/08/new-hipaa-tougher-breach-notification.html
HIPAA – New tougher breach notification requirements coming this fall
Tuesday, August 31, 2010
There has been an outpouring of concern from lawmakers and privacy advocates that the current breach notification rules specified under the HIPAA HITECH Act are inadequate.
Rules specify when HIPAA covered entities must tell patients about the improper use or disclosure of information in their medical records.
Breaches are becoming more frequent with the growing use of health information technology, social networking and the Internet.
The Privacy Clearinghouse estimates that more than five million people have been affected by breaches of medical information in the last 18 months. In the current regulation covered entities have to notify patients of a privacy breach only if they found that the violation posed “a significant risk of financial, reputational or other harm to the individual.”
The concern is that this risk-based threshhold is too open to interpretation. Therefore, the Department of Health and Human Services is going back to the drawing board and will issue a final regulation this fall. The government is going to have to come up with a harm threshold that isn’t left to interpretation. It will be interesting to see what they come up with …
Darrell K. Pruitt DDS
Dr. Mata and Pruitt
Did You Know That Medicaid Programs Now Receive CMS Matching Funds for eHRs?
Four state Medicaid programs will receive more than $6.9 million in total matching funds from the CMS to help them implement the electronic health record incentive program created by the stimulus law. This last round of funds brings the total matching dollars awarded to $81.44 million, for 49 states and the District of Columbia, Puerto Rico, and the U.S.Virgin Islands, the CMS recently said.
The HITECH provisions of the stimulus law stipulate that eligible Medicaid providers can receive up to 85% of $75,000 – or $63,750 – in incentive payments over six years for EHR implementation, use, and support services.
Source: Maureen McKinney, Health IT Strategist [9/14/10]