The Economic Impact of Implementing Electronic Medical Records (EMR) in the United States

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Table of Contents

Introduction
Need for EMRs
Economic Costs
Economic Benefits
Discussion
Conclusion
References

Introduction

Electronic medical records (EMRs) are becoming the standard in the health care industry with more health care institutions replacing their old paper based medical records (PMR) with this new systems.

This move to EMRs has been prompted by the numerous benefits that these computer-based systems propose to bring to the health care industry. In recognition of the positive role that EMRs play in the health care industry, the Federal Government in the United States is a major proponent of these systems with financial incentives being offered for health care practitioners to make the switch.

These government efforts have led to the adoption of the new system by health care providers who would otherwise have cited financial constraints as the reason for not adopting EMRs. As they are deployed on a widespread basis, EMRs can be expected to have significant economic implications on the health care industry and the nation as a whole.

This paper will set out to discuss the economic impact of implementing EMRs in the United States with focus on the benefits and costs attributed to the systems. The paper will begin by highlighting the reasons why EMRs are becoming the standard and proceed to document the inherent benefits and costs of implementation.

Need for EMRs

Health care providers are constantly trying to increase their effectiveness and efficiency and one of the ways that this is being achieved is through EMRs. By definition, an EMR system is an electronic version of the paper based medical records that contains a patient’s “personal medical history, test results, dictations, and other medical and financial information” (Brooks & Grotz, 2010, p.73). EMRs are envisioned to replace the PMRs, which have been the standard documentation tool for physicians for over a century.

Part of the motivation for adopting EMRs is to overcome some of the inherent faults of PMRs. These faults include illegible handwritings, partial patient data, and data separation. These problems decrease the quality of care provided to patients (especially return patients) and decreases the efficiency of physicians.

EMR systems overcome these setbacks since the data is stored in a legible and consistent manner in the system database. EMRs promise quality improvement by increasing doctor effectiveness and efficiency, encouraging adherence to evidence-based guidelines, and fostering patient safety.

Economic Costs

Before any gains can be obtained from the EMR system, some significant costs will have to be met. Wang (2003) agrees that implementing an EMR system will have some real monetary costs for the health care organization or private practitioner who is making the change to this system. These costs can be divided into direct costs, which are the direct expenses incurred in the implementation process and indirect costs which are costs that occur as a consequence of adopting EMRs.

Direct Costs

Implementing EMRs will require the purchase of the necessary hardware and software to run the system. This is a substantial investment since EMR systems are normally costly.

It is estimated that EMR implementation for an individual physician will range from $25,000 to $60,000 while the cost will be in the millions of dollars for large hospitals (Brooks & Grotz, 2010). The financial cost of implementing EMRs does not end with the initial installation of the hardware and software. Some of the software required to run EMRs is licensed and requires annual renewal fees.

Over the duration that the system is being used, numerous maintenance services will have to be undertaken. Hospitals and individual physicians have to engage in consultancy with information technology professionals to ensure that their systems are running well. Considering that better programs emerge over time, the health care providers will incur constant upgrading costs.

In addition to the initial cost of installing the system, healthcare providers will have to make investments in training physicians to use the new systems. Hospitals will need to set aside time for physicians to learn the new EMR systems since training is integral to the successful implementation of EMRs.

Because doctors will have to use some of their work time in training sessions, the productivity of the healthcare provider will decrease leading to negative economic outcomes. The hospital will also have to incur the cost of paying the experts who will be running the training sessions.

Health care institutes may have to hire extra staff to assist in the entry of patient data into the newly installed EMR system. When the EMR system is installed, the health care institution will have to fill its database with records of past patients since an EMR system is of greatest benefit if its databases are populated with the relevant information from patient past records.

It is very unlikely that the physicians will have the time to engage in this labor-intensive task. The hospital will therefore have to get temporary staff who will engage in this task. Depending on the patient population of the hospital and how far back its records go, this task might be considerably expensive.

The society will also incur some economic cost as health care facilities make the transition to EMRs. Implementation of the EMR system will be costly to the taxpayer since the government has set aside money to assist in the transition from paper based medical records to EMRs. In 2009, President Obama allocated $17.2 billion of the economic stimulus package to the healthcare industry to assist in the adoption of healthcare information technologies including EMRs.

Brooks and Grotz (2010) document that in a period of five years, individual physicians would receive an excess of $40,000 each to assist in the implementation of EMRs. The government is offering these incentives since it recognizes that health care providers will incur significant costs as they switch to EMRs. However, the taxpayers are the ones who will shoulder the cost of the generous financial incentives offered by the Federal government.

Indirect Costs

As with any other new system, transitioning to the EMRs will hamper with the traditional operations of the hospital. Health organizations will have to incur the costs associated with decreased productivity as the doctors make the transition to the EMR system.

Research by Brooks and Grotz (2010) asserts that organizations will have to incur costs of “decreased productivity as well as lost revenue due to reduced provider schedule during the ‘go-live’ time period” (p.79). The productivity will demonstrate reduced performance and their productivity will suffer as they familiarize themselves with the new system.

EMRs might decrease the positive public image of physicians since they will lead to higher costs for patients. Brooks and Grotz (2010) note that the most doctors under charge their patients due to a lack of confidence in how to carry out billing or generosity which makes them select the minimum billing code.

With EMRs, doctors will have to bill patients in accordance to the services provided. This will lead to a perception of being overcharged for most patients. They might therefore stop employing the services of the particular hospital that is using EMRs leading to a loss in revenue.

Economic Benefits

Benefits to Health Care Providers

The EMR system reduced the costs associated with management of patient’s clinical records. The health care industry in the US incurs costs of up to $1 billion on the management of medical records. Barlow, et al. (2004) reveals that most of these expenses are incurred during the transcription of physician voice notes into paper record.

By implementing an EMR system, these costs are drastically reduced or even eliminated all together. Research by Barlow, et al. (2004) demonstrated that the transcription expenses for physicians dropped from $1million annually before the implementation of an EMR system to less than $620,000 after implementation. This figure was expected to go even lower as more doctors gained proficiency in the use of EMRs.

Tan and Payton (2010) assert that the billing function of EMRs is typically the area where the largest financial gains can be realized. EMRs will lead to an increase in the hospitals earnings by ensuring that doctors bill the patients appropriately.

Billing is a very important function in the health care industry since it determines the amount of money that physicians get for their services. Traditionally, doctors have lacked confidence in how to carry out billing and this has led to undercharging. EMRs introduce coding levels that ensure that physicians bill their patients according to the level of care that is documented in the system.

This is an important feature since as Barlow et al. (2004) reveal, most physicians using PMRs often down-code leading to significant monetary losses. With the use of EMRs, doctors are provided with templates for recording the level of care provided and bills are structured based on this care. This results in significant revenue enhancement for the health care provider by decreasing incidents of under-coding.

EMRs enable physicians to serve more patients therefore increasing the productivity of the hospital. When using EMRs, physicians are saved from spending significant amounts of their time on routine tasks such as retrieving patient records, dictation, billing, and pharmacy.

Research by Tang, LaRosa, and Gorden (1999) revealed that most doctors spent up to 38% of their time engaging in dictation and manual patient record retrieval. This is not good use of the doctor’s time and the more efficient EMR system ensures that doctors are freed from these routine burdens. This translates to higher income generation by the institution as the doctor serves a higher number of patients.

EMRs contribute directly to improvements in patient safety and this has some economic implications. To begin with, the improved quality in guideline adherence by physicians leads to better health outcomes for patients, as doctors are encouraged to use best practices in the industry (Tang et al., 1999).

The status of the hospital as a high quality health care facility is fostered and high costs of medical care to patients can be justified on this basis. Improved patient safety reduces the costs that the hospital would incur from legal action against physicians in cases of medical malpractice. The hospital’s expenses are therefore reduced as such cases are mitigated because of use of EMRs.

EMRs are able to eliminate medical errors due to the improved level access to relevant information by the doctors. Research by Wang (2003) indicated that use of EMRs in primary care led to a 15% increase in adverse drug events prevention. By avoiding medical errors, physicians are able to save the hospital significant amounts of money that would be used rectifying the error or engaging in lawsuits filed by patients. Patients demonstrate improved satisfaction when doctors do not make any errors while serving them.

In addition to the direct economic gains caused by EMRs, the system might bring about some intangible benefits. Tan and Payton (2010) suggest that EMRs might lead to employee and patient satisfaction. Employee dissatisfaction can lead to significant costly for a hospital since it is likely to result in high turnover rates.

When the turnover rate is high, the hospital’s productivity will suffer since the most talented staff will be leaving the organization in search of health care institutions where employee satisfaction is higher. In addition to this, high turnover is associated with increased costs since the cost of hiring new staff is high.

The hospital will also incur extra costs as the new staff is oriented into the system. The employee satisfaction derived from implementation of EMR systems will therefore result in economic benefits by preventing the hospital from suffering from the costs associated with employee dissatisfaction. While these intangible benefits are difficult to quantify in economic terms, research suggests that they can be attributed to EMRs.

Benefits to Patients and Society

The former US president, George Bush, expressed his firm conviction that the universal adoption of EMRs in the health care industry would contribute to the reduction of healthcare costs in the country.

This conviction is shared by the current president, Barrack Obama who continues to support government efforts to ensure widespread adoption of EMRs. Implementation of EMRs will reduce the administrative duties that hospitals currently incur. The manual system has many time-consuming administrative tasks that have to be undertaken by employees.

EMRs will assist in the streamlining of these tasks and take care of tasks such as documentation, referral reports, and chart maintenance through automation. A study by Barlow et al. (2004) on the economic impact of an EMR on a hospital found out that implementing the EMR had the direct impact of reducing the clerical duties leading to a reduction of more than 26% of the clerical staff. This saved the hospital up to $400,000 annually.

Implementation of EMRs might lead to lower health care costs for the patient. The current high cost of health care services is caused by redundancies in the industry. In the US, duplicate tests lead to patients being charged more for their health care. EMRs ensure that healthcare providers run efficiently and this might cause a reduction in health care costs. By having records in a digital format, doctors who work in different institutions can easily access patient records.

This will assist in a better-coordinated health care provision. The high costs incurred by unnecessary duplicate tests will not be there since the current doctor will be able to use the available results to treat the patient. EMRs will also improve prescription therefore avoiding unnecessary drug charges. Wang (2003) demonstrates that EMRs lead more cost-effective prescribing practices by physicians therefore delivering a net benefit for the hospital and the society.

Certain long-term benefits in community health have been attributed to EMRs. The systems have been proposed to result in better health outcomes for the society. Specifically, implementation of these systems will result in fewer hospitalizations as the EMRs promote preventative health care (Tan & Payton, 2010).

The lower disease burden that will be experienced will benefit the patients and the society as a whole. Lima (2004) notes that features of an EMR system encourage primary care making it possible for front office staff to help patient by scheduling them for preventative and primary care. This has the potential of reducing the costs associated with treating severe illnesses and hospitalization.

Discussion

EMR systems are becoming the standard in the health care industry due to the benefits they promise to accrue. The government has also set the year 2015 as the deadline within which all practitioners should have replaced their PMRs with EMRs making it mandatory for all to adopt the new systems. This paper has revealed that these systems come at a significant economic cost for the health care providers and the society.

Deployment of the EMR systems will have an enormous initial cost for the healthcare industry. Considering the significant economic costs of implementing an EMR, health care institutes and private practitioners need to engage in planning and budgeting with focus on the financial impacts of investing in an EMR. However, this cost can be justified by the significant economic returns that EMRs promise to bring to the industry.

The analysis provided in this paper demonstrates that while EMR adoption is costly, physicians are guaranteed to have a timely return on investment as they reap the benefits of the systems. It is important to note that the positive economic impacts of EMRs are not only enjoyed by health care providers but also by the patients and the entire society. These systems are therefore beneficial for the United States since they bring value to all the stakeholders in the health care industry.

Conclusion

This paper set out to discuss the economic implication of implementing EMRs. To this end, the paper has demonstrated that implementation of an EMR results in significant expenses for the healthcare institution. Purchasing the necessary hardware and software is a huge capital investment especially for private practitioners. In addition to this cost, health care providers have to budget for recurring costs for software licensing, computer maintenance, and system upgrades.

However, EMRs also bring about significant economic gains for the hospital. EMRs lead to increased revenues by enhancing the billing system and reducing the time taken to access files. They also reduce the operational expenses of the institution since automation cuts the costs for transcription expenses and the file retrieval and maintenance expenses.

In addition to the effects that EMRs would have on the cash flow of healthcare providers, the paper has also highlighted the benefits that will be accrued from time freed up for doctors to deal with more patients and the improvements to quality and services provided.

It can therefore be declared that while initial implementation costs act as the main barrier to the widespread adoption of EMRs especially by modestly sized and small practices, the significant economic benefits highlighted in this paper serve as a justification for investing in these systems.

References

Barlow, S., Johnson, J., & Steck, J. (2004). The Economic Effect of Implementing an EMR in an Outpatient Clinical Setting. Journal of Healthcare Information Management, 18(1), 46-51.

Brooks, R., & Grotz, C. (2010). Implementation Of Electronic Medical Records: How Healthcare Providers Are Managing The Challenges Of Going Digital. Journal of Business & Economics Research, 8(6), 73-84.

Lima, S. (2004). Practical Introduction to Health Information Management. NY: Jones & Bartlett Learning.

Tan, J., & Payton, C. (2010). Adaptive Health Management Information Systems: Concepts, Cases, & Practical Applications. NY: Jones & Bartlett Publishers.

Tang, P., LaRosa, M., & Gorden, S. (1999). Use of computer-based records, completeness of documentation, and appropriateness of documented clinical decisions. J Am Med Inform Assoc, 6(3), 245–251.

Wang, S.J. (2003). A cost-benefit analysis of electronic medical records in primary care. The American Journal of Medicine, 114(3), 397-403.

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