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Add Disruption, Margin Contraction to High Cost of EMR Install

News  |  By Philip Betbeze  
   July 25, 2017

EHR/EMR conversions and upgrades can significantly affect hospital operations and credit quality, but for most organizations, the negative impact is limited to a one-year decline in cash flow and liquidity.

Don’t believe the hype about electronic health record system installations making a positive impact on your hospital or health system’s finances, at least not right away. In fact, while there may be good reasons to undertake such a massive disruption, conversions and upgrades can result in prolonged margin contraction as well as negatively affect credit quality, according to a new report from Moody’s Investors Service.

The analysis by Moody’s shows that most hospitals that have recently executed EMR and revenue cycle installations navigated the disruptions successfully, but at the cost of reduced revenue and increased expenses outside the cost of the new IT itself.

If well managed, the analysis found, the disruption could be limited to a single year.

The subjects of the analysis were Moody’s rated organizations that ranged in annual revenues from $170 million to $3.8 billion, suggesting that size did not play an outsized role in whether the transitions were managed well. Most institutions studied completed the installations all at once, often referred to as a “big bang” approach, rather than staged over a number of months or years.

The hospitals that underwent such a conversion experienced a median drop in absolute operating cash flow of 10.1% during the installation year. Unsurprisingly, the period immediately preceding and following the go-live installation phase brings the most margin compression.

Generally, if recovery is not seen within a year, the health system risks being viewed differently by bond rating agencies.

Moody’s references the rating downgrades experienced by Wake Forest Baptist in 2013 and 2014 as a direct result of that health system’s high level of business interruption during the installation and go-live phase, which resulted in weakened financial performance and narrowed debt service coverage. The health system has since recovered.

Many hospitals and health systems’ management teams are evolving in their views of EMR and other IT investments. Where they were once seen as one-time capital expenses, they are now being viewed as a utility, or cost of doing business.

That means they will continue to invest in such capabilities despite the disruptions they bring about because they are viewed as needed to boost patient safety, clinical quality and provide decision support to clinicians.

Such investments become even more essential as hospitals seek to prevent cyberattacks, enter into risk-bearing contracts with payers, or establish their own risk-bearing insurance products. IT is also seen as a selling point in physician recruitment and retention, as well as a way to meet new data reporting requirements for Medicare.  

Philip Betbeze is the senior leadership editor at HealthLeaders.


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