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EHR Spending Continues, But Jury Still Out on ROI

Scott Mace, for HealthLeaders Media, March 13, 2014

"We had clinical leaders and management leaders working side by side with Epic technical staff before we implemented anything," he says. "We had done complete redesigns around each of these major areas, so when we implemented the system, it was with a design that was built to drive value in the healthcare environment, both in inpatient and outpatient environments."

Although Sentara organized separate teams for the medical office and its hospitals, leaders also designed the system so that processes would look and feel the same in the inpatient and the outpatient environments, Kern says.

"The value there is that we got much more efficiency and much more value from the way physicians and nurses were able to interact with the system, and from continuity of care with respect to how the patient experience would be with the system."

To measure ROI, the most important metric watched was inpatient length of stay. Because Sentara has largely left fee-for-service payment behind, the shorter the length of stay, the more money the system saves. Kern says Sentara has a combination of DRG and per case reimbursement. "Very little is fee-for-service in our world anymore, and we have a fair amount capitated in the sense that we have our own health plan, and that's probably about 20% of our business," he says.

"We were able to document in a way directly attributable to the electronic medical record how length of stay was reduced in a range of areas," Kern says. In the first year, savings were difficult to measure. "We had to sort things out and make sure we had all our systems stabilized," he says.

But after the second year operating the redesigned system, Sentara has seen a $54 million annual cost savings over operations across the seven hospitals, compared to operations before implementing Epic. Inpatient length of stay only accounted for $15.5 million of that savings. According to Sentara, the rest was achieved through increased outpatient procedures, increased unit efficiency and retention of RNs, and reduced costs associated with transcription services, medical record supplies, medical records personnel, health plans, and IT maintenance.

On the investment side, Sentara's total equipment and systems cost was around $180 million, Kern says. "Our total going-in cost in terms of implementation, training, and support for the back office function from the old system totaled up to about $250 million overall," he says.

Thus, at the current rate of operating cost reductions, Epic will have paid for itself completely at Sentara before the company reaches the end of the fifth year of the $54 million annual savings—2014 at the latest.

"If we didn't do the baseline process redesign and really made sure we were harvesting the value, two things happen," Kern says. "One is you don't really redesign, and there's no pressure then, or burning platform, to redesign the processes to get to that value. Two, you're layering on a lot of cost, from an expensive electronic record, and you don't have anything to show for it, other than the depreciation, maintenance, and licensing fees. Whether you're cost-reimbursed or reimbursed per case or capitation, that's just not good to do from a good business and clinical operation perspective."

The July 2013 HealthLeaders Media Intelligence Report found that 16% of healthcare leaders saw no clinical quality improvement from EHRs, and the leaders interviewed for this story believe that those systems must not have implemented the kind of process redesign that Kern and others speak of.

"Just to give you an example, we avoided 117,400 potential medical medication errors due to the medication bar coding element of the electronic medical record," Kern says. New processes and the EHR reduced medication verification from a 59-minute process to a 5-minute process, and overall medication administration time dropped from 132 minutes to 38 minutes.

Under the pre-Epic system, "we had to actually photocopy the physician's written order, even after the nurse entered it into the nurse order entry system with the old system that we had," Kern says. "The nurse had to then take a photocopy of that physician's written order, send it to the pharmacy, and the pharmacists had to enter the order after reviewing the physician's written order.

"When we redesigned the system around the physician order entry, all of a sudden all that went away, because the physician's order is already in the system and the pharmacist doesn't even have to verify it. It streamlined so much, and from a quality point of view it also took out a huge number of errors and potential errors."

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2 comments on "EHR Spending Continues, But Jury Still Out on ROI"


D.P. Smith, MD (3/17/2014 at 10:10 PM)
It appears to me that our smart medical leaders have been hoodwinked by the IT industry into adopting EHR's without outcome studies to prove their effectiveness(in saving money and improving health care outcomes). A great example of government/industry collusion in order to extract more tax dollars for the IT industry and govt. bureaucrats. DP Smith, MD

Ann Monroe (3/15/2014 at 10:59 AM)
2 thoughts: I wonder what the ROI calculation was when telephones were first installed in healthcare organizations... Also, the true benefit and ROI on coordinated care will only happen when the primary care offices are fully linked in. The Iora example shows the true potential, but as long as this movement is hospital centric, it will fall short of cost and quality benefit to patients, payers and providers alike.