Hospital CIOs: EHR Carrot Too Small, Stick Too Big

HealthLeaders Media Staff, April 16, 2009

A new survey of hospital CIOs finds that the federal government's $36 billion "carrot" of financial reimbursements to install electronic health records won't be nearly as powerful an incentive as the "stick" of reduced Medicare reimbursements if they don't.

The survey of 100 hospital CIOs was conducted in March and released today in a report by PricewaterhouseCoopers LLP Health Research Institute entitled, Rock and a Hard Place: An Analysis of the $36 Billion Impact From Health IT Stimulus Funding.

"The stick, even more than the carrot, makes a fiscally compelling argument for adopting electronic health records," says Daniel Garrett, managing director of PricewaterhouseCoopers' health industries technology practice. "It's a small carrot compared to the amount of resources it will take to deploy this technology over the next five years. If an organization wants to have an enterprise-wide EHR up and running by 2011, they've got to start now. The incentives eventually go away and the stick will only get bigger."

The general consensus among the CIOs was that the $36 billion earmarked for interoperable EHR in President Obama's $787 billion federal stimulus package won't come close to covering the costs of implementing the nationwide system, and that hospitals are struggling to find ways to pay for the new technology.

The survey also found that:

  • 82% of hospital CIOs have already cut IT spending budgets in 2009 by an average of 10%, with one in 10 making more drastic cuts of greater than 30%.
  • 66% of CIOs say they expect to be asked to make further cuts in IT spending before the end of 2009.
  • 64% of CIOs agreed that it is impossible to balance demand with the need to cut costs.
  • One-half of CIOs with more than 500 beds say that federal funding is "crucial" to their ability to implement EHRs.

To help drive adoption of EHR by 2015, the federal government is investing $33 billion in incentives to providers. A PwC analysis shows that a 500-bed hospital could receive an average of $6.1 million in incentives to purchase, deploy, and maintain a government-certified, interoperable EHR. By comparison, the average 500-bed hospital that fails to implement a system by 2015 could see a reduction in Medicare funding by $3.2 million or more, depending on their Medicare volume.

A recent Robert Wood Johnson survey of more than 3,000 U.S. hospitals found that only 9% were using EHR. “The numbers are disappointing and certainly lower than we thought when we went into this study,” says Ashish Jha, the lead author of the study and an associate professor of health policy and management at Harvard University. “It just suggests that these systems are expensive and difficult to put in on some level and a vast majority of hospitals haven’t felt like it’s been worth doing yet.”

Jha says hospitals shouldn’t assume that the government’s goalposts on EHR incentives and deadlines can’t be moved. “I wouldn’t be surprised if there was more money that came flowing into this topic from the federal government, beyond the money that is already there,” he says. “Given the way politics works, I wouldn’t be surprised if the stick that goes in effect in 2015 goes away. A bunch of hospitals will lobby Congress and Congress says no penalties for a couple more years.”

PwC estimates that the average three-physician practice can expect to invest between $173,750 and $296,000 over two years to purchase and maintain an EHR system. Individual physicians, not practices, can receive up to a total of $44,000 each for adopting certified EHRs. Like hospitals, the penalties may be severe enough to motivate compliance with government-certified systems.

While providers may realize some return on their EHR investment, the primary return on investment is expected to mostly accrue to private and public payers. The federal government estimates that the conversion to digital records will save $12 billion in healthcare spending over 10 years, which presumably would be seen in lower Medicare and Medicaid outlays. Since hospitals are the biggest beneficiary of government health spending, they are most likely to experience the biggest reductions.

"Some of the hardest work to be done in healthcare reform is still undone—that of an overall alignment of financial incentives from acute care and disease to wellness and prevention," says David Levy, MD, PwC's global healthcare sector leader. "Ultimately, technology may enable the capture, analytics, and transparency required to make a patient-centered health system a reality."

The amount an individual hospital will receive in health IT stimulus funding has nothing to do with how much it spends on the technology. The funding hinges on its Medicare, Medicaid, and charity care volumes, which can differ radically from hospital to hospital.

The Congressional Budget Office says the $36.3 billion in EHR incentives will be rebated between 2009-2015 for providers who adopt EHR. From 2016-2019, however, the federal government anticipates cost savings of $15.5 billion in part because of the presumed money-saving efficiencies of healthcare IT, and also because the government in 2015 will begin to trim reimbursements for providers who aren’t “meaningful users” of electronic medical records. The term “meaningful user” has yet to be defined.

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