Are Electronic Medical Records in Your Clinic’s Future?

Making the most of government incentives to go paperless

Many healthcare administrators are thinking about implementing an Electronic Health Record system, of which Electronic Medical Records are a part.

That's because the American Recovery and Reinvestment Act of 2009 includes about $20 billion in incentives for physicians who can show "meaningful use" of such systems. The incentives begin in 2011 and pay out over a five-year period. 

While it is tempting to jump at such an opportunity, healthcare administrators are wise to understand and evaluate the true cost of moving to an EMR system. The decision-making process should include these considerations, among others:

How technology-savvy are the doctors?  Most organizations will experience a 10 to 20 percent drop in productivity during implementation of an EMR system. The more comfortable physicians are with using technology tools, the faster they can recover and improve upon productivity following the implementation of an EMR system. 

How well do you understand the ARRA requirements for "meaningful use"?   Not meeting the requirements can carry consequences in the form of reduced Medicare payments. If you choose to take advantage of the ARRA incentives, be sure you clearly understand what is required to meet the "meaningful use" test or enlist the help of someone who does understand so that the long-term effect is not more costly than the value of the ARRA incentives.

Understand your return on investment. Before you decide to implement an EMR, calculate your average production per month. Using that as a baseline, you can project efficiency improvements in coding and number of patient visits as well as cost reductions in transcription expenses and office supplies for paper charts. Once you identify these numbers, you should be able to calculate the effect on your bottom line. The annual improvement over your baseline, divided into the cost of the EMR, will tell you how long it will take to recover your investment. Ensuring that the stakeholders in your organization understand the return on investment timeline will help you set appropriate expectations.

Many healthcare organizations make the mistake of using their operating lines of credit to finance EMRs. An operating line of credit is designed to finance cash flow from the operations of the practice on a short-term basis (less than one year). It is never a good idea to use short-term debt to finance the acquisition of long-term assets. Why?  First, short-term debt usually requires interest-only payments that don't reduce your principal.  Secondly, repayment of a loan should match the useful life of the asset.

The proper vehicle for financing an EMR is a term loan that matches the expected life of the system. Term loans generally offer a fixed rate of interest and amortized monthly payments that pay down the balance over the life of the loan. Most financial institutions require that you have some "skin in the game," so expect that your organization will have to cover about 20 percent of the cost, with a term loan covering the rest.

EMRs may be a terrific way to bring about greater efficiency in our healthcare system, but administrators need to do their homework to be sure such a system makes sense for their practice's bottom line.

Glenda Michael is vice president and senior relationship manager for First Independent and leads the bank's healthcare services group. She is a member of the Healthcare Financial Managers Association, MGMA and is a certified healthcare administrator. 

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