Updated August 23, 2014.
I'm pleased to present in this article, Alford Hardy's suggestions that one should consider before stepping into the financial risk of investing in an Electronic Medical Record conversion. There are certainly benefits, both financially, and most importantly, medically, to the Electronic Medical Record system. But conversion to Electronic Medical Records requires a large purchase of both software and hardware in order to properly implement one of these systems.
Mr. Hardy raises some important issues to examine as you plan your implementation program, and how you plan to pay for it.
There are financial risks associated with buying an Electronic Medical Record (EMR). These risks are associated with the multi-million dollar price tag and the length of time it takes to implement a system. This article will cover how overlooked requirements and different interest rates increase the long term payout. This article will not cover how to mitigate the risk of oversight; that is, when the organization does not identify all the requirements of the project.
Many borrowers, healthcare organizations and physician practices, do not have cash or may not want to spend their cash for an EMR purchase and implementation project. So, they finance the project instead. Financing creates the risks. Unmitigated risk may cause the borrower to pay hundreds of thousands of dollars more than anticipated.
The Electronic Medical Record (EMR), sometimes referred to as an Electronic Health Record (EHR), is hardware and software.
EMR replaces paper record. Paper records take up space. The upkeep and storage is costly. Paper limits the way patient information can be used. An EMR gives clinicians and physicians better access to patient information. The goals are to have better medical treatments and to bring down the cost of that treatment.
Purchasing and implementing an EMR can cost millions of dollars and take several months. Money from the Federal Government allows hospitals and physician practices to move forward on EMR with the promise of getting money back. The government paid out billions of dollars for EMR reimbursements in 2011. There are plenty of mandates to check off in qualifying for the money. A main requirement: spend your own money first before expecting to collect government reimbursement.
Because of the high cost and extended time:
- There are risks associated with unplanned purchases and implementations cost.
- There are risks associated with just borrowing money.
Budgets are estimates. There is usually some buffer built into any project. Also, vendors may advertise implementations that are timely and within budget; however, there are unplanned events that can cause a borrower to make an unexpected dip into a financed pot of money. Even if the overall project remains within the budget, additional monthly payments start shortly after the vendor is paid, interest included. A borrower can have the first payment due long before the product is installed and ready for use.
Another issue is progress payments. Progress payments are charges due to a vendor once a planned portion of work is completed or planned product is bought. These types of charges are common, and not just associated with EMR projects. Any long-term funded project shares the same risks as EMR because, while the project budget may remain at $10,000,000, the sum of all the monthly payments made will be much greater. When the borrower makes payments under a finance agreement, again, the interest starts very soon thereafter. The monthly payments to the finance company will start too. So it goes for every incremental progress payment.
The interest rate on the agreement is only for a certain period of time. As the EMR project progresses, interest rates fluctuate. If interest rates go down, the borrower benefits. If the interest rates go up, the borrower’s monthly payment will go up. The finance company’s proposal and contract contain a statement that gives them the right to pass any rate increase, during the project, on to the borrower. It is possible to have differing interest rates based on the timing of the progress payments. In other words, a borrower doesn’t know the total amount of all monthly payments until they make the final progress payment. At $10,000,000 or $1,000,000 for that matter, increases in interest add cost over time.
In summary, the multi-million dollar price tag and the length of time to implement EMR may cost hundreds of thousands of dollars more than the financing proposal seems to imply. Progress payments and unplanned purchases can make your “sweet deal” more sour than a crabapple. Insist that the finance company explains the effects of each progress payment or unplanned purchase when they occur. Even better, find a method to finance the EMR that mitigates these risks all together.