Save $40 Billion Annually With EMRs
By Ken Congdon, editor in chief, Health IT Outcomes
Some good news regarding EMRs was published last month in an article in The McKinsey Quarterly newsletter titled Reforming Hospitals With IT Investment. The article highlights research by the consulting firm McKinsey & Co., which estimates that the U.S. healthcare industry could save approximately $40 billion a year if most healthcare providers adopt a "best practice IT platform to house and share medical records, to manage hospital resources more transparently, and to define precise guidelines for medically authorized tests and procedures."
This is much more than the $27 billion the federal government will spend on Medicare and Medicaid incentives from EMRs. In fact, McKinsey & Co. state that these federal incentives will only offset a small fraction of the IT investments most healthcare facilities will need to make to comply with ARRA (The American Reinvestment and Recovery Act), HIPAA (Health Insurance Portability and Accountability Act), and ICD-10 mandates. For example, McKinsey & Co. estimates that U.S. hospitals will need to spend approximately $120 billion, at an average cost of $80,000 to $100,000 per bed, for the project planning, software, hardware, implementation, and training necessary to meet these various requirements. ARRA reimbursements will total only 15% to 20% of these total expenditures, leaving a spending gap of about $60,000 to $80,000 per bed for most hospitals.
Rather than relying on federal incentives, this hospital spending gap will have to be recouped through an ROI from the technology itself. According to McKinsey & Co., these gains are easily possible through effective implementation of EHR systems and CPOE (computerized physician order entry). When functional, these systems not only broaden access to medical information, but also serve as a forcing agent to spur the adoption of standard operating procedures and best medical practice. McKinsey & Co. believes the key ways these systems will contribute to monetary gains will be by optimizing the use of labor throughout healthcare facilities by eliminating administrative work, reducing the number of adverse drug events, streamlining the revenue cycle, and reducing the number of duplicate tests ordered. According to McKinsey & Co., an average hospital can pay back its initial (and usually one-time) investment in two to four years from the cost savings accrued in these areas — resulting in $40 billion in annual savings across the U.S. provider landscape nationwide.
However, McKinsey & Co. is careful to state that simply purchasing and installing the technology is not enough to ensure these cost savings. The consultant stresses that realizing these benefits will require distinct change-management skills among hospital leaders, better governance, and sustained engagement from key clinicians. The article also states: "Healthcare providers will need to leverage new approaches to achieve an inclusive streamlined governance process with streamlined decision-making authority, a radically simplified IT architecture, and a megaproject-management capability." This is in line with the statements I made in my article EMR Reality Check last week. EMR technology by itself will not ensure meaningful use or efficiency gains. The technology must be effectively implemented and used in order to provide these advantages.
Ken Congdon is Editor In Chief of Health IT Outcomes. He can be reached at ken.congdon@jamesonpublishing.com.