Electronic Health Records: Money Pit or Bang for the Buck? The Economics of EHR

Electronic Health Records: Money Pit or Bang for the Buck? The Economics of EHR

Guest post by David Farrell, PA Consulting Group.

In the past decade, academics and industry experts have published conflicting reports on whether electronic health records (EHRs) actually save money. Recent studies based on large, historical data from diverse providers suggest that EHRs haven[i]’t decreased costs[ii] [iii]  – contrast this with cost benefit analyses published back in 2003 that predicted EHRs would save around $15,000 to $20,000 per primary care physician per year[iv][v]. In addition, multiple vendors, academics and industry experts have published positive case studies on how EHR provides a positive return on investment or saves money in areas such as billing and staffing costs.

So why the divergence? Are providers simply not achieving what we expected in 2003? Are the positive case studies overly selective? Is it a case of what’s true for some is not true for all?

EHRs actually enable more productivity and satisfy more demand, and this is what drives cost. For providers, this also means driving up revenues.

Supply and Demand

One reason healthcare costs have not uniformly decreased is that more (efficient) supply from EHRs leads to more demand.

Firstly, consider the Jevons Paradox: energy efficiency leads to greater consumption (e.g. as air conditioning becomes more efficient and affordable, more air conditioners are purchased.) Taking a healthcare analogy, data center capacity has grown exponentially and EHR functionality has improved in recent years. In response, providers are storing larger amounts of detailed patient data and accessing greater capabilities. For example, providers are integrating IT and medical devices for real time patient data monitoring, storage and beyond. Additionally, a 2012 study supports this theory in that physicians ordered 40 percent to 70 percent more radiology exams with EHRs than with paper records. The efficiency and capability of EHRs (supply) have driven up the demand.

Secondly, I’ll paraphrase Parkinson’s Law: work expands to fill the time available. Demand for services in (public) healthcare will always outstrip the supply. This is because there is a backlog of patients waiting for currently available services and once this backlog is cleared, expectations of what should be provided will increase. It is therefore important to recognize that current health care reforms may not automatically decrease costs with EMRs in place, as demand will then increase too.

Increased demand means increased cost.


So if cost doesn’t uniformly decrease with EHRs, does anything improve? Productivity does. A 2009 Wisconsin Medical Journal Study[vi] found that physician productivity increased about 20 percent and remained at that sustained level of productivity following EHR implementation. This means that more patients were seen on a given day. Not bad, considering the average wait time to see a physician in the U.S. is 20 days.

Increased productivity, however, leads to increased costs.

Payers vs. Providers

Another way to explain the divergence may lie in who we’re actually talking about. Do we mean payers like Medicaid/Medicare or providers like primary care physicians or hospitals? Studies often reference cost but fail to discuss revenue increases that an EHR system delivers to providers. Seeing more patients means more revenue to providers. In addition, providers with integrated EHR and billing benefit by eliminating billing errors and enabling better revenue protection. Payers, however, don’t share these financial benefits as more procedures means their costs are rising.  Indeed, payers may not realize the full cost savings of EHR until providers move away from pay-per-procedure to quality based payments.  Quality based payments of course, are next to impossible without the enabling reporting capabilities of EHR systems.

So when we talk about the cost of EHR systems, it’s important to distinguish who we’re talking about. In addition, when comparing pre- and post-EHR situations, instead of simply asking: “What’s the cost?” we should also be asking “What do we get for this cost?”

David Farrell is an IT strategy specialist at PA Consulting Group, focusing on project management and strategy for healthcare providers. He has worked with accountable care organizations and county-run hospitals on both U.S. coasts, assisting clients in building business cases, managing project benefits and forecasting the long term infrastructure impact of EHR. 


[i] Physicians Electronic Access To Patients’ Prior Imaging And Lab Results Did Not Deter Ordering Of Tests , Journal Of Health Affairs, 2012, http://content.healthaffairs.org/content/31/3/488.abstract

[ii] Hospital Computing and the Costs and Quality of Care: A National Study, American Journal of Medicine,2010 http://www.pnhp.org/sites/default/files/docs/AJM-Himmelstein-Hospital-Computing.pdf

[iii] Electronic Medical Records: Lessons from Small Physician’s Practices, iHealth Reports, 2003  http://www.chcf.org/~/media/MEDIA%20LIBRARY%20Files/PDF/E/PDF%20EMRLessonsSmallPhyscianPractices.pdf

[iv] A Cost Benefit Analysis of Electronic Medical Records in Primary Care, American Journal of Medicine, 2003, http://www.amjmed.com/article/PIIS0002934303000573/fulltext

[v] Implementing an Electronic Medical Record at a Residency Site: Physicians’ Perceived Effects on Quality of Care, Documentation, and Productivity, Wisconsin Medical Journal, 2009, http://www.wisconsinmedicalsociety.org/_WMS/publications/wmj/pdf/108/2/99.pdf