Wednesday, May 18, 2016

The "Patient Protection & Affordable Care Act" & Health Information Technology

The primary differences between ambulatory and in-patient uses of health information technology are: (1) inpatient workflows are more complex than out-patient because of the complexity of multiple departments each with their own systems, staffing, and needs; (2) in-patient care is more labor intensive, the bulk of which is by medical assistants, who are the least trained and lowest paid in western healthcare; and, (3) inpatient facilities have different and more complex billing procedures than ambulatory settings. (Ryan, 2015)

The “Meaningful Use” provisions of the Patient Portability & Affordable Care Act attempting to use public policy to incentivize the creation and use of electronic health records (EHR), patient portals, and care coordination system in stages 1, 2, and 3, respectively, are creating neither higher quantity nor lower costs.  They may eventually create higher quality, in 5-10 years’ time, but at a substantially higher cost, which may push financially struggling health care providers to close rather than improve the quantity and quality of their care.

Analysis in a 2010 report by the global management consulting firm McKinsey & Company demonstrates that mandated EHR, and subsequent patient portals and care coordination systems, will have financially negative return on investment (ROI) for the foreseeable future.  McKinsey’s analysis uses a patient bed cost rubric wherein the average total cost to implement only the early stage EHR mandated by “meaningful use” is estimated at $80,000 to $100,000 (averaging $97,500) which after subsidies from the US government, could reduce the cost to $60,000 to $80,000 depending how early health care organizations implemented the technology.  Incentives decreased annually from $17,500 per bed in years 2011, 2012, and 2013, to $10,500 in 2014, $5,500 in 2015 and zero in 2016.  Meanwhile the financial penalty for choosing not to implement meaningful use began at $2,000 per bed in 2015 up to $35,000 per bed by 2019.  Their analysis went on to project long-term maintenance costs of $13,500 per bed (recurring annually) and benefits of $25,000 to $44,000 per bed. (Francois M. Laflamme, 2010)

Erroneous presumptions make EHR have a negative ROI for health care organizations.  First, assuming the annual maintenance cost is only $13,500 per bed, means the true penalty for choosing to ignore meaningful use is only $21,500 per year, which means organizations that waited to implement EHRs until 2015 won’t realize any financial return until 2020 at the earliest.  By that time, the engineered life of the EHR software will be exceeded and they will need to re-implement new software, meaning they never actually receive a positive ROI, only pay software and IT services companies in a never-ending implement-support-implement cycle.

Second, if one examines the type of costs involved in implementing an EHR system, many more of them are recurring expenses than $13,500 (13.5%).  While organizations may not pay the estimated $27,000 to $30,000 external consulting costs annually, they will need to pay the remaining costs on a recurring basis, which consist of: (a) $15-25,000 in hardware every three years; (b) $20-$22,000 in clinical software licenses annually; (c) $10-12,000 in training/re-training costs every 36 months presuming 30% turnover; (d) $5-6,000 in other annual software licenses; and, (e) $3-5,000 in additional internal IT support. (Francois M. Laflamme, 2010)  In total, the more probable annual support costs for the ERH are $40,834 per bed per year.  Therefore, from the annual support costs alone, health care organizations will arguably lose $5,834 per bed per year.  This fails to account for original capitalized cost of $80,000 to $100,000 per bed (average of 200 bed equaling $19.7 million per EHR).  Therefore, the government’s “meaningful use” mandates as applied to EHRs, are asking health care organizations to spend an average of $19.7 million every five years, then lose $1.167 million per year supporting it for five years, then repeat.

Ostensibly, the operational efficiency and clinical improvements organizations will gain from EHRs are estimated at $25,000 to $44,000 per bed.  However, examination of the analysis that calculates those numbers suggest the analysis is equally dubious.  For example, they estimate that organizations will save $8,000 to $15,000 per bed (32-34% of benefits) from EHRs preventing adverse drug events (ADEs). (Francois M. Laflamme, 2010)  The problem with that is that ADEs are a profit-center for health care delivery organizations, not a loss.  Whenever a patient has significant complications from an ADE, the provider must provide more and intensive treatments, for which they charge substantially.  Therefore, ADE reduction doesn’t’ save providers money, it saves payers money, and costs providers that money that payers would have needed to reimburse them. 

Second, McKinsey notes that another $20,000 per bed is projected to be saved from improving staffing efficiency. (Francois M. Laflamme, 2010)  That’s only true if there are infinitely more patients for the providers to see with the saved time – if there is a true opportunity cost.  Otherwise, staff may work more efficiently using EHRs; however, it doesn’t result in a less compensation for the organization, nor reduced, nor more billable hours, for the providers.

Therefore, it appears that the primary financial beneficiary of the government’s “meaningful use” mandate of technologies are the IT service and software companies realizing $120 billion per year implementing EHR systems, (Francois M. Laflamme, 2010) then redoing them every 3-5 years when the hardware and software changes.  The “meaningful use” mandates are, thereby, acting as financial incentives to the technology services and software industry more than health care organizations. I would argue that a better focus for public health care policy than incentivizing what is already one of the strongest technology markets in the world, would be the elements of for-profit and not-profit hospital conversions that are going awry.  Namely, mandating that health care organizations be barred from having “insiders” on their boards, only independent directors from different regions with expertise in health economics, delivery, and administration; and, prohibiting geographic monopolies or oligopolies of “non-profit” health care organizations, which reduce competition and thereby lower quality of care and increase prices.

Works Cited
Francois M. Laflamme, W. E. (2010, August). Reforming hospitals with IT investment. Retrieved from McKinsey & Company: http://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/reforming-hospitals-with-it-investment
Kristin Harper, G. A. (2010). The Changing Disease-Scape in the Third Epidemiological Transition. Int J Environ Res Public Health, 675–697.
McKeown, R. E. (2010). The Epidemiologic Transition: Changing Patterns of Mortality and Population Dynamics. Am J Lifestyle Med, 19S-26S.
Robert York, K. K. (2016, January 6). Where Have All The Inpatients Gone? A Regional Study With National Implications. Health Affairs Blog, pp. http://healthaffairs.org/blog/2014/01/06/where-have-all-the-inpatients-gone-a-regional-study-with-national-implications/.

Ryan, J. (2015, December 15). Instructions for HIT: Inpatient vs Outpatient. Retrieved from Northwestern University 401: American Health Care System: https://canvas.northwestern.edu/courses/38753/pages/instructions-for-hit-inpatient-vs-outpatient

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