How to conduct an EHR cost benefit analysis in six steps

Organizations considering a new or replacement EHR or shifting their technology strategy will be faced with determining the costs and benefits of these actions. To calculate the costs and benefits of a project, financial planners rely on a cost benefit analysis. A cost-benefit analysis refers to the process of measuring and comparing the costs and benefits realized from a project. 

A cost benefit analysis provides financial planners with a way to capture a variety of costs and benefits that can arise over the long-term and short term.   EHR planners and other administrative personnel can benefit from using a cost benefit analysis in that it offers information to aid decisionmakers in weighing different courses of action and the ability to decide which one provides the best benefits in consideration of costs. 

Creating an exact cost-benefit analysis for an EHR over both the long-term and short-term can be an imprecise art. However, any perceived difficulty in modelling the costs and benefits of an EHR can be overcome by relying on a methodical and accurate process, through which your practice can weigh the costs and benefits of an investment in healthcare information technology. A cost benefit analysis serves as a planning and decision making tool by allowing planners to determine whether the total benefits of a project or strategy exceed its costs. 

The importance of a cost benefit analysis

By conducting a cost benefit analysis decision makers and planners can reduce a considerable amount of financial uncertainty from EHR projects. However, in this capacity a cost benefit analysis will only be effective if it is conducted in a manner that captures the full range of potential costs and benefits related to a project.

Best practices dictate that a cost-benefit analysis should not only model tangible benefits and costs but also can quantify intangible items and incorporate opportunity costs into its equations. Further, a cost-benefit analysis should not just serve as a snapshot of costs and benefits at the time of EHR selection; rather it should consider how the cost/benefit balance would evolve over the long-term.

Applications for cost benefit analyses

As mentioned previously, a cost benefit analysis provides decision makers with information in evaluating an EHR project. In addition to offering a comprehensive picture to aid decision making, a cost benefit analysis also offers information that can provide valuable insight for planners when developing benchmarks and milestones for a project,  measuring social or other intangible benefits related to an EHR project or evaluating a project’s effects on stakeholders in an organization. 

How to do a cost benefit analysis

There is not a standard method of conducting a cost benefit analysis. However, one should consider best practices which state that a cost benefit analysis should be geared toward capturing the most comprehensive and nuanced picture of the costs and benefits attached to a project. In order to achieve this goal, one should rely on methods of calculating and modelling costs and benefits that are methodologically sound and can be repeated if needed.    

Conducting an EHR cost-benefit analysis can be simplified into the following six major steps.

1. Calculation of system costs

EHR system costs include the direct costs set up the EHR infrastructure.  A newly implemented EHR system created will create added costs that were not incurred under the previous system or a paper-chart system. Further, system costs would include costs incurred beyond implementation that would include keeping maintaining and updating the EHR. System costs also include the costs to update, maintain and alter an existing system. 

System costs, generally, provide budget planners with a level of certainty in that these costs can be estimated. Except for unexpected maintenance or replacement costs, system costs occur can be anticipated and thus included in the prospective budgeting process.  

2. Calculation of induced costs

Induced costs are costs associated with carrying out EHR implementation. These costs can include anything related to preparing your practice to select and implement an EHR including costs related to training and potential losses in productivity. Induced costs can include a wide range of costs that, under certain circumstances, can change as projects progress. As such, it is important to be flexible in calculating costs and able to incorporate unanticipated costs into their analysis.

Use this EHR pricing guide to estimate base system cost for your cost-benefit analysis

3. Opportunity costs

Opportunity cost refers to the benefits your practice could have received, but gave up, to take an alternative course of action. The opportunity cost calculation can be somewhat murky. However, it is an important tool when weighing the cost and benefits of choices. The calculation of opportunity costs provides an important decision-making tool in that planners can consider multiple courses of action and select one based on consideration of their opportunity costs.  

4. Cost reductions  

Cost reductions refer to savings due to the adoption of an EHR in the form of such savings as increased efficiency, quality and reduction of waste. Calculating cost reductions presents challenges to budget planners in that these cost reductions are primarily hypothetical. A further confounding factor rests on the fact that the final calculation of a cost reduction depends largely on several contingencies occurring or not occurring.  

5. Additional revenues

Additional revenues are considered from the perspective of increases in revenue generating activities directly attributable to the implementation of an EHR. Just as calculating cost reductions involves significant uncertainty, calculating benefits derived from additional revenues also is fraught with challenges in that it is an exercise clouded by speculation and assumptions.

6. Arriving at a final calculation

The final step of the cost-benefit analysis involves accurately aggregating costs and benefits to determine if the benefits outweigh the costs. If the final analysis skews toward the benefit side, the project should warrant.

However, it is important to note that a cost-benefit analysis should always consider immediate, short-term and long-term projects which could bear different results. Further, if a project skews toward the cost side, the proper response would either rest in making adjustments to increase benefits and decrease costs to make the project viable, or just abandoning the project.

Accurately modelling the costs and benefits of an EHR not only places an organization on sound financial footing by creating a clear picture by which a practice may weigh its options regarding an EHR investment.