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Electronic medical records: money pit or bang for the buck? The economics of EMR                                

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


David Farrell

Pharmaceutical Compliance Monitor

21 January 2013


In the past decade, academics and industry experts have published conflicting reports on whether electronic medical records (EMRs) actually save money. Recent studies based on large, historical data from diverse providers suggest that EMRs haven’t decreased costs[i] [ii]  – contrast this with cost benefit analyses published back in 2003 that predicted EMRs would save around $15k-$20k per primary care physician per year[iii]  [iv]. In addition, multiple vendors, academics and industry experts have published positive case studies on how EMR 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?

EMRs 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 EMRs leads to more demand.

First, consider the Jevons Paradox: energy efficiency leads to greater consumption (for example, as air conditioning becomes more efficient and affordable, more air conditioners are purchased.) Taking a healthcare analogy, data centre capacity has grown exponentially and EMR 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%-70% more radiology exams with EMRs than with paper records. The efficiency and capability of EMR’s (supply) have driven up the demand.

Second, 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 recognise 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 EMRs, does anything improve? Productivity does. A 2009 Wisconsin Medical Journal Study [v]. found that physician productivity increased about 20% and remained at that sustained level of productivity following EMR 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 US 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 EMR system delivers to providers. Seeing more patients means more revenue to providers. In addition, providers with integrated EMR 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 realise the full cost savings of EMR 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 EMR systems.

So when we talk about the cost of EMR systems, it’s important to distinguish who we’re talking about. In addition, when comparing pre- and post- EMR 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 expert at PA Consulting Group 

[i] Physicians Electronic Access To Patients’ Prior Imaging And Lab Results Did Not Deter Ordering Of Tests, Journal Of Health Affairs, 2012  

[ii] Hospital Computing and the Costs and Quality of Care: A National Study, American Journal of Medicine, 2010

[iii] Electronic Medical Records: Lessons from Small Physician’s Practices, iHealth Reports, 2003  

[iv] A Cost Benefit Analysis of Electronic Medical Records in Primary Care, American Journal of Medicine, 2003  

[v] Implementing an Electronic Medical Record at a Residency Site: Physicians’ Perceived Effects on Quality of Care, Documentation, and Productivity, Wisconsin Medical Journal, 2009  

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