EMR for Large Company

EMR

There are several criteria by which the company can establish acceptability for the eCube system of EMR that is available from Fresenius. The first stakeholder group consists of the patients, who will benefit from the enhanced functionality that comes from the eCube system, in particular the superior health outcomes that come from having accurate medical histories available to physicians and other practitioners while they are working with the patient. Management must strike a balance between business objectives and patient outcomes, and therefore there are multiple different acceptability measures that are possible, both based on profit and patient outcomes. Management will also want to know that the system is relatively easy to install, that there is training available from the vendor for the staff, and that the vendor will deliver full support of the system if there are any problems.

Another stakeholder group consists of the owners/shareholders of the health care provider. For them, the primary measure of acceptability is financial. The net present value calculation is one that is usually used. The NPV calculation takes a number of factors into account, primarily the future cash flows but also the cost of capital at the company. The future cash flows that are incremental to this decision include the cost of the equipment, the cost of installation and training, and the savings that will accrue from having the equipment. There are two types of savings that will come into play here. These are internal savings that come from increased efficiency that results from having the eCube in the business, once that software and staff are fully up to speed. There is also, in this case, external saving because a lack of electronic medical records will leave the facility subject to fines from the government. The cost of the EMR must be in part weighed against the avoidance of these fines.

There are also risk and compliance issues that can be factored into the measures of acceptability. Certainly, purchasing the eCube or a similar system will reduce the compliance risk, because the organization will not be subject to fines under the Affordable Care Act. The system also reduces risk. As Jena (2011) notes, there is significant risk attached to errors in medical practice. This risk varies by specialty and patient, but average payments for successful malpractice claims are in excess of $500,000, and malpractice insurance is an increasing cost factor for health care providers as a result. The eCube system can reduce risk by providing accurate information in a timely manner, even to bedside (Kalathil, 2011).

With respect to the number-crunching, risk is generally accounted for by using sensitivity analysis. For example, the normal time to purchase and implement the eCube system might be six months, but if problems arise with the software or the people trying to use the software, the time for successful implementation could be nine months. Alternately, the cost savings projected at the time of purchase could fail to materialize. Sensitivity analysis accounts for these by providing figures for "best case," "normal case" and "worst case" scenarios. With proper financial analysis prior to the decision, risk can be avoided.

Another way to avoid risk is to place the onus on management to ensure that the implementation goes smoothly. This is easier said than done. There are many risks inherent in implementing electronic medical records. Physicians in particular have resisted the change -- nobody really knows why, but that resistance needs to be overcome in order to ensure that the entire eCube effort goes smoothly. A key consideration is that organizational change has been studied extensively, and there are a large number of strategies that have proven effective at handling resistance to change, especially resistance to technological change. Management needs to learn from the experiences of other companies in order to make this implementation work. In particular, management needs to correctly anticipate the potential problems and have strategies in place proactively to ensure that this resistance is overcome (Self & Schraeder, 2009).

Another strategy for avoiding risk relating to the implementation of electronic medical records is to engage the key stakeholders in the change process. This should actually be easier despite whatever resistance might be there simply because the change is being forced by law. However, management needs to embrace the change and lead it. It is the role of management to ensure that every element within the organization is behind the change. There should also be an opportunity for the different stakeholders to have their input on the change, in particular those who will experience the most changes as the result of the change.

With respect to compliance, there are several different roles that need to be taken into consideration. The first of these is understanding the nature of change that is demanded in the Affordable Care Act. Compliance is all about operating within the confines of the law, so is critical to understand all of the applicable laws and what they contain. This means not only the ACA but HIPAA as well, and any other laws that might apply to electronic medical records. The CEO and CIO in particular need to understand the issues more completely than anybody else, since ultimately the responsibility for compliance falls at their feet.

In addition to understanding the legal environment against which the firm's performance will be judged, the senior management team needs to understand the product. All of the different companies that market similar products will want to make a presentation, but management needs to go beyond that and actually work with the system, or talk to peers who have. In a day and age where people refuse to book a hotel without checking it out on TripAdvisor, it makes no sense whatsoever to enter into an agreement to purchase an electronic medical records management system without doing extensive research on the system to ensure that it is the right one for the organization. The process of research should take months, ideally, and include interviews with executives who have faced this issue already. Understanding how the different systems work in practice is important to ensuring that risk is mitigated.

Once a system has been decided on -- in this case eCube from Fresenius -- there are other compliance related issues that need to be addressed. Training is something that IT and HR will do together, to ensure that the people who work on the system know how to use it in compliance with the law. Further, the IT department is responsible for time frames. The CEO is ultimately responsible for compliance, and during the initial stages of implementation might want to consider having placing somebody in charge of compliance to ensure that the way the organization deals with the electronic medical records is consistent with the laws surrounding their implementation.

Lastly, all senior executives are responsible for creating the organizational culture around the electronic medical records and compliance. They set not only the policies and structures by which compliance will be achieved, but these managers also set the ethical tone of the company through their own actions. As a consequence of this, all of the executives are in charge of making sure that compliance with the law is a top priority throughout the company, and indeed the top priority with respect to how electronic medical records are used. This is critical, because compliance is more likely to occur where it is culturally-expected. The expectation already comes from patients and from regulators, but it must also come from the highest levels of the organization.

Part III

The cost of the project is to be negotiated with Fresenius based on the specific parameters of the system -- it is not recommended to use an off-the-shelf system for EMR. The cost is expected to be within the $150,000 range for license, installation and training, plus an ongoing $25,000 license fee. The cost benefits are expected to be $20,000 per year for efficiency, increasing 10% per year, and $15,000 in reduced liability costs. The fines avoided are worth $10,000 in the first year, and $20,000 in the second year and each year thereafter. The cost of capital for the company is estimated to be 10% at current interest rates and debt levels. The shelf life of this product is 10 years.

Using this data, the net present value of the eCube system is

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1

2

3

4

5

Up Front Cost

-150000

0

0

0

0

0

License Fee

-25000

-25000

-25000

-25000

-25000

Benefits, efficiency

20000

22000

24200

26620

29282

Benefits, liability

15000

15000

15000

15000

15000

Benefits, compliance

10000

20000

20000

20000

20000

Total

-150000

20000

32000

34200

36620

39282

Cost of capital

10%

NPV, future flows

$234,172.94

less up front cost =

$84,172.94

This analysis shows that the project is economically-feasible. However, this assessment is based on a number of factors. The first is that the cost comes in on budget. There is some leeway here with respect to the cost of the eCube, so it is unlikely that there will be a cost overrun substantial enough to negate the clear benefits.

The second assumption that is embedded in this is that there will be cost savings that accrue from efficiency and liability. On the former, the figure is a rough estimate based on being able to transmit information more quickly, which would allow the organization to admit more patients in the course of a year. In addition, more patients might be attracted to the facility on the basis of it having modern information technology. The liability benefit is an estimate that would need to be confirmed by the insurance company. Only 1.7% of doctors per year face a judgment in a malpractice case, so it is unlikely that in a given year there will even be a judgment. Furthermore, there are no studies that outline specifically whether or not the eCube will reduce the number of judgments -- there has not been time for a proper longitudinal study on the issue. Even the insurance company is unsure of the effect that the program will have on rates, pending an investigation into the issue.

The final assumption is that the cash flows are otherwise predictable. The compliance fine may escalate according to law, or it may be postponed if there are enough institutions struggling to acquire such systems. The license fees will be locked in for a short period, but not likely for the full ten years. Overall, however, this assessment represents the best data available, and this data shows that there is a clear financial case for the purchase of the eCube system for electronic medical records from Fresenius.

A sensitive analysis shows that if expectations of efficiency savings growth are zero instead of 10% per year, that alone knocks the NPV to just $25,246. A scenario with $15,000 per year in efficiency benefits and $12,000 per year in liability benefits would result in a negative net present value. However, such a scenario represents a "worst case" scenario for multiple factors. The odds of such a scenario occurring are small, and it is most likely that the scenario that will come to pass is one that sees a modest positive financial return. While it is possible that other software solutions could also offer a similar positive return, it is unlikely that they will be materially different, so the best option simply comes down to which product is the best for the organization in terms of enhancing patient outcomes and compliance. In this case, the analysis held that the eCube product from Fresenius was the best option.

IV Executive Summary

With any capital budgeting decision, there are different factors that must be taken into consideration. In this case, there are several different alternatives that have been considered. The first is the eCube, but there is also the possibility of using another system, or not using any EMR system and just paying the fine to the government. A full evaluation would include all of these, but time and space forbids the researching of other EMR systems -- this is a process that takes months under normal circumstances. The default "do nothing" option that would incur fines has no up-front or ongoing costs, except for those fines. As a result, that option has a negative net present value. The eCube option has a positive net present value, so it is the better of the two known alternatives.

Of the criteria that often go into capital budgeting decision, one that stands as invalid is that of past performance. This is a managerial consideration -- some department heads champion mediocre projects to acquire funding and prestige for their units. So for example if there was a decision between, say, a new MRI machine or a new surgical theatre. In this case, there are no such vested interests. Different departments are not competing for funding as the organization has specifically earmarked funds for EMR to ensure compliance with the Affordable Care Act.

The sixth criteria is risk projection, and that is dealt with under the sensitivity analysis. While this analysis shows that there is a risk that the project will lose money, the odds remain that the project will make a positive financial contribution to the organization. Overall, this project fits all of the criteria. The financials work out well, and there is only limited risk that the numbers will be off.

The key stakeholders are seeking a solution that allows the company to achieve ACA compliance, but also to make a positive financial contribution to the organization. The ACA has mandated the use of electronic medical records because these are associated with positive outcomes for patients. The key for the organization is to ensure that the outcomes are also positive for the company. These include finding ways to mitigate risk, and to ensure that the project meets its financial criteria as well.

The most important financial criterion is that the project should have a positive net present value (NPV). The NPV means that the benefits of the project are positive when weighed against the costs on a time-adjusted basis. Thus, the evaluation examines the expected cash flows from the project and discounts them back to present-day dollars using the company's cost of capital.

The general rule of thumb with the NPV is that if the project has a positive NPV, then the project should be approved. This is because the project increases the value of the organization. In this instance, the costs and benefits must be evaluated, and each comes embedded with a set of assumptions. The net present value of the project is positive, and it is higher than the main alternative, which is to do nothing and simply pay the fines. Thus, the eCube has been approved.

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-150000

0

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0

-25000

-25000

-25000

-25000

-25000

20000

22000

24200

26620

29282

15000

15000

15000

15000

15000

10000

20000

20000

20000

20000

-150000

20000

32000

34200

36620

39282

10%

$234,172.94

$84,172.94

That said, implementing the eCube system of electronic medical records management is fraught with risk and management needs to pay close attention to this project in order to ensure that the risk associated with this implementation is mitigated as much as possible. There are several steps that will allow the company to mitigate risk. The first is that a thorough investigation of the different systems must be undertaken, including the eCube. This process should include not only gathering data from Fresenius, but also from companies that have implemented this system in the past as well. This is important, because those companies will be able to identify issues that might possibly affect our organization. With all of the inherent risks in a new software implementation, it is important to get a sense of the problems that others have had in similar situations with this software.