Thursday, September 29, 2011

What's the Best Strategy for Financing EHRs?

When it comes to financing health care operations, Juan Ruiz knows the importance of getting the best deal.

He's the director of finance at St. Patrick's Home, a 264-bed skilled nursing home in the Bronx. The home is mid-way through an EHR implementation, from HealthMedx. The project represents a nearly $250,000 outlay, software, hardware and network infrastructure included.

And that's just one financial ball Ruiz has to juggle. Two years ago, the home replaced its boiler system, which came to $500,000. And looking ahead, the 20-year-old facility will need to upgrade its laundry facilities, install a new generator, renovate its bathrooms, and replace about 100 of its beds.

The beds alone represent a $120,000-plus hit to the checkbook. "We have to project our costs three to four years down the road," says Ruiz. He takes a conservative approach to financing, setting aside money each year to fund depreciation of assets--despite the fact that the state eased such requirements a few years ago in light of the economic downturn. "It is extremely expensive running a nursing home."

In an industry with universally tight margins, Ruiz's financial juggling act typifies what hospitals and group practices must go through to install clinical technology and manage to stay in business.

While the EHR incentive program has enticed providers to spend big on electronic records, financing the purchase is invariably a challenge. First and foremost, the systems are expensive. A lucky few providers can fund EHR implementations out of operations, but they still need to set aside capital budgets and explore external financing vehicles for other outlays.

And bargain hunters often find to their regret that the cheapest software isn't the best deal when considering the total cost of ownership and the investments necessary to qualify for government incentives.

Purchasing an EHR, says Ruiz, is an exercise in patience. St. Patrick's Home did a three-year software search, in which it considered two local and three national vendors, finally settling on the HealthMedx system. It will handle clinical documentation, financial management and patient admissions. The integrated clinical/billing package replaces a standalone billing system.

During the vendor evaluation period, St. Patrick's considered financing options along the way. It could have gone with a much cheaper EHR system-one vendor came in at half the cost of the HealthMedx suite-but that would have been a penny-wise, pound-foolish decision, Ruiz says, since the HealthMedx package includes better service terms.

In addition, the vendor has developed and maintains the entire software package. The cheaper vendor merely bolted on applications from other companies. "We wound up financing more, but we will be better off in the long run," Ruiz says.

St. Patrick's will finance about three-fourths of the cost of the EHR through First American Health Care Finance, a specialized health care lender located in Rochester, N.Y. The rest will come from its capital budget-the facility could have financed all the EHR through its capital budget, but needed to consider its other looming outlays, Ruiz says. There was no shortage of banks willing to work with the nursing facility to finance the EHR purchase, and Ruiz considered two other banks in-depth. Eventually, he settled on American because of its industry expertise and service commitments. "They will have a dedicated project manager to handle the invoices and keep track of any over-runs," he says. "They have experience and they are big on the EHR."

"Capital Punishment," Gary Baldwin's feature story in the September issue of Health Data Management, explores EHR financing options and pitfalls to avoid.

Gary Baldwin
HDM Breaking News, September 9, 2011

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