A recent study evaluating the economic costs and benefits of electronic health record (EHR) adoption for 49 small medical practices in three Massachusetts communities found that the physicians expect to lose, on average, $43,743 over five years, and that only 27 percent of the practices expected to achieve a positive return on their EHR investment. The study period was 2004 through 2008, and the results were published in the March 2013 issue of Health Affairs. a 


We believe the survey presents a misleading picture of the value of EHR adoption, especially for primary care practices. The authors work from the assumption that fee-for-service payment will continue and that one of the hoped-for results of EHR adoption for the practices is an increase in revenues. They do not recognize, however, the need for physicians to have access to clinical information to manage care in patient-centered medical homes (PCMHs) and, more broadly, to function in a world of population health management and value-based payment. In other words, the assumptions of the practices and the survey leaders are backward looking, and not focused on what is likely to be a dramatically different future.

Prerequisites to Effective EHR Use

Based on our research and experience, we see a very different picture from that reported by the 49 practices because we believe any analysis of the use of the EHR in physician offices should consider the likely changes in payment methods (e.g., valued-based payment).

The EHR is an important early element of the change process that is necessary to prepare for value-based payment. However, the financial payoff does not begin until after value-based contracts change how practices are paid. (The sidebar on page 127 provides our “top 10” list of changes required to achieve financial success.)

For example, with respect to affiliation assessment (no. 10 on our list), most independent practices are joining clinically integrated networks (CINs)—groups of practices that agree to share data and establish common protocols and strategies for taking care of patients, and that then enter contracts where they benefit financially from reducing costs and improving quality. Catholic Medical Partners in Buffalo, N.Y., one of many CINs now in operation, contracts with all its major commercial insurers in value-based contracts.

Case Studies in Effective EHR Use

Examining how some of the medical practices and health systems we have studied are effectively using EHRs sheds more light on the critical importance of this technology for the emerging payment future.

New West Physicians. This 84-physician practice with 16 locations in the Denver area has all its physicians on a common EHR, thereby facilitating three major quality studies per year, which drill down to the individual physician level. Also, hospitalists employed by New West have immediate access to the medical records of New West patients admitted to a hospital. 

New West combines clinical information from its EHR with sophisticated analysis of claims data from its largest payer, a Medicare Advantage program. (New West takes financial risk for primary and specialty care, but not hospital care.) The combination of using its EHR to analyze patterns of care, and using an analytics package on claims data (supplemented by its own matrixes), allows New West to evaluate the performance of its 250 contract specialists as well as its own primary care physicians. Specialists who are outliers in their care patterns must either shape up or be eliminated from the panel. This is a serious matter for those specialists whose livelihood depends largely on New West referrals, which can amount to as much as half of their business. 

Geisinger Health System. This large, integrated system (1,000 physicians) in eastern Pennsylvania has had its physicians and hospitals on a sophisticated EHR for almost two decades, and it is adept at combining clinical and financial information. In the words of one physician leader: “Because we were an early adopter of our EHR, we know more about how to get the maximum benefit from the clinical information system than most organizations. This system is an important part of our care management team.”

Geisinger has its own health plan with more than 300,000 members. The health plan pays to have nurse care coordinators in many of Geisinger’s primary care practices, which number more than 60. The care managers, who focus on patients with chronic disease, could not do their job without the support of Geisinger’s EHR.

Like most other systems we visited, Geisinger assumes the U.S. healthcare payment system will continue its shift from open-ended fee-for-service to value-based payment. One Geisinger executive we interviewed sees two major building blocks for succeeding in a value-based payment environment: installation and maturing of the EHR at both the hospital and ambulatory levels, and alignment of financial incentives for clinicians.

Partners HealthCare. This Boston-based academic medical center, which includes Mass General and Brigham and Women’s Hospital, is investing huge sums in a new EHR. Partners is under tremendous pressure to reduce costs, and it is investing$660 million in a clinical information system (CIS) to support efforts to meet its cost-cutting targets.

The new CIS is especially important in that it will give Partners at least one enterprisewide data warehouse to facilitate analysis of clinical data. Partners’ CIO expects the system to provide advanced clinical support for such areas as imaging. “It will feed the quality dashboards down to the procedure level,” he says. “Partners is driven by its clinical mission; IT is the enabler, not the driver.” He also notes that physicians were major drivers of the change and led the effort: “They demanded it.”

In the words of the leader of Partners’ decision support staff: “Our goal is to have three types of data in our warehouses: financial, medical records, and claims. We should be able to link these once we get on our new clinical information system. This will save us a tremendous amount of time in doing our research and analysis.” She is especially interested in including outpatient data in the business intelligence warehouse. 

Franklin Memorial Health System. Going from one of the largest health systems in the country to this rural system based in Farmington, Maine, we see the same emphasis on combining clinical information from its EHR with financial information. All physicians at Franklin Memorial are on a common EHR. The health system also is under heavy pressure to reduce costs and is focusing on improving its management of patients with chronic disease—a prospect that would be nearly impossible without a strong primary care network and an EHR. 

Nebraska Methodist Health System (NMHS). Nebraska Methodist Hospital in Omaha, the flagship facility for NMHS, was an early adopter of a well-known EHR in the 1990s. The hospital attempted to install the EHR on the ambulatory side beginning in 2001, but it ended the implementation because it felt that the EHR was not meeting physician needs. The hospital installed an improved product in 2011. 

NMHS recently implemented a business intelligence system that provides a data warehouse solution with clinical and revenue information at its core. Because of the different standards for implementation in different clinical departments, extracting data from the system has been a challenge for NMHS. The new business intelligence system has greatly decreased the time needed to run reports on data.

On the employed-physician side, NMHS has begun mining data on chronic conditions, beginning with diabetes, to identify and contact patients who have quality measures missing in their record and to compare physicians’ performance on diabetes metrics. The health system will soon begin extracting patient data on hypertension, heart failure, asthma, and coronary disease. Again, this effort would not be possible without an EHR. 

Several NMHS leaders note that refining the health system’s data analysis capabilities will be key to its future. The next step is to move from collection to analysis and action, which will require investment of additional resources in both systems and staff. A priority is getting more quality data to physicians and nurses at the point of care.

Finally, many organizations, including nearly all mentioned in this column, have developed PCMHs, which utilize EHRs. Independent practices, too, are moving toward PCMH models and will likely require EHRs. 

The Building Block for Business Intelligence

So what is the payoff for investing in an EHR? Most of the organizations we have worked with see it as an essential tool for positioning for the future. An EHR is the building block for business intelligence and for succeeding under new payment models. The March 2013 Health Affairs article misses this point and appears to be out of step with what some independent practices and the more advanced healthcare organizations are doing to prepare for reduced reimbursement and value-based payment.

Keith D. Moore is CEO, McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter (kmoore@mcmanisconsulting.com).

Katie Eyestone is a senior consultant, McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter (keyestone@mcmanisconsulting.com).

Dean C. Coddington is a senior consultant, McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter (dcoddington@mcmanisconsulting.com).


Basic Capabilities Required of Medical Practices Under Value-Based Payment

1. EHR
2. Claims data
3. Care strategies for chronically ill patients
4. Protocols for high-cost or frequent episodes of care
5. Care coordinators
6. Patient communication tools
7. Value-based payment contracts to the practice
8. Value-based incentives within the practice
9. Analytics
10. Affiliation assessment


a. Adler-Milstein, J., Green, C.E., and Bates, D.W., “A Survey Analysis Suggests That Electronic Health Records Will Yield Revenue Gains for Some Practices and Losses for Many,” Health Affairs, March 2013.

b. The examples cited in this study are based on research performed for the American Hospital Association in 2010 and subsequent research performed as a part of HFMA’s ongoing Value Project.

Publication Date: Monday, April 01, 2013

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