Hospitals and health systems that are considering investments in electronic health records (EHRs) have been in search of a standard model for ascribing the costs and benefits of such investments only to discover that there is no standard model. That will soon change. In 2013, participants in the Institute of Medicine’s (IOM’s) Digital Learning Cooperative teamed with members of HFMA to develop a standard model of evaluation. This tool is meant for use by health system management teams, including CEOs, COOs, CFOs, and others who wish to determine the financial impact of implementing and optimizing EHRs and related technologies. 

In a recent converation with hfm, Jonathan Perlin, MD, PhD, MSHA, FACP, FACMI, president, clinical services group, and chief medical officer of Nashville, Tenn.-based HCA, discussed the genesis of this model and how it is expected to benefit providers and other healthcare stakeholders. Perlin also co-chairs the IOM’s Digital Learning Collaborative and leads the group’s project to develop a reference model for considering ROI on EHRs.

Q. Healthcare IT investments by providers have increased significantly since the HITECH incentives for meaningful use were introduced in 2009. What other trends are motivating providers to invest in IT?

A. HITECH and its requirements for meaningful use certainly accelerated the adoption of EHRs. Beyond HITECH, the increasing complexity of delivering, administering, managing, and financing health care has driven the need to use information tools. EHRs provide the infrastructure for more consistent, efficient, and effective delivery of health services. They offer the potential for reengineering business processes and improving management in the tight fee-for-service environment of the moment and making the successful transition to integrating clinical and insurance risk in the future.

As the final common pathway of information at the point of service, EHRs make it possible to deliver better care more efficiently and to coordinate care over time and across geography. Providers that are already transitioning and managing risk through bundled payment need to use information to tie services together across the bundle. The data that information systems accrue are the prerequisite for both designing the care delivery models and supporting the predictive financial modeling necessary to manage risk effectively. 

Q. What trends are constraining or limiting providers’ IT investments?

A. EHRs tend to be expensive and complex in terms of implementation and operation—especially at the hospital level, but also at the physician practice level. Even the best systems and the best implementations are disruptive. That said, virtually all physicians who have implemented EHRs have said that they wouldn’t want to go back to paper.

Technologies are ultimately imperfect. They solve certain workflow processes well, but they also introduce new challenges in workflow that result from the idiosyncrasies of particular EHR systems themselves. For example, on one hand, e-prescribing offers the safety and efficiency benefit of checking for drug allergies or drug/drug interactions and the efficiency of transmitting a prescription electronically. On the other hand, it is often slower for the physician to go through the process of answering a number of questions on a screen than to write a prescription on paper. There’s no way around the fact that e-prescribing simply takes longer for physicians than the traditional approach. Unequivocally, however, the safety and administrative benefits of e-prescribing prevail. It’s the right thing to do.

Hospitals have become more computerized over the past decade. However, in the vast majority of hospital environments, everyone but the physician was using electronic health information systems. Moreover, most physicians were not using electronic information systems in their practices. So, HITECH was developed to encourage physician adoption in both the hospital and office practice environments, as a necessary precursor to becoming electronic across the healthcare industry. EHRs also provide the capacity to drive not only clinical quality outcomes, but also cost effectiveness. In the Medicare program, for example, physician decisions determine 70 percent of variable cost. 

Q. Overall, are healthcare providers currently realizing a return on their IT investments that is comparable to the ROI achieved by other industries? 

A. As Harvard economist David Cutler has demonstrated, health care leads only the mining and construction industries in terms of realizing productivity advances attributable to the use of IT.a This fact is stunning, because we think of healthcare as highly technological, and indeed it is. But we take all of those technologies and channel them into a paper record, leading to a bottleneck and a constraint on the potential for improving efficiency. So, as an industry, it seems logical that we should be able to experience aggregate efficiency gains from the use of IT. 

Q. What challenges does the healthcare industry face in calculating ROI on IT investment?

A. A central challenge is the lack of a standard model, set of assumptions, or generally accepted accounting principles (GAAP) to calculate the ROI for providers from the use of EHRs and associated technologies. Some like to say, we are missing the ability to measure the return on information. 

On one level, we’ve been taking return on faith; it has been rather like contemplating ROI on an elevator in a bed tower. You could formally calculate ROI, but you knew you couldn’t have a bed tower without an elevator, so you just put the elevator in. 

But we’re not only in a more demanding financial environment now; also, we are potentially forgoing accelerating EHR use because we cannot calculate either the costs or the benefits in a standardized way. We need to be able to state our assumptions about what we believe the costs will be, what we attribute those costs to, the duration of those costs, and how the benefits are likely to manifest for that investment. We need a standard model that defines a set of assumptions about which costs are attributable to the EHR implementation and which costs are incremental to existing IT infrastructure. The model would also help categorize benefits that are directly attributable to the EHR—for example, a reduction in redundant lab tests or a reduction in paper management—as well as benefits that are indirectly attributable, like enhanced organizational reputation and improved quality.

In short, we need a common framework that can facilitate a credible argument within the usual context of capital and operating decisions. That framework would allow us to compare investments in different technologies or the same technology in different environments; it would also allow us to compare investments in EHRs with other uses of resources for business and clinical process improvement. Without a common framework, schedules that are created to articulate potential ROI have no comparability. 

Q. The IOM and HFMA are working toward creation of a standard model for understanding and calculating the costs and benefits of investing in electronic health technologies. Who is this model designed for? How do you anticipate the model will be used?

A. Improving our understanding of the ROI for providers was part of the genesis for a partnership between the IOM and HFMA. The IOM supports a transition to a learning health system—that is, a system that commits to both the generation and the use of scientific evidence in the delivery of care—as a prerequisite for value. And it’s hard to imagine a learning health system on paper. 

One of the barriers to transition has been the inability for provider organizations to develop a reliable business case for investment in EHR. A partnership with HFMA seemed like the best way to develop a generalizable approach using standard assumptions that are consistent with actuarial and financial best practices. I want to extend my thanks to HFMA for its leadership on this project, which brought together financial experts, economists, clinicians, information scientists, and health services researchers to develop the first version of the model. By the way, “version 1.0” (which is really like version 100) will be available on both the IOM and HFMA websites in the coming months.

We hope the use of this model provides a reliable pro forma for outlining categories of costs and benefits and thus, impact decisions to implement new EHRs or extend the use of existing technologies. This is an extremely complex undertaking. To begin the project, the IOM/HFMA team surveyed all publications that presented ROI using compelling, but ultimately idiosyncratic, approaches.

The team researched a number of fundamental questions. For example, where does the EHR begin and end? How do we delineate between the basic network that allows connectivity and the EHR technology that runs on top of that network? What are the categories of expense in terms of staffing, technology, maintenance, training, and potential effects on productivity? What are the benefits in terms of reduced inappropriate utilization, improved operating and clinical performance, and ability to reduce management of paper? And what are the benefits that are less directly attributable, like quality reputation and star ratings? In short, the model provides a framework for summarizing the extent that various benefits can be directly attributed to the EHR implementation—those items that are “dark green” dollars and tightly associated, and those that are highly likely to be associated with the EHR, but not necessarily exclusively attributable.

The model also helps frame assumptions about what constitutes the entity to which the benefits accrue; that is, what benefits accrue to the provider organization, and what benefits might accrue to payers or to society, broadly? And the model provides direct guidance about where to find certain data elements, including suggesting hospital general ledger accounts where cost increases and decreases might be located. I should note that the model will require stewardship. I very much appreciate HFMA’s willingness to become the steward for the maintenance and integrity of this model. 

For the first time, this model makes possible direct comparison of vendor technologies or products based on a standard set of cost/benefit assumptions. It has the potential to allow comparison of implementation approaches between environments, and it allows calibration to anticipate the levels of resources needed to solve similar problems across different settings. The model might even allow comparative effectiveness research to understand how technologies lead to improved health outcomes, and help us understand how different implementation approaches can lead to different returns in terms of clinical performance.

Q. After this model has been disseminated and adopted, what challenges do you anticipate will remain?

A. Just as GAAP standards evolve over time, this model is submitted as the best thinking of many leaders in the fields of finance management, information science, and health services research, but we know it’s not perfect. We look forward to the body of information that will result from its use, and hope it will evolve to be even more useful in terms of supporting a standard approach to calculating a return on information.

Q. What can healthcare finance leaders do to achieve the highest return on their IT investment? 

A. Healthcare finance leaders have a pivotal role in moving to a more efficient, more effective, safer, and more compassionate ecosystem of health care. It’s clear we can’t get there using paper. And it’s equally clear we can’t get there with electronic systems that are only partially implemented. 

There are a number of things that healthcare finance leaders can do to achieve the highest ROI.The first is to make informed decisions about investments and articulate clear expectations for investment performance. That’s rather difficult in the absence of a standard model for framing assumptions. We believe use of this new model will be very helpful, not only by improving our ability to learn from others consistently and effectively, but also by giving clear signals about expectations for EHR implementations and performance.

Finance and other health system leaders need to heed the existing data that show that paper is inadequate, as is only partial implementation of EHRs. Having a foot in the paper world and a foot in the electronic world is unsafe, complex, unproductive, and disruptive. On the basis of current data, the highest levels of clinical and financial return accrue from full implementation of EHRs; that is, from achieving use of advanced functions, as defined by the HIMSS levels of implementation.

In a very real and practical sense, we now have an extraordinary opportunity. On the one hand, we have been supported by the HITECH incentives and warned about the penalties for not becoming electronic. On the other, the central opportunity is to really make “meaningful use” meaningful. With full implementation of electronic information systems and fully informed processes for making investments and managing EHR implementation, we can optimize the use of every health dollar toward achieving the highest level of return. This new model provides an unprecedented opportunity to compare approaches and extract the most utility from every precious healthcare resource. 

Electronic information is not the end in itself. The end is better care—safer, more efficient, more coordinated, and more compassionate care. At a clinical level, we can build a learning health system that provides data as a by-product of care to offer better care. In an electronic environment, we can use those data to make more informed clinical, financial, and operating decisions. We hope this model provides a useful resource for providers to make informed decisions about EHR investment and, in turn, accelerate our journey to higher-value health care. 


About Jonathan Perlin 

Jonathan B. Perlin, MD, PhD, MSHA, FACP, FACMI, is president, clinical services group, and chief medical officer of Nashville, Tenn.-based HCA Holdings, Inc. (HCA, or Hospital Corporation of America). He provides leadership for clinical services and improving performance at HCA’s 163 hospitals and more than 800 outpatient centers and physician practices. Perlin’s current activities include implementing electronic health records throughout HCA, improving clinical core measures to benchmark levels, and leading patient safety programs to eliminate preventable, drug resistant, healthcare-associated infections.

Before joining HCA in 2006, Perlin was Under Secretary for Health in the U.S. Department of Veterans Affairs. As the senior physician in the federal government and CEO of the Veterans Health Administration (VHA), Perlin led the nation’s largest integrated health system. He has served on numerous boards and commissions, including the National Quality Forum and the Joint Commission. He currently serves on the boards of the American Hospital Association, National Patient Safety Foundation, and Meharry Medical College. Perlin chairs the U.S. Department of Health and Human Services’ Health IT Standards Committee. 

Broadly published in healthcare quality and transformation, he is a fellow of the American College of Physicians and the American College of Medical Informatics. Perlin holds a master’s degree in health administration. He received a PhD in pharmacology (molecular neurobiology) with his MD as part of the Physician Scientist Training Program at the Medical College of Virginia of Virginia Commonwealth University. 


a. Cutler, D., “Health System Modernization Will Reduce the Deficit,” Center for American Progress Action Fund, May 11, 2009.

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For More Information 

The report, Return on Information: A Standard Model for Assessing Institutional Return on Electronic Health Records, and the complete version of the ROI model will be available on the HFMA website in the coming months.

hfm subscribers: Read more of hfm’s interview with Jonathan Perlin. 


Publication Date: Friday, November 01, 2013

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