Doug Thompson
Ferdinand Velasco
David Classen
Robert J. Raddemann

Investments in performance management are essential to realizing the full benefits of an EHR system-including reduced costs and improved quality of care.

At a Glance

Steps that hospitals should take to ensure they are gaining optimal value from their electronic health record (EHR) systems include:

  • Creating a value framework for EHR implementation and build executive understanding of the framework  
  • Quantifying each of the expected benefits of EHR implementation  
  • Creating a cross-functional executive team to lead investments in performance management related to the EHR system  
  • Aligning incentives through a formal physician engagement strategy

Although the financial incentives for the implementation and meaningful use of electronic health records (EHRs) available through the 2009 American Recovery and Reinvestment Act (ARRA) have captured the attention of hospital executives recently, the potential financial benefits of EHR use are much greater than the incentives healthcare organizations could stand to gain from the government.

Documented case studies indicate that an EHR can help control hospital costs. Two of the authors of this article participated in research for an article that included a review of the literature on EHR benefits. Findings suggested that a typical 300-bed hospital could gain $2 million to $10 million in annual financial benefits by realizing the best-documented benefits of an EHR (Thompson, D.I., Classen, D.C., and Haug, P.J., "EMRs in the Fourth Stage: The Future of Electronic Medical Records Based on the Experience at Intermountain Health Care," Journal of Health Information Management, Summer 2007). Most of these benefits are associated with reductions in hospital length of stay (LOS) and drug utilization.

View Exhibit 1


However, although published examples support the idea that implementation of EHRs can save hospitals money, one recent study found that computerization, in general, does not appear to have helped most hospitals reduce clinical resource utilization and costs (Himmelstein, D.U., Wright, A., and Woolhandler, S., "Hospital Computing and the Costs and Quality of Care: A National Study," The American Journal of Medicine, January 2010). Why? In the case of EHRs, the reason may be that most hospitals with EHRs have not yet implemented the two key elements that drive most of an EHR's financial benefits: clinical decision support and performance management, the latter of which can also be thought of as operational decision support.

How EHRs Can Be Used to Reduce Clinical Costs

Over the past decade, American hospitals have spent billions on EHR systems, and even greater investments are expected in the next 10 years. Most researchers place the current size of the U.S. market for EHRs at $1 billion to $2 billion annually, and expect it to grow to $5 billion by 2015 (Electronic Medical Record Systems: A North American and European Market Report, Global Industry Analysts, Inc., February 2010).

An EHR can be likened to "shop floor automation" for the care process. Its decision support functions guide the actions of workers (clinicians), while its workflow elements support greater efficiency and safety. Both can help improve clinical and financial outcomes.

Exhibit 2 illustrates a few of the many possible EHR decision support interventions and workflow supports that can reduce costs. For example, an EHR can prompt a nurse to screen a patient for the risk of falling and add fall prevention activities to a nursing task list, reducing the cost of caring for patients with fall-related injuries. When a physician enters an order for a medication, the EHR may suggest a lower-cost or more effective alternative. And automated clinical documentation tools in an EHR collect coded data to drive decision support, improve the legibility and completeness of clinical documentation, and deliver that information to clinicians anywhere and at anytime, saving time and helping to prevent medical errors.

Vew Exhibit 2


Why Performance Management Is Needed

Performance management is an emerging discipline, similar in scope and impact to Total Quality Management, re-engineering, or Lean Six Sigma. Like these disciplines, it was first introduced and has become popular in other industries besides health care. Performance management has two core elements:

  • Analytic software that collects and aggregates data from many other information systems and locations, transforms the data into usable information, and presents the data to managers and individual contributors in a format that enables enhanced decision making and greater efficiency
  • An organized approach to using analytics intelligently to manage individual and organizational performance

In health care, performance management has been used primarily in the hospital revenue cycle; however, it is increasingly being viewed as essential for the realization of EHR benefits.

Research on ways that early adopters of EHRs have successfully realized the benefits of EHRs for their organizations has identified the establishment of regularly reported benefit metrics as the most effective method for realization of EHR benefits. Analytic software provides hospitals with the ability to more easily identify root causes of performance and offer corresponding feedback to individual physicians, clinicians, and those who maintain and update the EHR's capabilities.

The process of developing evidence-based decision support content and delivery technologies (e.g., alerts, reminders, order sets), learning how to use computerized provider order entry, entering orders electronically, and waiting for and complying with decision support interventions requires sacrifice by physicians. Before most physicians will make this sacrifice, they must see and understand that their care processes and those of their peers are highly variable, and that their outcomes are not ideal. Data must be pulled from a variety of information systems and then combined and presented in an easy-to-understand format. Without good analytic software, this process can be so difficult and time-consuming that it is omitted from many EHR implementations, leading to low physician adoption.

Once the EHR is implemented, physicians need to see that their sacrifices are quickly producing better results, both clinically and financially. The use of analytics can deliver meaningful individual and aggregate performance (process and outcome) data to physicians that clearly indicate improved performance. Without these data, EHR adoption may fade, and benefits may be lost.

The complexity of an EHR demands an iterative approach to implementation, as it is impossible to set up an optimal system on the first attempt, and conditions, technologies, and best practices change over time. Analytics can provide the insight to ensure that alerts are being used appropriately to optimize order sets, identify required modifications to clinical documentation capabilities, and guide many other improvements to the EHR's decision support and workflow elements, as shown Exhibit 3.

View Exhibit 3  


Benefits of a Personal Scorecard

The most common analytic software application is an executive dashboard with varying degrees of ability to drill down into the data. A dashboard view is useful for clinical and operational executives, researchers, and quality analysts, but may not engage the majority of clinicians or influence their daily practices. Performance management at a personal level that connects more directly, specifically, and immediately to what's going on at the bedside is what's needed.

For example, a personal scorecard can show an individual physician his or her risk-adjusted costs and utilization for a specific day's cases, and allows the physician to compare these data with his or her average performance in these areas and with the performance of peers. When this information is provided in a timely manner, when the physician's memory of those cases is still fresh, the data can help to drive introspection and practice changes in a way that month-old aggregate data cannot. From a clinical perspective, a personal scorecard might show the percentage of guidelines met relative to patients seen, electronic results for blood sugar assessments performed by patients at home and transmitted to a central registry, and the percentage of patients with deficits in screening procedures. The scorecard also might be able to print a list to give to the receptionist in the morning for reminder calls. These are capabilities not available in commercial EHR systems.

Key Performance Management Steps

Analytic software alone is not enough to drive EHR cost savings. As Exhibits 2 and 3 indicate, care is delivered within each clinician's mental constructs, which are affected by the clinician's education, experience, incentives, and the culture of his or her organization.

Performance management addresses these factors in an organized and effective manner, through governance, alignment of incentives, and coaching. Our experience with hospitals that have used performance management to manage physician resource use, LOS, and costs indicates that the following steps can be highly successful.

Create a value framework for EHR implementation, and build executive understanding of this framework. The value framework should list the major expected benefits of the performance management initiative, with detailed descriptions of how the benefits will be produced. Executives should participate in education and facilitated discussions regarding the value framework.

Quantify each of the expected benefits of the initiative. With this step, executives should build consensus around and commitment to numerical improvement targets.

Create a cross-functional executive team to lead investments in performance management related to the EHR system. This team may include the chief medical officer, the clinical chiefs or other representatives of major services, the leader(s) of utilization management and quality improvement, the CFO and representatives from the organization's decision support and revenue cycle functions, the head of healthcare information management/medical records, and the CIO.

Educate physicians about the financial impact of their behavior (e.g., "Finance 101 for Physicians"). Many physicians do not understand how hospitals are reimbursed, the underlying cost structure of hospitals, and how physician ordering and documentation affect hospital finances.

Align incentives through a formal physician engagement strategy. This strategy should include identification and selection of implicit and explicit incentives, as well as penalties appropriate to local hospital culture, personal relationships, market conditions, and other factors. Implicit incentives and penalties may include personal and professional pride, physician competitiveness, and loss of status. Explicit incentives or penalties may include participation on the emergency department call list, admitting privileges, and the effect of personal performance on health plan physician ratings.

Share aggregate and individual performance data with physicians and educate them about the EHR's analytic tools. This step may initially be accomplished as part of clinical department grand rounds. Many organizations choose to keep individual performance confidential to each physician but to disseminate information to all physicians regarding variation among peers. Selection of key performance indicators (a short list of key metrics, easy to understand, directly associated with performance) avoids data clutter and focuses on what is truly important. Hospitals also should provide a process for discussing and addressing issues such as data sources and quality, statistical significance, and risk adjustment methods.

Provide regular data updates to physicians and allow them to explore their own data. Increasing numbers of physicians are both interested in and capable of such analysis, but organizations should share data with them at least monthly in both paper and web-based formats to ensure that all physicians can use the information. Individual coaching by clinical department leaders of the physicians with high patient volumes and the longest risk-adjusted LOS and highest costs per case can produce dramatic results if done skillfully. Incentives and penalties may be part of these conversations.

Track and regularly review progress toward targets. Typically, it is best to delegate responsibility for tracking to members of the cross-functional executive oversight team who have the power to take action on the data. Individual team members should be paired with each function and department for follow-up and coordination.

An Investment that Supports EHR Success

Investments in performance management are essential to realize the full benefits of EHR implementation, which can reduce costs for hospitals and improve quality of care. Without such investments, the best data in the world are likely to be ineffective in changing physician behavior and performance.

Doug Thompson is president, Black Box SME, Mesa, Ariz.; a senior research director, The Advisory Board Company; and a member of HFMA's Arizona Chapter (

Ferdinand Velasco, MD, is chief medical information officer, Texas Health Resources, Arlington, Texas, and a member of HFMA's Lone Star Chapter (

David Classen, MD, is chief medical officer, CSC, Salt Lake City, and a member of HFMA's Utah Chapter (

Robert J. Raddemann, CPA, is senior vice president, finance, MedeAnalytics, Emeryville, Calif., and a member of HFMA's Northern California Chapter (

Publication Date: Friday, October 01, 2010

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