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Financing technology the right way


Practices are considering the cost and best way to invest in new tech. Here are some strategies to make it work.

With practices now caught between huge demands for digitizing records and shorter-than-ever product innovation cycles for technology upgrades, they need to be choosier about which investments will pay off

Kenneth Kubitschek, MD’s internal medicine group in Asheville, North Carolina, has never shied away from technology investments. “We’ve always felt like the efficiencies outweighed the costs, though we weren’t always sure about that right away,” he says.

Kubitschek’s 13-provider group has declined thus far to purchase a new patient portal that lets heart, diabetes, and weight management patients stream daily (or even more frequent) information about their conditions to their doctors.

“That doesn’t mean forever, but for right now we’re passing on some of these products,” says Kubitschek, who is a member of the Medical Economics editorial advisory board. “We’re waiting to see how we’re going to handle all this new information we’re going to receive on patients. If I’m getting your blood pressure 16 times a day, trying to stay on top of what’s going on can be a massive task.”

Related:4 ways EHR vendors are building better systems

As for other new technology buys, Kubitschek’s practice likes to see the technology evolve to the point where the benefits outweigh the costs, both in financial terms and staff time devoted to training, he says.

That kind of balance makes sense, of course. But how can physicians maintain that when they are under pressure to modernize, particularly with new demands involving electronic health records (EHRs)?

Many small groups don’t do cost accounting that would put technology spending in context with revenues, experts say, and larger practices’ spending varies  by type of practice and where the group is on the equipment upgrade cycle. A large accountable care organization might spend 3% or more of revenues on information technology alone, for example, while costs for more narrowly-focused organizations might be half of that.

IT spending on the rise

Regardless of the spending size relative to revenue, it’s clear that health IT spending is still on the rise, and practices are feeling the pinch. According to a January 2015 report from the Centers for Medicare & Medicaid Services, the portion of U.S. physicians using electronic health records grew from 18% in 2001 to 78% in 2013-fueled, in part, by subsidies made available through the Meaningful Use program.

A poll this year of 5,700 small group and solo practitioners by Black Book Rankings found that 48% of practices that switched their EHR systems recently reported that the resulting financial burden put their practices in an unstable financial position.

And more costs await many practices. While system implementation problems declined between 2013 and this year, the survey found, 91% of practitioners said lack of interoperability among physicians, hospitals, clinics, and labs was their biggest concern. That suggests another round of system replacements is ahead. 

“As risk sharing increases, so will the demand for meaningful, robust data sharing between providers and payers, regardless of the model EHR employed,” says Doug Brown, president of Black Book Market Research.


NEXT: Avoiding a bad buy


Avoiding a bad buy

So how can practices stay current on the latest technology without putting themselves in financial jeopardy? 

Prioritizing is an important first step, says John Lovelock, research vice president for The Gartner Group, a consulting firm that forecasts information technology spending by industry. Practices are spending less on computers and other hardware such as printers, and fixed networking costs are declining, he says.

The savings are being funneled into EHR software, mobile devices such as tablet computers, and outsourcing firms that keep practices running, Lovelock says, so that overall costs aren’t necessarily dropping, even though prices in some categories are. “Physician software sales are growing at 9% a year for the next five years,” he says.

Like Kubitschek, Lovelock believes that managing device-oriented patient data is going to be the next major challenge for practice budgets. “The whole trend in [patient] wearables (devices capable of sending health data to doctors offices) puts physicians on the beach when this wave of data comes in. It’s going to require a huge change in practice design and commensurate systems,” Lovelock says.

For now, he says, practices are putting more money in the cloud and less into owning software licenses and maintaining their own servers as they manage the data they already have. “It’s no longer viable for many practices to own their own data center,” he says. “The trick is knowing where the heart of your practice is going to be in the next three years, then finding the technology that handles that function” and prioritizing that in your budget, he says. 

That’s fundamentally different than letting technology trends drive spending, he says, and why it’s important to manage those top-level decisions yourself rather than deferring to the techies. “The problem for many physicians is that they aren’t tech experts and so they have to trust the recommendations of someone selling them a product,” says Richard Bloomfield, Jr., MD, a pediatric hospitalist and director of mobile technology strategy at Duke University School of Medicine

Bloomfield says his father, a solo practitioner in family medicine, has resisted adopting an EHR system thus far. “He still uses a transcriptionist. While I’m passionate about technology, it’s not always the best solution. Sometimes people want technology because they think it will solve a problem. Sometimes that’s true and sometimes not.”

Hiring a third-party adviser not connected to a vendor is one solution, but simply adopting a healthy skepticism is essential, Bloomfield says. “When someone is asking me about buying the latest widget, I ask, ‘What problem are you trying to solve? And is this the most cost effective way to do that?’

“I’m the first to say that having gone through the transition from dictating notes to entering notes myself into the EHR, it is painful. There is nothing easier than dictating notes and having a transcriptionist take care of it,” Bloomfield says.


NEXT: Key practices for making budget decisions


Bloomfield believes that the massive data trove that EHRs will produce will incentivize patients to take better care of themselves and will point physicians to better treatment plans and outcomes, though he concedes that is still a goal, not reality. In the meantime, arm yourself with a few key best practices when making your next budget decision about tech spending:

Suspend disbelief

Particularly if you practiced for many years without computer technology, it can be easy to adopt such a skeptical attitude that you go overboard and shun all new ideas. Don’t do that, says Lee Orsag, CHBC, chief executive officer of Altex Business Solutions, an IT support company specializing in practice management software.

“So many times clients can be short-sighted and resistant to change, and yet so many tools today cost very little and help practices file claims more efficiently, post payments more efficiently and allow all that data to be tracked automatically,” he says. “Because they don’t understand it or because it costs $30 a month, they’ll spend days posting a Medicare claim that could be done in hours.”

Automated claim posting also can catch errors before they are officially submitted to payers, he says.  He cites the example of a client who was considering adding an automated claims-processing system for whom Altex tested a sample of 102 claims. “We found 10 claims with errors, which means those would have bounced back under the old system and would have had to be re-filed with Medicare. Those bounce-backs really add up in terms of staff time.”

Another common mistake among practices is succumbing to short-sightedness regarding future outlays, he says. “It’s very economical for a 25-computer practice to upgrade [software systems] once a year, but if you tend to wait two to three years, you have to buy it again,” he says. In addition to managing the upgrade cycle, providers also need to determine whether owning or leasing equipment makes sense. “Some physicians just at any cost want to own equipment and avoid monthly payments.”


When searching for tech vendors, don’t forget to negotiate every time, experts say. Look for new players wrapping together several services, such as EHR and billing management software, for a lower combined price, says Judy Boesen, principal at Medical Practice Enhancement Services LLC in Colorado Springs, Colorado. Some [vendors] will charge 2.9% of billings to perform both tasks rather than a set fee, she says.

And don’t forget future costs, says Brown of Black Book Market Research. For example, in the survey, practices reported significant unexpected EHR add-on fees as contracts progressed to their later years. Nearly 80% reported higher-than-anticipated increases for implementation assistance. And nearly 70% said they were caught off-guard by additional staffing required to manage their EHR systems. 

In practices with more than six physicians, annual spending on information technology rose 55% from a median $16,044 per physician in 2008 to $25,028 this year, according to Black Book surveys, while Medicare fee-for-service rates stayed basically flat during that period. 

“That’s significantly affecting 2016 purchase planning for other capital equipment, staffing and supplies,” says Brown. Total operations staff per 10,000 patients increased from 4.9 to 8.1 during the period.

Meanwhile, small and solo practitioners expressed even more pain than their large-practice counterparts, he says, citing “ongoing losses in productivity and changes in workflow, escalating costs to maintain IT and related staffing and static reimbursement. Their current go-to solution has been to replace their original EHR with a cloud-based option and to outsource billing and collections.”

Read the fine print

Scrutinizing tech vendor contracts is critical for maintaining costs, notes Ronald Sterling, CPA, principal consultant with Sterling Solutions Ltd. “It has to be a results-oriented contract,” he says. “Make sure [the vendor] will maintain the features that are relevant to your practice,” including connectivity needed to link with health exchanges and other entities. Also insist on language that requires the vendor to continue upgrading the product, he says.

Rent or own?

While many practices today use subscription fees rather than buying technology outright, that isn’t always the best strategy, Boesen says. “Costs for hardware have really come down and even in software it’s sometimes more cost-effective to own,” she says, so it’s important to do a comprehensive pro-forma when deciding which path to take.


NEXT: Server or cloud?


Server or cloud?

Experienced physicians tend to want to pay for a physical server in their office rather than using  a cloud-based system, Orsag says. “They want something they can put a cup of coffee on,” he says. “They don’t want to lie awake at night wondering where their data is.”

Remember that each method has its advantages and drawbacks, experts say. Maintaining hardware can be costly, labor intensive and vulnerable to damage, but cloud-based services can be equally costly and either method potentially poses a data breach risk. 

In the Black Book survey, practitioners said five-year total costs under a cloud-based, software service model were $54,295 per physician, compared with $62,394 for practices using in-house servers.

Run the numbers

Another way to control technology costs is by outsourcing, Kubitschek says. In addition to deciding whether to purchase software for managing self-reported patient health data, his practice is experimenting with outsourcing fees for the new Medicare codes for chronic disease management.

“It’s a telephone service where people call on your patients to check on them, make sure they’re getting to appointments and taking their medications,” he says. “I’m working on a pro forma right now to see if it would be better to hire this out. We don’t have a real good feel yet which way will be better. It’s kind of an unknown and you’d have to convince patients they want to participate and get their consent. I hesitate to start hiring for this when we don’t know how many would sign up.”


NEXT: Determine the upside potential


Use a decision tree

Kubitschek performs an informal litmus test on most technology purchase decisions: Is it beneficial to the patient? Does it help the practice from an efficiency standpoint? If it’s a benefit to the practice, is it at least neutral for the patient?

“It’s always a balancing act of coming up with the best use of new technologies” without blowing the practice’s technology budget, he says. “I remember when e-mail first came out, we had a couple of physicians who insisted every email had to be printed out, and then a reply was dictated and put back in electronically. That didn’t last long.”

Determine the upside potential

If there’s any good news to the grim data on technology costs, it may be that some of these systems are doing a better job with coding, says Boesen, so that some of these new costs are being recovered.

“In my experience practices do much better coding when they are using an EHR system,” she says. “All of your charge data is electronically transferred to a practice management system. It lets you review the note when getting ready to file a claim so you can make sure the doctor charged for everything. At one practice I found an average of six missed charges a day, [before the EHR] so there are some pluses.”

For Julie Gunther, MD, a family physician in Boise, Idaho, with a direct-pay practice model, having an EHR system that also manages e-mails and texts with patients has paid for itself in a different way. On a recent family vacation, the solo doctor stayed in touch with patients electronically, answering non-emergency questions when she found some down time. 

The 24/7 on-call aspect, doesn’t bother her, she says, because she’s better able to manage her work load and schedule throughout the year. Fewer dollars invested in staff and sophisticated payer-management systems – she recently picked up a $400 printer at Costco rather than leasing – also means she can spend more on office décor and other patient-focused amenities.

“I have a partner starting shortly, so in the future if patients need a face-to-face meeting they can see her,” she says. “For now, I have a personal cell phone to stay in touch and that’s really all I need.”


NEXT: Getting a handle on tech spending


Getting a handle on tech spending

  • Start with the end in mind. Set numeric expectations for what the new technology is supposed to accomplish, with savings target benchmarks required for each subsequent upgrade. Don’t forget staff productivity costs.

  • Shop around. Take the time to solicit multiple bids and ask for ancillary services to be wrapped into the purchase. Run multi-year projections on subscription services vs. owning equipment.

  • Set a budget over time for total technology spending-3% of revenues, say-and put projects on hold that would substantially increase a three-year rolling average expenditure.

  • Build future performance expectations into technology vendor contracts.
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