Computers - April 2002 -- Family Practice Management

April 2002 Table of Contents

Computers

How Much Will That EMR System Really Cost?

This spreadsheet helps you compare the long-term costs of electronic medical records systems.

Jack Valancy, MBA

Covered in FPM Quiz

Tool inside

The online version of this article incorporates material not included in the print version.

Wouldn't it be great if you could shop for an electronic medical records (EMR) system simply by going to an office supply store, comparing the features of the models on the shelves and choosing the one that best fits your needs and price range? Unfortunately, nothing about EMRs is quite that straightforward, including the way they're priced. EMR vendors don't adhere to a uniform price structure, making it difficult to compare one vendor's proposal with another. Some charge a low purchase price, but make up for it with higher support costs. And some potentially high costs (e.g., the ongoing costs of data entry) aren't reflected in the purchase price or support costs at all. To help take some of the mystery out of vendor proposals, I've created a spreadsheet that you can use to calculate the initial purchase price and long-term costs of EMR systems so that you can more easily compare the systems you're considering.

Nothing about EMRs is straightforward, including the way they're priced.

Do your homework

If you're not sure what you're looking for, you can waste a lot of time talking to vendors and test-driving products that don't meet your needs. Before you begin to shop for an EMR system, you should familiarize yourself with the features available and try to determine what you want the EMR system to accomplish. FP Net, the AAFP's online computer information source (www.aafp.org/fpnet), has a variety of resources to help family physicians evaluate products before they buy, including a list of criteria for a "family-physician friendly" EMR system (see also "Looking for a Good Electronic Medical Records System?" FPM, January 2002, p. 50).

Using the spreadsheet

The spreadsheet helps you calculate the initial purchase price of a complete EMR system as well as the annual and five-year operating costs of the system. You can download a working copy of the spreadsheet (you will need Microsoft Excel to view the file).

To use the spreadsheet, simply enter a brief description of each component of the EMR, its unit cost and the quantity your practice will need. Different types of the same item (e.g., laptop/desktop computer or inkjet/laser printer) should be listed on separate rows. You'll find most of the information you'll need for the spreadsheet in the vendor's proposal, but you may have to contact the vendor for additional information.

Perhaps the trickiest aspect of the spreadsheet is determining the first-year operating costs ("Annual cost: Year 1" on the spreadsheet). Typically, the first year starts when the system is installed. The annual cost is the sum of maintenance costs, licensing fees or other charges that will recur annually. The annual costs may be less during the first year than in subsequent years depending on the vendor warranty. For example, take a look at the "Servers" and "Data storage" rows in the sample spreadsheet. Because these items have 90-day warranties, the maintenance costs in the first year are 75 percent of what they will be in subsequent years.

Some questions to ask about vendor support

This material is not included in the print version of the article.

When you purchase an electronic medical records (EMR) system for your practice, the price generally includes vendor support, but not all vendors offer the same level of assistance. To determine exactly what kind of support a vendor will provide, ask the following questions – and check with practices currently using the EMR system to determine whether the vendor actually delivers the kind of support it promises:

Initial vendor support

What kind of support is included in the initial purchase price of the EMR system?
Will you work with our contractors to install the system or just be providing them with a set of network, telecommunications and electrical specifications?
Will you be working with us to customize software features such as the templates we will be using?
How many people will you train? Where will the training take place? How long will it take?
Will staff members who join the practice later receive the same training?
How will we learn to use software that may be added to the EMR later?
Who will scan or key in data from our paper records?
How will patient demographic information be converted from our patient accounting system?
Will we need to purchase separate software modules to transfer the data?

Post-implementation support

Ongoing vendor support includes help solving problems, as well as continued assistance with the above issues. Sometimes vendors sell several service packages, offering broader services, longer hours and faster response times for higher fees. To better understand the level of ongoing support you’ll receive, ask a vendor the following questions:

How will support be provided (e.g., on site, by telephone or e-mail)?
How long does the support that’s included in the initial purchase price last?
Do you charge a monthly or annual fee for support?
Do you charge hourly or per-incident fees?
Are there any additional charges I should know about, such as for travel?

The spreadsheet also estimates the net present value - the five-year cost in today's dollars - of the EMR system. The default discount rate, or return on investment, is set at 8 percent in the sample spreadsheet; however, the online version will allow you to enter whatever discount rate you choose. To simplify calculations, I assumed that you would pay initial costs on the first day of the year, and annual costs midway through the year.

The spreadsheet does not address financing or leasing a system since these options involve working capital and tax implications unique to each practice. If you are interested in financing or leasing, I suggest consulting with a qualified accountant for advice on the option that would best suit your practice's needs.

While this spreadsheet will help you calculate costs, it's just one piece of information you should use to decide among EMR systems. Don't make your decision based on up-front costs alone. Find out all you can about support costs (for questions to ask, see "Some questions to ask about vendor support."). Consider features, functionality, ease of learning and ease of use to pick the system that meets your needs and your budget.

CALCULATING THE COSTS OF AN EMR SYSTEM

			Initial cost Purchased Jan. 1/02			Annual cost
	Description	Comments	Unit cost	Quantity	Extended cost Unit cost x Quantity	Year 1 2002	Years 2 to 5	5 year cost Year 1 + (Years 2 to 5x4)
Hardware
Servers	Main server	Client-server or peer network w/ one or more PCs	$12,324	1	$12,324	$1,107	$1,476	$7,011
	Backup server		$11,874	1	$11,874	$1,071	$1,428	$6,783
Data storage	RAID array	May be included w/ servers above or as a separate component	$3,523	1	$3,523	$315	$420	$1,995
Data backup	DAT drive and cartridges		$2,155	1	$2,155	$0	$2,580	$10,320
Input devices	Desktop computers		$987	6	$5,922			$0
	Laptop computers		$1,582	3	$4,746	$282	$564	$2,538
Printers	Laser		$1,545	1	$1,545			$0
	Inkjet		$359	2	$718			$0
Other devices	Scanner		$250	1	$250			$0
Network	Router & switches	May also include cost of installing wireless network components	$2,587	1	$2,587			$0
	Cable installation		$1,500	1	$1,500			$0
Telecommunications	Modems, multiplexors	May also include cost of Internet service provider, voice and data lines	$580	1	$580			$0
	DSL		$249	1	$249	$1,788	$1,788	$8,940
Electrical	Uninterruptible power supplies	May also include cost of installing dedicated electrical circuits or power protection equipment	$249	2	$498			$0
	Electrician		$500	1	$500			$0
TOTAL: Hardware					$48,971	$4,563	$8,256	$37,587
Software
Operating system	Unix		$249	1	$249	$0	$288	$1,152
Applications	EMR application	Note: vendors price software licenses in a variety of ways - e.g., per physician, per site, per workstation.	$12,000	1	$12,000	$720	$1,440	$6,480
	Interface modules		$2,000	2	$4,000			$0
	Upgrades	Upgrades may be included in software support services below or charged separately. If charged separately, estimate number of upgrades and allocate cost over first five years			$0			$0
TOTAL: Software					$16,249	$720	$1,728	$7,632
Vendor support
Site preparation	Included	May also include network, telecommunications, electrical			$0			$0
Hardware and software installation	Included				$0			$0
Training	Staff travel		$500	2	$1,000			$0
Data conversion		May include scanning or keying in data from paper records			$0			$0
Interface(s) with other applications	Vendor staff time		$50	16	$800			$0
TOTAL: Vendor support					$1,800	$0	$0	$0
Other considerations
Ongoing data entry	Staff to scan in data from other sources		$8	500	$4,000	$2,000	$2,000	$10,000
TOTAL: Other considerations					$4,000	$2,000	$2,000	$10,000
TOTAL cost of EMR system					$71,020	$7,283	$11,984	$55,219

Five-year EMR system cost	$126,239 Initial purchase price + 5-year cost
Net present value	$73,973
Five-year cost of EMR system with discount rate of 8.00 percent

	Initial	Year 1	Year 2	Year 3	Year 4	Year 5
Date paid	1/1/2002	7/1/2002	7/1/2003	7/1/2004	7/1/2005	7/1/2006
Amount paid	$71,020	$7,283	$11,984	$11,984	$11,984	$11,984

Jack Valancy is a practice management consultant based in Cleveland Heights, Ohio, and a member of the FPM Panel of Consultants. Conflicts of interest: none reported.

Send comments to fpmedit@aafp.org.

Copyright © 2002 by the American Academy of Family Physicians.
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