Financial Evaluation And Cost-Benefit Analysis Of EMR Implementation At Somerset Medical Center

Name: Financial Evaluation And Cost-Benefit Analysis Of EMR Implementation At Somerset Medical Center
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Financial Evaluation and Cost-Benefit Analysis of EMR Implementation at Somerset
Medical Center
Based on the financial evaluation and cost-benefit analysis provided for the implementation of an
Electronic Medical Record (EMR) system at Somerset Medical Center, discuss the following:
1. The expected cost savings after the implementation of the EMR system in terms of chart
pulls, transcription, drug events, and administrative expenses.
2. The ROI calculation, including the payback period and net benefit analysis over the 5-
year period.
3. How the sensitivity analysis affects the overall financial viability of the project.
Please provide a detailed analysis, including both quantitative and qualitative aspects of the EMR
implementation, and critically evaluate whether the hospital should proceed with the
implementation based on the findings. Word Count: 1,500 – 2,000 words

Summary
“Somerset Medical Center is a general medical and surgical hospital in Somerville,
NJ, with 250 beds. Survey data for the latest year available shows that the hospital had a
total of 15,417 admissions”. (http://health.usnews.com/best-hospitals/area/nj/somerset-
medical-center-6221340 )
We believe that the implementation of a new EMR system at Somerset Medical Center
from the present paper will result in significant cost savings for them. The financial evaluation of
this project needs to consider all factors which will result in the saving of cash for the hospital
once the implementation has been completed.
“Computers have made the world a small place. Due to their speed, accuracy, memory
and other characteristics, computers are used in all spheres of life. These machines are used a
large scale in different sectors, including hospitals.”
(http://www.kish.in/effects_and_benefits_of_ computerisation_in_different_spheres/).
Implementation of EMR will provide cost savings through the following ways:-
• Will result in lesser number of clerks, office space and storage area
• Significant saving in stationery
• Reduction in adverse drug events and saving in transcription cost
• Clinical decision support system will help in saving in drug utilization, laboratory
utilization and radiology utilization
• Improvement in charge capture to certain extent
• Due to real time and better internal control, prevailing billing errors will reduce
In the manual system, the hospital is incurring certain costs which can be easily
controlled after EMR implementation. The cost of Chart pulls, which is estimated as $7 per chart

can be reduced to nil. The cost involved in transcription can be reduced by 28%.
(http://www.ehealthdc.org/meaningful-use/benefits-of-ehr-adoption/#_ftn1 )The implementation
will also result in decreased cases of adverse drug events and drug utilization cost can be
controlled. Utilization of laboratory and radiology can be optimized resulting in cost reduction.
Charge capture can be improved and billing error can be reduced to a great extent. EMR will also
result in reduction of administrative expenses. The saving in all such expenses, which make up a
total of $65,070, makes this project financially viable. The actual dollar savings for the hospital
over a five year period will amount to $2,491,574 after taking into account the reduction in
staffing and all fixed costs relating to office space and other equipment reductions.
While it was difficult to get the actual product costs from electronic medical records
software providers,- our analysis were completed by collecting the information from different
medical publications, as well as EMR comparable internet resources. The estimates were based
on these sources. While the accuracy of the estimate can be challenged, we prepared the
sensitivity analysis. Nevertheless; the methodology of the analysis is sound and supports the
conversion by the hospital.
****************************************************************************
Financial evaluation
According to the article “Study of the cost-benefit analysis of electronic medical record
systems in general hospital in China.”,(http://www.ncbi.nlm.nih.gov/pubmed/22212632),
“Benefits from using EMR accrue primarily from savings in new medical record creation,
decreased full-time-equivalent (FTE) employees, saving of adverse drug events (ADEs) and dose
errors, improved charge capture and decreased billing errors” (Li K, Naganawa S, 2012) ….
The payback period graph presented hereunder shows that this period is less than 4 years.

The most prudent financial model for calculating viability of any project is return on
investment. In absolute figures, the below presented ROI graph clears that the project has
potential:-
-$80,000
-$60,000
-$40,000
-$20,000
$0
$20,000
$40,000
$60,000
$80,000
$1,00,000
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
PAY BACK PERIOD
Cumulative cash flow
-$60,000
-$40,000
-$20,000
$0
$20,000
$40,000
$60,000
$80,000
Initial Cost Year 1 Year 2 Year 3 Year 4 Year 5 Total
RETURN ON INVESTMENT

Initial cost estimates
There are two categories of costs associated with EMR implementation. The first cost is
the system costs and the second is induced costs (Table 1). System costs include the cost of the
software and hardware, implementation, training, ongoing maintenance and support. Induced
costs are those involved in the transition from a paper to electronic system.
Initial cost estimate has been done using the information available from medical
publications (http://www.ncbi.nlm.nih.gov/pubmed/22212632, and from certified EMR
technology consultant http://www.emrapproved.com/cost-estimate-tool.php. We also contacted
All Scripts Healthcare Solution Inc. and American Medical Software to gain an understanding of
cost.
Table 1. Costs of Electronic Medical Record System (Per provider in 2013 in US Dollars)
Cost Components Base cost Sensitivity Reference
Software license (annual) $7,188 $3500-$14000 *
Implementation $8,500 +*
Support, audit and reviews $4,000 $2000-$8000 *
Hardware $8,000 $4000-$16000 *
Temporary Productivity loss $35,000 $18000-$50000 +
Annual costs $62,688
* http://www.emrapproved.com/cost-estimate-tool.php
+ 20% in first month, 10% in second month and 5% in third month
+* For initial data immigration $5000 and training $3500
The very first cost for the implementation of such system is the cost of the software.
There are many EMR software providers in the US such as Allscrips Healthcare solutions Inc,
Partners HealthCare, Acrendo Software, New Wave Software, Inc, American Medical Software,
eClinicalWorks, MedQuest, LLC, JMJ Technologies, Inc., MD Logic, Evolution EMR,
OfficeEMR™, ZipChart, InteGreat etc. Our research shows that based on work with more than

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