Assignment: Cost Benefit Analysis Application in EHR Adoption

A clinic is considering adopting an EHR system. The following costs and benefits are estimated by experts.
Costs:
There are two categories of costs associated with electronic medical record implementation: system costs and induced costs. System costs include the costs of the software and hardware, training, implementation, and ongoing maintenance and support.

(1) The software costs of $1600 per year.
(2) Implementation costs, estimated at $3400 in the initial year (year 0), included workflow process redesign, training, and historical paper chart abstracting.
(3) Ongoing annual maintenance and support costs were estimated to be $1500 per year and included the costs of additional technical support staff and system/network administration.
(4) Hardware costs were calculated to be $6600 for three desktop computers, a printer, and network installation. It was assumed that hardware would be replaced every 3 years (i.e. the next replacement will happen in year 3).
(5) According to the experience, EHR will induce costs of temporary loss of productivity, which amounted to a revenue loss of $11,200 in year 1.

Benefits:

Financial benefits included averted costs and increased revenues.

Since Year 1:
(1) The average cost of a chart pull at the institution is approximately $5, accounting for the time and cost of medical records personnel to retrieve and then re-file a paper chart. After conversion to the electronic medical record system, chart pulls can be reduced by 600 charts per year.
(2) Transcription costs were reduced by $2700 annually from partial elimination of dictation.
Clinical decision support alerts and reminders can decrease utilization by reducing adverse drug events, offering alternatives to expensive medications, and reducing the use of laboratory and radiology tests.

Since Year 2:
(3) The adverse drug events would be reduced by $2200 annually, as a result of basic medication decision support.
(4) Alternative drug suggestion reminders would save $16,400 annually.

Since Year 4:
(5) Laboratory savings would be $2400 per year.
(6) Radiology savings would be $8300 per year.
(7) Charge capture improvement would be $7700 per year.
(8) Billing error decrease would reduce costs about $7600 per year.

With the above-mentioned information, please conduct a 5-year Cost Benefit Analysis on the Electronic Medical Record system, by using the worksheet provided below, and make a decision whether the institution should adopt the EMR system, or not.  (Assume a 5% discount rate).

Student Name:  ___________________________________________

Initial year (year 0)     Year 1    Year 2    Year 3    Year 4    Year 5
Cost
Software License
Implementation
Support
Hardware
Productivity loss
Total costs

Benefits
Chart pull savings
Transcription savings
Prevention of adverse drug events
Drug savings
Laboratory savings
Radiology savings
Charge capture improvement
Billing error decrease
Total benefits
Net Benefit (total benefits -total costs) =

PV for Year 1 =
PV for Year 2 =
PV for Year 3 =
PV for Year 4 =
PV for Year 5 =
___________________________

NPV =                                        ___________________________

Your decision:

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