Hospitals can expect financial pain from EHR installs

Hospitals installing new electronic health record systems should expect a sizable cash drain as the process disrupts business and adds technology and training expense, Moody's Investors Service said in a report this week.

During the first year of EHR installations, the median decline in operating cash flow for hospital systems is 10% with a 6% falloff in days cash on hand, Moody's said after examining system installs over the past several years. EHR installations can cost anywhere from several million dollars for a small, stand-alone hospital to a half-billion dollars for larger systems.

Moody's found in looking at 39 recent launches that the installs can disrupt billing and patient throughput.

"Implementing new electronic medical record systems carries significant financial risk for hospitals because the systems are vital to the provision of care and billing," the report said.

Though disruptive in the first year of implementation, the damage to operating performance usually dissipates after the first year as staff and clinicians become proficient in the technology, Moody's said.

An EHR is the electronic nervous system of a hospital or clinic, allowing staff to onboard patients, track care, view clinical workflow and bill for services. It also increasingly contains information that can help systems and hospitals gather information useful toward meeting new payment models.

Vanderbilt University Medical Center in Nashville has been preparing for more than a year for the Nov. 2 launch of its new Epic EHR across the entire academic health system.

Vanderbilt plans to have 1,000 third-party consultants and trainers on hand in the first week to minimize disruptions and help employees through the switch, Vanderbilt EHR project leader Dr. Kevin Johnson said in a May interview. He likened the transition to "changing a jet engine in midflight."

Vanderbilt has budgeted $214 million for the conversion.

UMass Memorial Health Care is going live with its own Epic rollout later this year. Already, the preparation is hitting the bottom line of the Worcester, Mass.-based system.

The four-hospital academic medical center saw EHR expenses mount to $26.1 million in fiscal 2016, eroding operating income to $40.7 million for the year with more being spent for the launch.

Hospitals are trying to manage the risk by establishing lines of credit to ensure cash availability as well as getting the board of directors involved to handle project management, Moody's said.

"If combined with unanticipated liquidity or operating pressures, the disruptions can lead to both short-term and prolonged margin contraction and negatively affect credit quality," the report noted.

Moody's referred to Wake Forest Baptist Medical Center in Winston-Salem, N.C., and Presence Health in Chicago as examples of systems whose clunky EHR conversions contributed to margin deterioration and credit downgrades.

Both have recovered. Moody's upgraded Wake Forest Baptist's debt to positive from stable last October. And Presence Health completed a $1 billion bond offering a year ago to restructure its balance sheet.

An​ edited​ version​ of​ this​ story​ can​ also​ be​ found​ in​ Modern​ Healthcare's​ July​ 31​ print​ edition.