How the CMS Proposed Rule Will Raise the Cost of Rural Healthcare

by Louis Wenzlow, Rural Wisconsin Health Cooperative Summary CMS' claims regarding the financial benefits of electronic health records (EHRs) for providers are not supported by their source reference material; and the benefits CMS predicts are not likely to materialize, especially for small rural providers. Due to their low volumes, small rural providers are much more likely to see a negative financial ROI on their EHR investments. So EHRs will in all likelihood increase the cost of rural healthcare. However, when implemented properly EHRs have the potential to generate other benefits, such as increased quality and patient satisfaction. CMS should acknowledge that small rural providers have distinctive EHR challenges and should adjust the incentive program so that meaningful use criteria are achievable and flexible enough to meet these rural provider challenges. Background In supporting its case for the benefits of HIT for "all" eligible healthcare providers, CMS states: "there are benefits that can be obtained by eligible hospitals and EPs, including: reductions in medical record-keeping costs, reductions in repeat tests, decreases in length of stay, and reduced errors." CMS goes on to reference a 2008 Congressional Budget Office (CBO) study, Evidence on the Costs and Benefits of Health Information Technology[1], to support this position, and then makes the claim that: "Certified EHR technology has the potential to help reduce medical costs through efficiency improvements, such as prompter treatments, avoidance of duplicate or ... unnecessary services, and reduced administrative costs (once systems are in place), with most of these savings being realized by providers rather than by Medicare or Medicaid." If one reads the CBO study that CMS references (as well as another federal agency's study: AHRQ's Costs and Benefits of Health Information Technology[2]) it becomes clear that CMS has misstated the conclusions drawn by federal researchers. What the CBO Really Says Let's start by looking at what the CBO really says about the examples given by CMS as ways for providers to achieve HIT-related savings: 1. Reductions in Medical Record-Keeping Costs: "Research has shown that physicians' offices can realize savings from reducing the pulling of paper charts and the use of transcription services (Wang and others, 2003). Those savings might not apply in very small practices, however, because such offices typically have low but relatively fixed costs related to medical records and the physicians who work there are much more likely than those in larger practices to write notes manually in the charts. Savings from less pulling of charts is typically accomplished by reducing the number of staff required to do so. But that type of staff reduction may be impossible in a small practice if the employee who pulls charts also performs other tasks (such as scheduling and billing), as is usually the case." This is a key point that is also true of small rural hospitals. Financial benefits that may be achievable in large provider environments are very unlikely to be achievable in small provider environments. 2. Reductions in Repeat Tests: "For the most part, any savings from avoiding duplicate or inappropriate diagnostic tests would be realized primarily by a health insurance plan, not a health care provider. Thus, the extent to which savings in this area would actually benefit providers is unclear." 3. Decreases in Length of Hospital Stays: "Reducing the length of time required to process a lab test or diagnostic image from the time it is ordered to the moment the results are delivered only speeds up the delivery of care; it does not necessarily reduce the amount of care provided or its associated cost. Moreover, the promise of shortening the average length of time that a patient stays in the hospital might not be very compelling to a typical institution because it already faces a sizable financial incentive to pare its costs per admission." 4. Reduced Errors: "Because medical errors can lead to the use of additional health care services, health IT systems that successfully reduce such errors may also diminish expenditures on health care. The effectiveness of health IT in reducing errors, however, depends largely on the type, setting, and quality of the systems." I would add to the CBO assessment that reducing errors requires that appropriate time be given for providers to perform culture change, workflow redesign, and education activities. CMS' proposed rule does not provide sufficient time for providers to implement EHRs in a way that will promote quality improvement.  For more on this, see http://www.worh.org/hit/2010/01/cms-proposed-rule-threatens-care-quality-in-rural-communities/ 5. Savings Realized by Providers (Rather than Payers): "Many, if not most, providers would like to make more use of health IT in their practices, recognizing the technology's potential to improve the quality of the care they provide, increase convenience for their patients, and perhaps reduce costs in their office. But many of those benefits accrue to others rather than to the providers who purchase the health IT system. As a result, many providers cannot generate the additional income necessary to justify the significant investment in time and money that the adoption of such a system would require." In nearly every example, the CBO report seems to contradict the conclusions drawn by CMS in the proposed rule, including that the supposed financial benefits of HIT will accrue to providers rather than CMS. Perhaps the most troublesome proposed-rule conclusion ("any impacts that would arise from the implementation of certified EHR technology in a rural eligible hospital would be positive.") is further contradicted by the following CBO analysis: "A mandate to purchase health IT, or to purchase a particular functionality such as e-prescribing, by contrast, would probably induce nearly all providers to adopt it at a small cost to the government, and might produce net savings in health care spending. The requirement could be enforced either by not paying providers who failed to adopt such a system for other health care services that they delivered, or by imposing a specific penalty on those who did not comply. A less prescriptive version would involve paying providers without a health IT system less for any given procedure than providers with a health IT system were paid, which would create an implicit penalty for failing to adopt the technology. Either of those approaches, though, would come at a cost to providers, and that cost would be greatest for providers who were least able to capture the financial benefits of health IT systems." Due to the reality that HIT system financial ROI depends on provider volume levels, small rural providers will be the least able to capture the financial benefits of health IT systems.  According to the CBO, these providers will endure the greatest costs under an HIT incentive program. How HITECH and the CMS Proposed Rule Will Raise the Cost of Rural Healthcare According to the CBO, "Total costs for a health IT system include: the initial fixed cost of the hardware, software, and technical assistance necessary to install the system; licensing fees; the expense of maintaining the system; and the "opportunity cost" of the time that ... providers could have spent seeing patients but instead must devote to learning how to use the new system and ... adjust their work practices accordingly." Small rural hospitals and clinics (particularly those that do not get assistance from larger hospitals and systems) will likely see increased costs due to the following reasons: 1. Many small rural providers will not receive incentives to help pay for a portion of the above costs due to the fact that they are significantly farther behind with their EHR adoption efforts and are therefore less likely to achieve meaningful use and qualify for incentives. 2. Whether they receive incentives or not, due to the reasons discussed earlier, small rural providers are much less likely to attain a positive HIT system financial return on investment. Small rural hospitals and clinics do not have extensive chart-pulling and transcription staffs to downsize in order to generate a positive return. According to a University of Iowa study, "the implementation of CPOE in rural or critical access hospitals may depend on net increase in operating costs. Adoption of CPOE may be financially infeasible for these small hospitals in the absence of increases in hospital payments or ongoing subsidies from third parties."[3] CPOE is just one example of many HIT systems that do not scale down to create positive financial ROI for providers of a certain size. 3. One issue that has not been commonly discussed is that AHA and other surveys indicate that annual hospital HIT operating costs are more than double their HIT capital costs. Maintenance costs to the vendor average roughly 15-20% of the cost of the hardware and software, but this is just a fraction of what it costs to maintain an HIT environment, with most of the rest of the costs relating to the FTEs needed for ongoing network and system support. Small rural hospitals, which usually have 1 or 2 HIT FTEs, will be required to double or sometimes triple their HIT staffing levels in order to adequately support advanced EHRs. For more information on how EHR system adoption impacts hospital IT FTE levels, see our Density of HIT Adoption in Rural Wisconsin Hospitals report.[4] 4. Critical Access Hospitals (CAHs) are being incented based on how much they spend on depreciable assets of "qualifying EHRs." This prohibits CAHs from receiving incentives for costs associated with Application Service Provider (ASP) and/or cloud computing models (generally leasing arrangements), which can reduce the total cost of maintaining HIT applications, since they reduce the FTEs required to support the EHR systems. Ironically, those hospitals that can most benefit from ASP models are not being incented to utilize them to reduce their total cost of ownership. (PPS hospitals can use ASP models without jeopardizing their incentives.) So who will be paying for all these additional costs? The answer is that everyone will be paying. The providers themselves will be paying. Private pay patients will likely see associated cost increases. And in the case of critical access hospitals (reimbursed at 101% of cost by CMS for their Medicare populations), CMS will also be paying. Recommendation Even if advanced EHRs increase the cost of rural healthcare, when implemented properly they have the potential to generate other benefits, such as increased quality and patient satisfaction. If rural providers are not to be left behind, we need to make this investment. But we need to do it wisely, by acknowledging that small rural providers have distinctive challenges, and by designing the incentive program in a way that flexibly optimizes the total value equation for these providers and their patients. Not by doing what CMS has done in their proposed rule, which is to effectively exclude those at early stages of EHR adoption and pretend that these challenges don't even exist.


[1] http://www.cbo.gov/ftpdocs/91xx/doc9168/05-20-HealthIT.pdf [2] http://www.ahrq.gov/downloads/pub/evidence/pdf/hitsyscosts/hitsys.pdf [3] "Implementation of Hospital Computerized Order Entry in a Rural State: Feasibility and Financial Impact," Robert Ohsfeldt et all, JAMIA 2005;12:20-27 doi:10.1197/jamia.M1553 [4] http://www.rwhc.com/Papers/Density.pdf

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