EMR purchase poses dilemma for doctors near retirement

A practical look at information technology issues and usage

By — Posted Aug. 16, 2010.

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Investing in an electronic medical records system was not something many physicians late in their careers were probably thinking about a few years ago. But the introduction of incentive pay for adopting an EMR -- and the penalties for not adopting -- have older physicians wondering if such an investment is worthwhile.

Starting in 2011, physicians will have the opportunity to earn up to $44,000 over five years in Medicare incentives, or $64,000 in Medicaid incentives, for "meaningful use" of an EMR as defined by the federal government. But if a physician plans to stay in practice more than five years and does not adopt an EMR, he or she can expect Medicare reimbursement to start declining in 2015, leading to a 5% total cut by 2019.

Todd Sherman, lead partner of the Sherman Sobin Group, a Mount Laurel, N.J.-based financial consulting group that specializes in physician retirement planning, said meaningful use is a hot topic for those deciding whether to invest in technology this late in a career.

Sherman, who works mostly with physicians five to eight years away from retirement, believes the choices for physicians in one- or two-physician practices is especially hard. Not only must they consider shouldering an investment in a new system they might not use for long, they also must try to reflect on how that system might affect the sale of the practice.

Those with fewer than 10 years left should focus on building up savings accounts in the remaining years, Sherman said, and spending on a major capital investment could affect those plans. Any decision gone bad could threaten the financial ability to retire. On the other hand, doctors could be missing out on financial incentives if they choose not to adopt.

Experts say many vendors would like doctors to believe an EMR would be a great selling point for potential buyers of a practice. In some cases, that's true; in others, it could become a major expense with no return.

The answer depends on the true value of the EMR, said Joseph Mack, a health care consultant from Dana Point, Calif. Several factors play into that equation, including the cost of the investment, its financial return and the time it takes to arrive at that return. But don't think the system alone will add value to your practice, Mack warned. The value comes from what is accomplished with the EMR.

An EMR can help reduce costs and improve care in many ways, including better documentation, improved efficiency and better care coordination. But a physician generally must invest money and time to reach a break-even point.

The system's price is usually the biggest factor. However, some systems can be implemented with little capital investment, especially Web-based models that are hosted remotely and do not need a big infrastructure investment.

For most practices, there will probably still be periods of several-months of reduced patient volume while the practice adjusts to new workflows, which means practices also should plan on reduced revenue as staff members get up to speed with the new procedures, experts say.

"There's a lot of manpower costs that are not articulated in vendor information, because they [the vendors] don't have to deal with it," Mack said.

It could take 18 months to several years before practices reach the break-even point. For a physician on a tight time schedule, underestimating break-even by as little as six months could throw a wrench in long-held retirement plans. Therefore, practices need to quantify benefits so they can be weighed against the costs, and a realistic time frame can be predicted, Mack said.

Exactly when break-even occurs could depend on the technical savvy of the practice staff, who will need to know how to operate the EMR, Mack said. It also could depend on choosing the right system.

Sherman said once a realistic expectation of break-even is set, physicians can determine their succession plans. Those less than three years away from retirement may have a hard time justifying the investment, Mack said. But those eight to 10 years away probably should find a way to make the investment, Sherman said. Not only could they earn incentive pay and avoid penalties, they also could provide a higher level of service in those last years of practice.

That higher level of service also can help build the practice's profitability, which is especially important if the physician plans to sell, Mack said. Data collected from an EMR could help physicians earn other pay-for-performance bonuses in addition to those from meaningful use. If the EMR helps improve efficiencies, it could lead to a larger patient load and, at the very least, cleaner claims for better billing.

Everything that adds to the cash flow in a practice matters to a potential buyer, not how much was spent on technology, Mack said. But if you buy an ineffective EMR, it actually could increase your costs, thus reducing the value of your practice, he said.

If it doesn't make financial sense to make the purchase, the lack of technology won't necessarily hinder selling, Sherman said. Many small practices are being bought by larger groups that already have an EMR. They will want that same EMR installed at any practice they buy.

"I am a big proponent of an EMR, but doctors have to examine the cost benefit of it," Mack said. "Unless the EMR helps increase their profitability ... then it can't really be said the EMR will increase the value of the practice when you sell it in one, two or three years."

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