Budgeting For Technology To Support Value-Based Care

Technology expenditures for health and human service organizations used to be an afterthought. A few decades ago, the technology required was focused on relatively inexpensive administrative functions, but that has changed.

Technology is now strategic and mandatory – the ability to leverage technology is now essential to competitive advantage and strategic success.

And it’s expensive. Stats on implementing an electronic health record (EHR) range from $15,000 to $70,000 per provider. Budgeting for technology is no longer optional – and shouldn’t be done in isolation by tech staff.

Ray Wolfe, JD, OPEN MINDS senior associate, outlines best practices for budgeting. First, assess what technology functionality is mandatory for current operations and what investments are required for future strategy. “Whether we think we can afford it or not, whether we can manage it—technology, and especially an EHR—is a mandatory purchase. This is something we simply have to do,” he said.

EHRs enhance the clinical experience and improve back-end efficiencies, Mr. Wolfe said. For example, EHR dashboards allow teams to shift from an intuitive, creative approach to medicine “when we thought we knew best and everyone had their own approach,” to capturing relevant and meaningful data at each patient interaction. “We can assess whether what we’re doing is truly helpful and, if not, change it,” said Mr. Wolfe. “That’s impossible to do without a tech tool.”

And what you can’t assess, you can’t be reimbursed for by health plans when negotiating contracts.

Costs fall into two buckets: Upfront (the biggest investment), which includes training, equipment, and implementation; and ongoing costs that include license fees, technical support, hardware, staffing, and application specialists. And you need to show the rationale behind the expenditures –the return-on-investment, which can add 3% to 5% to the bottom line. An EHR is not an expense for its own sake, or for the sake of technology – it’s to help organizations improve both clinical care and financial results.

The key is to remember that with technology purchases, “You don’t get what you pay for; you only have the opportunity to get what you pay for,” which is why a strategic approach matters. It also begs the question, does your organization have the capital required to make this investment? Or, as Mr. Wolfe, asked, can you afford not to?

To answer that question, executives should review assets-to-debt and debt-to-equity ratios to ensure they don’t borrow more than they should to finance technology. Consider debt to equity (well-run organizations have a larger equity-to-debt share with a ratio of 1 or less) and compare assets to debt (you want to see a ratio of 2 to 1 or better).

And ask how effectively the organization covers the costs of liability. “You need a 2-to-1 ratio,” said Mr. Wolfe. If assets are higher than 2 and the assets-to-debt ratio is less than 1, you have assets you can use for an EHR system purchase, the costs of which can be spread out over several years.

When you consider the upfront cost of technology, you must find a way to manage it within these ratios. Most executives underestimate them, warned Mr. Wolfe. But don’t forget cost savings in this equation—from cloud storage to outsourcing tech staff, improved productivity and collecting 95% of what is billed.

Adding up cost savings associated with technology investments reinforces what a growing number of subject matter experts call a mandatory investment in EHRs. This way of thinking will ensure health and human service agencies survive an increasingly competitive market that requires sophisticated data collection and reporting.

Technology Planning For Integrated Care & Value-Based Reimbursement

OPEN MINDS Senior Associate Ray Wolfe, J.D. and Chief Executive Officer Monica E. Oss delivered this executive web briefing on April 2nd, 2020.  In this session, we explored building a plan that helps executives make choices with confidence, manage them financially, and overcome VBR’s most challenging task: the development of an EHR system that can optimize results.

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