Avoiding sticker shock: How much you can expect to pay, and why

Not all practice software is created equal. And with wide ranges in price and function, comparison shopping isn't always easy. Here are tips on what to look for.

By Tyler Chin — Posted July 11, 2005

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Some 400 companies sell electronic medical records, and 1,000 sell physician practice management software, according to consultants who help physicians evaluate and select information technologies. In some cases, the EMRs and practice management systems come in one package. In all cases, the pricing and functionality of the system -- "functionality" being computerese for "what the dang thing does" -- is all over the map.

So how do you know what you'll get for your money? Or how much you need to spend? If you have the time to do some comparison shopping, as Ken Budowsky, MD, did, you can come up with an idea.

Dr. Budowsky, a pediatrician in Hollywood, Fla., spent three days scouting out electronic medical records software products at an industry convention, narrowing the list of finalists to three candidates that he could then invite to demonstrate their products to his 10 physician partners. He fully expected that the tab would be in the six figures based on the quotes given him by vendors. "It's going to be a lot of money," Dr. Budowsky said.

But how much? Even Dr. Budowsky doesn't know. But in talking to various vendors and consultants in the health technology industry, AMNews has been able to get some ballpark figures.

The initial start-up cost for a comprehensive EMR is $8,850 to $30,000 per physician, consultants said. Within that price range, doctors can buy a system that includes coding, decision support, charting, document management, electronic prescribing, internal messaging, patient summaries and results tracking via flow sheet.

AC Group, which rates vendor products and advises physicians, takes a different approach. The Montgomery, Texas-based independent consulting firm has identified 2,700 function features for clinical systems, which it breaks down into charting, EMRs and electronic health records (EHRs).

Although most of the 300 companies in AC Group's database say they sell EMRs, "a lot of them are pure little charting systems that take your paper chart and make it electronic," said Mark R. Anderson, the company's CEO. "The EMR only records what's been done to [a patient]; the EHR also records what's been done and what needs to be done in the future to keep [the patient] healthy."

Anderson estimated that the start-up cost of a charting system ranges from $1,000 to $15,000 per physician, though the $1,000 system essentially does not include training and maintenance, he said. For EMRs and EHRs, he estimated the cost at $25,000 to $30,000 per physician.

Big bucks

Another way of looking at the cost of an EMR is to look at it over five years, said Ron Sterling, president of Sterling Solutions Ltd., a Silver Spring, Md., health care information technology consultancy. Sterling estimated that the cost of an EMR, which he called the "acquisition cost," is $25,000 to $50,000 per doctor, excluding maintenance, communications, support and other continuing costs.

"Based on my experience, physicians can expect to spend between $1,000 and $2,000 per month per doctor for an EMR when you take the acquisition costs, spread the costs over a five-year period and add in money for support and other continuing costs," Sterling said. "These are estimates based on my work for a wide range of practices in a number of situations. I have worked on projects that were less than $1,000 per month and more than $2,000 per month, but that estimate has proven accurate in the majority of projects."

The start-up cost includes a one-time software licensing fee, servers, on-site training, installation and first-year support and maintenance.

Interfaces linking disparate systems can increase the start-up cost. The cost of interfaces range anywhere from zero to $50,000, depending on whom you want to interface with, Anderson said. Connecting a billing to a clinical system or a clinical laboratory can cost as little as $3,000 to $7,000, though some laboratories often will pick up the tab to connect to physician offices, Anderson said. "It's when you want to connect to hospitals [that] the cost rises," he said.

Most consultants generally do not include personal computers, laptops, printers and other hardware in the start-up cost, because most doctors already have those devices in their offices, and those computers are largely comparable to each other regardless of their manufacturer. But consultants do include the cost of a server, a computer or device that provides information or services to computers on a network.

A server will cost between $10,000 and $50,000, Sterling said. Though servers are available for much less than $10,000, "practices that buy [at] the lowest level possible have run into performance problems and losses from component failure," he said.

Doctors in small practices who don't have in-house information technology support, or can't afford the large up-front costs for an on-site system, should consider the application service provider computing model, said Vinson Hudson, president of Jewson Enterprises, Austin, Texas, an independent health care technology consultant.

Under the ASP model, doctors don't own the software but pay a $250 to $600 monthly subscription fee per physician to access it remotely, usually through the Internet. They don't have to worry about maintaining a system or backing up their files because the system is stored at a data center operated and maintained by the vendor, Hudson said. The disadvantage of an ASP is that if a company goes out of business, doctors could have difficulty getting their data because all the data are stored with the company.

Although there are no large start-up costs associated with an ASP, the arrangement over five years could cost doctors as much as the cost of buying a system over a five-year period, AC Group's Anderson said.

Practice management

All practice management systems generally offer billing, scheduling and reporting functionality, consultants agreed. The start-up cost is $400 to $15,000 per physician. But products that sell for less than $1,000 usually come with little or no training or support, and it's difficult to run reports off of them, said John F. Jessop, senior consultant at Optimal Practice Solutions, a Grantham, N.H., health care technology consultancy. "You know when they say you get what you pay for? You really do," Jessop said.

That's because the low-end systems lack the capability to handle the fee schedules and reimbursement requirements that vary from insurer to insurer, Anderson said. As a result, doctors owning those systems might have to hire a more employees to ensure billing and posting of payments are done correctly, while those who own better systems hire fewer employees, Anderson said.

Doctors who are planning to buy an EMR and replace their billing system should buy an integrated system because it will cost them less than buying a billing and clinical system separately, Hudson recommended.

Stand-alone systems are more expensive because you're buying two different systems that have to be interfaced. You also have to pay two annual maintenance fees. But "if you buy an integrated system, the practice management system is almost given away," Anderson said.

For example, a vendor might sell an EMR and billing software separately for $20,000 and $15,000, for a total cost of $35,000. But it might sell the integrated software package for $25,000, he said, estimating the start-up cost for that system is $32,000 to $35,000 per doctor.

Another advantage of having an integrated system is that the vendor can't blame problems on another vendor's product. "It tends to work better if you get a solution that is integrated from one vendor than if you're trying to interface [two systems from different vendors]," said Arthur Gasch, CEO of Medical Strategic Planning, a Lincroft, N.J.-based independent EMR market research company. With the latter, "there's always the issue of, does the interface work? Does it work for all the things that you want to do? If it doesn't, who fixes it? Whose fault is it?"

Ongoing annual costs

After the start-up costs, there are ongoing costs for annual support and maintenance, which range from 18% to 22% of the total software list price, not the purchase price. That distinction is very important, because vendors often will discount their products 15% to 20% to make the sale, and physicians assume that the maintenance fee will be a percentage of the purchase price.

When they receive their monthly maintenance bill, doctors often are shocked. "Most doctors miss that fine print," Anderson said.

Under the terms of most maintenance contracts, vendors provide software upgrades at no additional cost to doctors as well as support via the telephone, Internet or both.

It's important for doctors to be familiar with the contract's terms and conditions, because it could impact the level of service they get. For example, some contracts state that if you call with a question that is answered in the manual, you will be charged for that call, Sterling said.

Generally, vendors provide support during normal business hours. If doctors call the support line outside that time frame, they usually will be charged a fee on an hourly basis, Sterling said. Some vendors offer 24-hour support, or support outside of business hours, for an extra fee.

No matter what you spend, you should be comfortable with the system you have. "If you're going to spend [that much] money," Dr. Budowksy said, "you might as well do it right, so when you're done you won't have any regrets."

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Big spenders

Physician are expected to increase their spending on information technology services and equipment, such as clinical and billing systems, data security, storage management and capacity, and wireless local area networks.

2004 $21 billion
2005 $22 billion
2006 $24 billion
2007 $25 billion
2008 $27 billion

Source: In-Stat, a Scottsdale, Ariz.-based market research firm

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License to pay

Health care technology companies price products in different ways, including:

Per physician: A single user who's a medical doctor.

Per user: The definition of a "user" depends on the vendor. Some define the term as five users for every doctor, but generally a user is anyone who accesses the software.

Per provider: A provider can be a doctor, nurse practitioner or physician assistant.

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Cost breakdown

Practice management

Initial start-up cost per physician: $400-$15,000.
Annual maintenance fee: 18% to 22% of software list price.
Functionality: Billing, scheduling and reporting.

Charting software

Initial start-up cost per physician: $1,000 to $15,000.
Annual maintenance fee: 18% to 22% of software list price.
Functionality: Patient charting.

Electronic medical records/electronic health records

Initial start-up cost per physician: $8,850 to $35,000.
Annual maintenance fee: 18% to 22% of software list price.
Functionality: Stand-alone EMRs include coding, decision support, charting, document management, electronic prescribing, internal messaging, patient summaries and results tracking via flow sheet. Integrated systems will include billing, scheduling and reporting.

Note: The least expensive systems offer either little or no training and maintenance. Sources: AC Group; Health Information Consulting; Jewson Enterprises Optimal Practice Solutions; Sterling Solutions Ltd.

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