Tackling the capital aspect of your EHR Implementation

Hospitals across America are faced with the daunting task of choosing an EHR solution, planning the implementation and funding the cost of the project.  Compared to typical capital expenditures, these projects are very large.   There are a few key points to keep in mind related to the total cost, “creep” and structuring your financing properly.  

What’s the total cost of your EHR implementation?  Anticipate a large enough contingency fund to cover additional hardware not originally planned for purchase, as well as replacement hardware and upgrades after that 3 year implementation has been fully executed.  

“Creep” is the growing cost of your project as you add new devices, software and additional functionality to your EHR during your implementation phase.  You need a sizeable contingency fund to cover this and don’t kid yourself, you will have Creep.  As portions of your EHR come on line, you’ll realize you can maximize benefits by turning on additional functionality.  You’ll also realize some hardware you currently have that you thought would be sufficient to operate within your new system, will need to be upgraded.  

These implementations are very long; 2-4 years and longer.  During that period you may have hardware installed at the start of the implementation that will need to be upgraded within the first 3-4 years.  Execute your upgrades wisely, but don’t project for your initial round of hardware to last the full implementation stage and far beyond.  Your contingency fund should include projected creep and upgrades. 

Finally, you need to pay for it all.  The planning for this step should actually occur early in the process.  Break it down; it’s a large project with capital disbursements spanning months and years.  If you’re going to borrow money, the time is right from a rate perspective.  Rather than requesting an approval on the full $20mm project, fund it in tranches; 1st year dollars, 2nd year and final funding.  It’s much easier for a lender or lenders to swallow this request in parts, plus, given the long span of time, you’ll need to structure funding accordingly.   Your hospital may be very worthy of a $12mm approval this year, but a $20mm approval may be another story.  Funding in tranches will also allow you to put some of the meaningful use dollars directly into the project at a later stage and reduce your total debt request. 

Consider multiple schedules that allow you to lock the rate on a portion of that year’s funding needs.  Some projects have funded with monthly disbursements and quarterly schedules rolling up the previous 3 months, locking the rate and removing the rate risk from the equation.  Other lenders may allow you to lock the rate in advance on a full year’s projected fundings.  There will be some restrictions and your principal and interest payments may start from inception, but the key is to build the financing to meet your actual debt service capacity as well as your funding needs for that year of the implementation. Terms range from 36-48 months total term per schedule and this ensures your EHR will be paid down shortly after you’re on-line and on your way to a more efficient healthcare delivery system.

2 comments Add your comment

rohini

June 6th, 2011
8:18 am

it was realy wonderful blog..!

Ray Poole @ First American

June 21st, 2011
9:24 am

Good points, Shawn!

Add your comment