November 2012 Volume 9 Number 3

Much Anticipated Electronic Medical Records Face Cost, Interoperability Shortcomings

By Steven W. Postal, Strategic Health Care, Washington, DC1

AuthorSecretary of the Department of Health and Human Services (“HHS”) Kathleen Sebelius and Attorney General Eric Holder, in a recent letter to hospital and provider associations, stated that the U.S. government shares the goals of hospitals and providers in providing “affordable care…which can be better achieved once all Americans have…electronic health records.”2 The Obama Administration, on its website, stated that “[u]sing electronic health records will reduce paperwork and administrative burdens [and] cut costs.”3 However, Congress, the healthcare industry, and the press have recently questioned the underlying assumptions supporting electronic health records (“EHR”), citing concerns with increased costs of EHR to taxpayers and interoperability shortcomings.

With the help of government subsidization, EHRs have experienced a rapid rise. In 2004, President George W. Bush stated that every American should have an EHR within ten years.4 In 2009, the Obama Administration used stimulus money in furtherance of EHR.5 The Health Information Technology for Economic and Clinical Health (“HITECH”) Act, within the American Recovery and Reinvestment Act (“ARRA”), created an incentive program that gave payments for providers who could demonstrate “meaningful use” of EHRs.6 Currently, $10 billion has been spent on these incentives, with total spending projections for EHR subsidization estimated to be more than $30 billion.7 At present, half of all doctors are using EHR, and half of hospitals have received incentive payments.8

Cost and Increased Billing Concerns

One of the Obama Administration’s stated reasons to incentivize EHR was to reduce healthcare costs to payors.9 Initially, lobbyists supporting the assent of EHR claimed that the technology would lower medical costs by approximately $100 billion a year.10 Other experts at the time believed that adoption of EHR could save $120 billion a year in reduction of duplicate tests and length of hospital stays, as well as the improvement of care for the chronically ill, while other saving projections approached $600 billion a year.11

There is mixed evidence that EHR reduces costs to providers. A 2005 study published in Health Affairs found that savings to providers of adopting EHR in solo and small group practices averaged around $33,000 per FTE, primarily as a result of better coding and revenue capture, and increased efficiency of care, with capital costs being paid off on average within two and a half years.12 Christina Care also saw savings of $545 per instance of downloading and printing medical files in the ER, largely from reduced wait times.13 However, other studies suggest that EHR did not lower costs to providers. One study concluded that financial incentives to providers were necessary to adopt EHR for the sake of improved quality, because a financial case for EHR could not be made without such incentives.14 A retrospective analysis incorporating studies spanning four to five decades, including large randomized, controlled trials, found no evidence that EHR reduces healthcare costs.15 Two studies out of a research center associated with the Indiana University School of Medicine stated that not only were there no savings from EHR, there was a $2,200 per doctor increase in costs.16 Either way, reduced costs to providers is largely irrelevant given that providers are not incentivized to decrease costs. Since they are paid on a fee for service basis, if they provide less care, they bill less and are thus reimbursed less.17

More importantly, there is evidence to show that implementation of EHR has contributed to an increase in cost to payors, as evidenced from increases in Medicare billing and reimbursement.18 Hospitals have generally received greater reimbursement from Medicare in the years since they have implemented an EHR. One hospital in Utica, N.Y., billed 43 percent more emergency room patients at the highest level of treatment in 2009, which was the year it implemented an EHR system.19 Another hospital in Nashville, Tenn. saw its highest-paying claims in the emergency room rise by 82 percent the year after it implemented EHR.20 Nationally, hospitals that have received incentives for implementing an EHR have seen increases in payments of the highest level of treatment rise by 47 percent from 2006 to 2010, while those that did not receive incentives for EHR implementation only saw such payments rise by 32 percent.21 Another study also suggests greater billing with EHR, as office-based physicians who had access to EHR ordered an imaging test more frequently (18 percent) than those who did not (13 percent).22 Hospital associations argue that the rise in billing is a mostly a product of “more accurate documentation and coding” and “that EHRs are enabling the development of more complete data sets regarding patient care.”23 In response to the increased billing from EHR, Sebelius and Holder stated that the Centers for Medicare & Medicaid Services (“CMS”) is initiating more audits and medical reviews.24 The National Coordinator for Health IT Farzad Mostashari also stated that he plans to conduct an internal review for EHR billing.25

Interoperability Concerns

Interoperability, the ability of EHR technology to “talk with one another,” and thus allow doctors, hospitals, and labs to seamlessly share patient information, was a key goal of EHR implementation as this would help doctors order fewer tests, avoid waste, and prevent medical errors by accurately conveying medical information across systems.26 However, the EHR initiative is struggling to achieve interoperability, largely because both the healthcare industry and the federal government failed to set unified standards for it.27 A recent survey of over 500 physicians found that 71 percent of those polled saw a lack of EHR interoperability and data exchange infrastructure as a major barrier to health information exchange.28 One Illinois hospital jointly managed by the Departments of Veterans Affairs (“VA”) and Defense (“DOD”) has failed to achieve interoperability between the Departments’ EHR systems, costing the hospital at least $700,000 annually.29 This is in light of the fact that DOD and VA have already spent $100 million to achieve interoperability.30

Despite shortcomings elsewhere, other health systems have shown strong measures of interoperability. The health information exchange between NY hospitals through the Statewide Health Information Network of New York (“SHIN-NY”) during Hurricane Sandy enabled clinicians to access EHR during the crisis.31 Atrius Health, based in Massachusetts and the “largest multi-specialty practice in New England,” has adopted an “easy portal” which allows participating hospitals to access each other’s EHR despite having different EHR programs.32

On October 4, four Republican Representatives wrote a letter to Secretary Sebelius. In it, they criticized the Stage 2 Meaningful Use program criteria, which incentivize hospitals for adopting EHR, for being more lax in promoting quality and interoperability than those that were proposed for Stage 1 in 2009.33 The letter mentioned that “electronic prescribing and medication reconciliation compliance thresholds,” for example, were at 75 and 80 percent in the proposed Stage 1 language, while both were only at 50 percent in the final Stage 2 rule.34 Further, the Congressmen pointed out that while the Stage 1 final rules “required providers to test the ability to exchange information with other providers,” no such requirement exists in the final Stage 2 rule.35 As a result, the Congressmen note that EHR systems have not progressed to interoperability despite approximately $10 billion spent.36 The Republican Representatives urged the suspension of Meaningful Use incentive payments (and penalties for not implementing EHRs) until HHS issues “universal interoperable standards.”37 On October 17, four Republican Senators also sent a letter to Sebelius, calling on a meeting with CMS, the Office of the National Coordinator for Health Information Technology (“ONC”) and the Senate Finance and Senate Health, Education, Labor and Pensions (“HELP”) committees to discuss the final rule for the Stage 2 Meaningful Use program. Specifically, the Senators asked for “the Administration’s strategy for meaningful interoperability,” as well as whether EHR has contributed to increased Medicare billing and thus overall cost to taxpayers.38 This has been the most recent action by the lawmakers on this matter to date.


EHRs, despite potential advantages, are currently fraught with cost and interoperability concerns. That said, any immediate resolution does not appear on the horizon. As Travis Broome at CMS stated, Sebelius cannot halt the meaningful use payments because they are statutory, and any changes necessitate legislative changes to the 2009 economic stimulus package.39 While some experts predict that there may be continued calls of reform of the meaningful use criteria from Congress, others believe that the status quo elections will essentially result in a status quo for health IT legislation.40

1Opinions expressed herein are attributable to the author only and are not those of Strategic Health Care.
2Kathleen Sebelius and Eric Holder, “Letter from Obama Administration on Hospital Billing,” The New York Times, September 24, 2012, page 2.

“Key Features of the Affordable Care Act, by Year,” US Department of Health and Human Services,


Fred Schulte, “Top House Republicans Demand Suspension of Electronic Medical Records Program,” The Center for Public Integrity, October 5, 2012. See also “A New Generation of American Innovation,” The White House, April 2004, page 7.


Fred Schulte, “Top House Republicans Demand Suspension of Electronic Medical Records Program.”


Medicare and Medicaid Health Information Technology: Title IV of the American Recovery and Reinvestment Act,” Centers for Medicare & Medicaid Services, June 16, 2009.


Fred Schulte, “Top House Republicans Demand Suspension of Electronic Medical Records Program.”



9Reed Abelson, Julie Creswell, and Griff Palmer, “Medicare Bills Rise as Records Turn Electronic,” The New York Times, September 21, 2012.

Stephen Soumerai and Ross Koppel, “A Major Glitch for Digitized Health-Care Records,” The Wall Street Journal, September 17, 2012.

11This Man Wants To Heal Health Care,” Bloomberg Businessweek Magazine, Oct. 30, 2005.

Robert H. Miller, Christopher West, Tiffany Martin Brown, Ida Sim and Chris Ganchoff, “The Value of Electronic Health Records in Solo or Small Group Practices,Health Affairs, 24, no. 5 (2005); 1127-1137, 1131.


David Goldman, “Obama's Big Idea for Saving $100 Billion,” CNN Money, August 21, 2009.

14Connecting for Health Report Analyzes Business Case for Adoption of Health IT Systems,” Markle, October 22, 2004.

Stephen Soumerai and Ross Koppel, “A Major Glitch for Digitized Health-Care Records,” The Wall Street Journal.




“David Goldman, “Obama's Big Idea for Saving $100 Billion.”


One of the issues of costs of EHRs is the irony that some of the increased costs may be due to billing fraud. See Kathleen Sebelius and Eric Holder, “Letter from Obama Administration on Hospital Billing,” 1-2 and Ken Terry, “EHRs Under Fire for Inflating Medicare Bills,” Information Week, September 25, 2012.


Reed Abelson, Julie Creswell, and Griff Palmer, “Medicare Bills Rise as Records Turn Electronic.”

22Victoria Fleischer and Murrey Jacobson, “New Study Challenges Whether Electronic Records Cut Health Costs,” PBS NewsHour, March 5, 2012.
23Rich Umbdenstock, “Letter to Secretary Sebelius and Attorney General Holder,” American Hospital Association, September 24, 2012, page 1, and “Stakeholders React to Warning on Use of EHRs for ‘Upcoding’,” iHealthBeat, September 26, 2012.
24Kathleen Sebelius and Eric Holder, “Letter from Obama Administration on Hospital Billing.”
25Mostashari to Launch Review of Using EHRs for ‘Upcoding’,” iHealthBeat, October 17, 2012.
26Fred Schulte, “ Top House Republicans Demand Suspension of Electronic Medical Records Program.”
27Stephen Soumerai and Ross Koppel, “A Major Glitch for Digitized Health-Care Records.”
28Survey: Lack of Interoperability Hinders Health Data Exchange,” iHealthBeat, October 4, 2012.
29Report Identifies EHR Interoperability Issues at DOD, VA Facility,” iHealthBeat, October 17, 2012.
31Mike Millard, “In Disasters Such as Sandy, HIE is 'As Critical as Having Roads, as Having Fire Hydrants,’” Healthcare IT News, October 31, 2012.
32Paul Ceratto, “Atrius Health Champions Interoperability,” InformationWeek Healthcare, September 10, 2012.
33Dave Camp, Fred Upton, Wally Herger, Joe Pitts, “Letter to Kathleen Sebelius,” Congress of the United States, House of Representatives, Ways and Means Committee, page 1.
34Id. at 1.
35Id. at 1.
36Id. at 1.
37Id. at 2.
38Tom Coburn, Richard Burr, Pat Roberts, and John Thume. “Letter to Kathleen Sebelius,” United States Senate, page 1.
39Officials Doubtful That Federal Government Will Halt EHR Pay,” iHealthBeat, October 24, 2012.
40Obama's Victory Means Steady Course for Health IT Initiatives,” iHealthBeat, November 7, 2012.

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