Data Mine: Who pays the most for health IT?

Healthcare leaders understand that investments in information technology (IT) are crucial to their organization’s success. Unfortunately, these same executives almost universally report that their physicians are dissatisfied with their IT systems, expressing that inputting information into EHRs lowers productivity and interferes with the doctor-patient relationship.

Even IT executives express that the promises of interoperability and easy data exchange have failed to materialize and that many IT solutions resolve problems in the short term but add complexity to an already unwieldy IT infrastructure.

With these and many other issues, it is not surprising that healthcare executives feel that their organizations are not getting a return from their IT investment. While survey data cannot directly explain if organizations receive sufficient value from their information systems, the MGMA DataDive Cost and Revenue shows how IT costs have increased and which organizations are spending the most on their IT systems. Figure 1 reveals how much physician-owned multispecialty groups with primary and specialty care — the best example for what is happening across all types of practices — have spent on IT from 2007-2016. These medical groups spent nearly 90% more in IT equipment, maintenance and software costs and almost 70% more for IT personnel in 2016 than in 2007.

That same data show that practices spend more than two and a half times more for equipment costs as they spend on personnel. Having a 10-year trend in IT expenses also provides perspective for predicting future expenditures. If costs increase at the same rate, in another five years practices could spend almost as much for IT as they do for rent and utilities.

Figures 2 and 3 detail how IT expenses vary for different types of practices and by ownership.
Hospital-owned practices report much lower expenses than their physician-owned peers. The difference in IT expenses does not necessarily mean that hospital-owned practices spend less on IT, but that most IT costs are centralized in the health system and therefore are not reported on the owned practices’ financial statements. For IT employee compensation expenses, so few hospital-owned practices reported IT personnel costs that the data was insufficient to report. Again, the lack of reported costs doesn’t reflect that single-specialty hospital-owned practices don’t have IT support, but that the functions were centralized in another entity in the health system.

Figures 2 and 3 also show single-specialty practices reporting lower IT expenses than multispecialty groups in both physician-owned and hospital-owned practices. The lower expenditures reflect that single-specialty groups typically purchase EHRs tailored to the specific needs of the specialty, whereas multispecialty practices purchase more complex EHR systems that can accommodate the clinical needs of primary care, medical and surgical specialties. The dedicated and less complicated EHRs not only cost less to purchase and maintain, but also require less IT staff support, which is also reflected in the survey data.

While practices most commonly benchmark expenditures in the context of the cost per full-time-equivalent physician to standardize comparisons across all sizes of practices and is easy to explain to practice physicians, it is also helpful to benchmark using an output measure such as expense per total relative value unit (RVU). Using total RVU measures normalizes costs in the context of the work performed and allows us to evaluate IT costs to the amount that government and private insurers pay for services.

To understand how IT costs affect the practice bottom line, compare the cost per total RVU to the reimbursement the practice receives from a payer. Since reimbursement will vary by payer, examine how IT costs compare to Medicare payment. Since the cost and productivity data in Figure 2 are from 2016, use the 2016 conversion factor for comparison. The Centers for Medicare & Medicaid Services pays $35.8043 per total RVU, while multispecialty groups with primary and specialty care are spending $0.53 on IT employee compensation and $1.29 on IT equipment, maintenance and software, or in context of operating margin, more than 5% of what Medicare pays the practice is consumed by IT. Hospital-owned practices have a slightly better margin, since they report lower IT costs, whereas single-specialty practices have better margins due to lower costs and, especially for the surgical specialty practices, greater total RVU production.

With IT expenditures increasing at a rate that exceeds increases in payment, it is most important that healthcare leaders pay attention to how well their information systems function and the value their practices receive from their IT systems. Undoubtedly, healthcare will rely more on IT in the future, but practice executives will need to ensure their investments have a better return than they receive today.