Section 1.9 Assess
Financial Assessment, Financing
Resources, and Acquisition Models for EHR
and HIE
This tool provides a description of various sources of funds that may be available for health
information technology HIT if you are in an independent facility.
Time needed: 4 hours
Suggested other tools: NA
Introduction
Making an investment in any form of health information technology (HIT) is challenging for every
organization. This may be especially true for behavioral health facilities, which usually are very
small and do not have sufficient psychiatrist and/or Medicare/Medicaid “bandwidth” to earn federal
incentives for meaningful use (MU) of electronic health records (EHRs). However, behavioral health
providers need to keep pace with the health care industry overall and some states are mandating or
incentivizing all providers, including those in behavioral health, to adopt EHR and/or health
information exchange (HIE) technology.
How to Use
1. Use the Financial Assessment to assess your financial preparedness for acquiring EHR and
HIE support. Some of the information gathered here may be useful for making a business
case for acquiring a loan or preparing a grant application. Collecting baseline data also helps
you establish goals, as well as conduct benefits realization studies later on to measure your
return on investment (ROI).
2. Identify potential sources of funds to pursue.
3. Determine which form of EHR or HIE acquisition is best for your organization While you
may initially think only one option is feasible for you, considering other options may reveal
hidden costs and other valuable comparative information.
Financial Assessment
Use the following assessment to determine your financial position with respect to a major investment
such as EHR and/or HIE. If you identify lack of preparedness, you may want to shore up those areas
prior to making the investment.
Not Yet Prepared
Moderately Prepared Highly Prepared
1. Do you have a
realistic estimate of
upfront costs for the
EHR or HIE you want to
acquire?
□ No cost estimate yet
□ Fairly broad range
understood at this point
only
□ Have a good
understanding of range
of prices from reliable
sources
2. Do you have a
realistic estimate of
ongoing costs for the
EHR or HIE you want to
□ No estimate yet
□ Fairly broad
understanding at this
point only
□ Have a good
understanding from
reliable sources
Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 1
acquire?
3. Does your
organization have
guidelines for ROI
requirements for capital
expenditures?
□ No ROI requirements;
or no previous
experience with capital
investments
□ ROI requirements are
fairly loose; or we hope
to expense the
investment
□ We have ROI
requirements; or we
have a good
understanding of the
type of ROI we would
like to have
Payback period:
___ yrs
Internal rate of return
required: ____ %
4. Have you defined
how you would estimate
ROI for the HIT or EHR
you want?
□ No specific goals have
been identified yet
□ We value ROI, but are
unsure how to estimate
benefits
□ We have a process to
estimate benefits for
ROI calculations
5. Is your staff to client
ratio . . .
□ Poor in comparison to
average for industry
□ Consistent with
average for industry
□ Better than average
for industry
6. Is your staff turnover
ratio . . .
□ Poor in comparison to
average for industry
□ Consistent with
average for industry
□ Better than average
for industry
7. Are wages paid to
staff . . .
□ Lower than average
for industry
□ Consistent with
average for industry
□ Better than average
for industry
8. Is your personnel
expense as % of total
revenue . . .
□ Poor in comparison to
average for industry
□ Consistent with
average for industry
□ Better than average
for industry
9. Is your operating
margin . . .
□ Poor in comparison to
average for industry
□ Consistent with
average for industry
□ Better than average
for industry
10. Number of days to
drop a bill . . .
□ High: ____
□ Moderate: ____
□ Low: ____
11. Days in A/R . . .
□ High: ____
□ Moderate: ____
□ Low: ____
12. % lost charges . . .
□ High: ____
□ Moderate: ____
□ Low: ____
13. % denials . . .
□ High: ____
□ Moderate: ____
□ Low: ____
14. Do you currently
have competing uses
for the capital required
for HIT?
□ Yes, and they are
equally important
□ Yes, although HIT is a
high priority
□ No, or not at this time
that would detract from
HIT acquisition
15. Do you currently
have debt; what is your
debt coverage ratio?
□ Yes; and debt
coverage ratio is poor
□ Yes; but debt
coverage ratio is
manageable
□ No debt at this time
16. Credit history . . .
□ Poor
□ Fair
□ Good
17. Do you have a line
of credit?
□ No; or it is currently
being used
□ Yes; and we may
have to use it to
supplement our HIT
acquisition
□ Yes; although we
would prefer not to use
it
18. If you are a not-forprofit organization, have
you ever applied for a
grant?
□ No and we have no
resources with which to
apply or manage a grant
□ No; we have
considered applying
and/or have
unsuccessfully applied;
□ Yes; and we have
been successful in
getting grants
Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 2
but it is something of
interest to us
19. Do you have any
incentives available to
you?
□ None that we can
capitalize on
□ We have incentives
available, but they are
not sufficient
□ We have participated
in one or more incentive
programs
20. Do you have a
banking advisor you
regularly use?
□ No
□ We have an advisor
but have not used this
resource regularly
□ Yes
Sources of Funds
The following is a description of the various sources of funds that may be available for EHR or HIE.
While not every source is applicable to every facility, the list may generate ideas not previously
considered. As you approach your EHR and HIE projects, review the list, check off those you think
are worth pursuing, and assign appropriate individuals to further explore each. Keep track of the
funds that may be available, their timing, and their risk (i.e., likelihood of receiving the funds [high,
medium, low]).
□ Cash flow from operations/use of reserves. Many organizations attempt to finance HIT
through operational cash flow. This is becoming more difficult as more-sophisticated and
more-expensive forms of HIT are being acquired. Some EHR and HIE projects may support
a strong financial return on investment, but many forms are primarily focused on quality and
client safety. This is not to say that a benefits analysis should not be performed for any HIT
investment, but that the benefits may not be in the form of direct cash flow (see Section 2
Business Case: Total Cost of Ownership and Return on Investment for EHR and HIE).
Estimate of available funds: $____________________ Timing: ___________ Risk: _______
□ Tax advantages. An accountant can help identify tax advantages for providers who are forprofit.
Estimate of cash or value of other contributions: $__________ Timing: _______ Risk: _____
□ Group purchasing. Group purchasing may provide a discount on the price of hardware,
software, or both. A behavioral health facility that is part of a corporate chain may be able to
benefit from economies of scale through purchasing the same products for all facilities.
Independent facilities may seek such group purchasing arrangements (especially for
hardware) with a hospital or form a cooperative network—in some cases with other types of
organizations, such as schools or local public health clinics. In addition, there may be an
opportunity to piggyback onto group purchasing when participating in an HIE organization
that can facilitate data sharing across the continuum of care. Even if there is no discount for a
group of unrelated organizations, several organizations purchasing the same product in a
given locale may benefit by sharing lessons learned, using local consultants, etc.
Estimate of cash or value of discounts: $____________ Timing: ________ Risk: ______
□ Vendor financing options. Many vendors offer an application service provider (ASP) or
software as a service (SaaS)/cloud computing model that both finances and manages IT
operations. Vendors also offer traditional financing options, which should be compared with
your local bank or other sources.
Estimate of impact on cash flow: $____________ Timing: ________ Risk: ______
□ Remote hosting or outsourcing. This option is similar to the ASP/SaaS, but typically refers
only to management of the data center (remote or local) and its hardware/
Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 3
telecommunications, not the software. Although it can help reduce the cost of IT staffing and
may make it more reliable with a strong service level agreement, organizations may find
outsourcing more expensive than having staff support. Local markets and availability of
employees can make a difference.
Estimate of impact on cash flow: $____________ Timing: ________ Risk: ______
□ Leasing. This option generally applies only to the hardware you acquire and that you manage
yourself or include in an outsourcing arrangement.
Estimate of impact on cash flow: $____________ Timing: ________ Risk: ______
□ Debt and equity financing. Bank loans and lines of credit are frequently tapped to support
HIT purchases. Some federal programs and state governments are providing no-cost or lowcost loans in certain communities to support HIT investment.
Estimate of amount available net of cost: $____________ Timing: ________ Risk: ______
□ Open source products. Consider evaluating HIT based on open source code. Although
generally lower in price, open source software may not be readily available for the behavioral
health market. In this case, the cost of development could exceed commercial products; and
the results often are systems not interoperable with labs and other EHRs and HIEs.
Estimate of value: $____________ Timing: ________ Risk: ______
□ Grants. Not-for-profit organizations may have obtained grants to finance projects. This is
becoming an increasingly important source of funds for HIT projects as federal and state
governments are interested in supporting HIT investment. Be aware of the costs that may be
associated with grants, including the writing of the grant and potential reports or research that
must be completed to fulfill the grant.
Estimate of amount available net of cost: $____________ Timing: ________ Risk: ______
□ Philanthropy. Not-for-profit organizations may be surprised to find philanthropy is a feasible
funding source. There are various forms of philanthropy:
•
In-kind contributions may be feasible. For example, local fire/police
departments have permitted a local health care organization to piggyback
onto their backup generator for IT, or an employer in a remote location may
be interested in donating staff time to help develop software. Behavioral
health facilities have benefited from using IT student volunteers to assist with
workflow and process analysis or hardware installation.
•
Donations from individuals may be used for HIT. Organizations have come
up with creative ways to solicit and express appreciation for donations, such
as announcing the donation on their Web site or being recognized by the local
chamber of commerce for “going green.”
Estimate of cash or value of other contributions: $__________ Timing: _______ Risk: _____
□ Local businesses, religious organizations, charities, and public service organizations. Such
organizations have a vested interest in the cost and quality of health care, and are increasingly
aware of the impact behavioral health care can have on the general health. They may be a
source of funds, directly or indirectly through contracting incentives (businesses) or other
forms of support (e.g., helping with philanthropic fund raising, equipment donation).
Estimate of cash or value of other contributions: $__________ Timing: _______ Risk: ____
Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 4
HIT Acquisition Strategies
There are three primary ways to acquire HIT products and services: straight licensure, ASP/SaaS,
and community offerings. You may also use some of these to obtain the technology necessary to
support HIE.
□ Straight licensure refers to the acquisition of software by paying upfront for use of the
software and, often, for assistance with implementation, training, and go-live. A periodic
maintenance or service fee is charged to keep the software current and to provide ongoing
support. The initial investment is usually quite large, but the overall cost over five to 10 years
may be equal to or less than the subscription fees required in an ASP or SaaS model.
□ Application service provider (ASP) or Software as a Service (SaaS) is a form of software
acquisition where the up-front cost and ongoing maintenance/service fees are bundled
together into a periodic payment. From a financing perspective, the difference between the
ASP/SaaS and straight licensure models of acquiring HIT is the difference between tenant
and owner. The ASP/SaaS model requires little or no down payment, usually demands less
staffing, has lower hardware costs, and allows you to pay as you go. But, the ASP/SaaS
model offers less control and customization capability and the long-term cost may end up
being higher.
□ Community offering is another form of acquiring EHR (also called “enterprise offering”) that
is being enabled by some EHR vendors. In such cases, typically a hospital or large clinic
licenses the product and then supports other providers in the community. In this case, the
large facility becomes the vendor for implementation and support. Many of the advantages of
the ASP/SaaS model exist in this type of offering. One distinct difference is that data is comingled in a single Active Directory. While this serves as a means to share data about
patients—a laudable goal—withdrawing your records later may be difficult if you no longer
wish to be part of the community offering.
Although some use the terms ASP and SaaS interchangeably because they both are tenant models of
acquisition, consumers should be aware of product-related differences between the two models. The
following table summarizes these differences and compares both with straight licensure.
Factor
Straight Licensure
Application Service
Provider (ASP)
SaaS (Cloud
Computing)
Software architecture
Traditional client/server
Client/server with Web
front end
Often Web Services
Architecture
Product sophistication
Full range from high to
low
Moderate
Low
Customization
Most customizable for a
price
Somewhat
customizable
Varies. Economies of
scale often preclude
customization offerings
even though
customization is
feasible
Delivery mechanism
Local area network
(locally maintained or
hosted services)
Virtual Private Network
or Internet Service
Provider (ISP)
ISP
Availability (given local
power redundancy)
Virtually 100% with
redundant servers
Can be 100% with VPN
and ISP; redundancy
more difficult with ISP
Redundancy more
difficult with ISP
Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 5
alone
Security
Depends on controls
adopted by facility
Depends on controls in
service agreement*
Depends on controls in
service agreement*
Up front cost
High
Moderate - Low
Low
Ongoing cost
Moderate - Low
High - Moderate
Moderate – Low
Staff support
High
Moderate - Low
Low
* Some health care organizations are reluctant to have their data stored away from their organization,
whether remotely or in the cloud. There are two primary concerns:
1. What happens if the system goes down? This actually is a matter more related to assuring full
redundancy and failover—whether data is stored locally, remotely, or in the cloud.
Redundancy in servers, power, and connectivity is essential.
2. How do we get our data if the vendor fails? Unfortunately, any vendor can fail, including one
that provides a straight license. However, more often there is a merger or acquisition where
there will be continued support and a more graceful transition to a new product. Contracts
should ensure that the organization owns the data, and that data housed by the vendor will be
returned if the company goes out of business. In addition, the contract should state that the
software’s source code will be placed in an accessible escrow account if the company goes
out of business.
One thing about the ASP/SaaS model that is often misunderstood is security. Vendors who offer
these models often have more robust security than health care delivery organizations are willing to
pay for on their own. However, the SaaS model that stores data in the cloud may move your data
wherever virtual storage is available at the lowest price at any given point in time. It is advisable to
negotiate a contract with any SaaS vendor that states data will be stored in the United States to avoid
the need to deal with international laws.
Finally, service level agreements (SLA) are critical for any type of HIT acquisition, but especially
with the ASP or SaaS. SLAs help ensure optimal connectivity and support.
Copyright © 2014 Stratis Health.
Updated 03-06-14
Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 6