Healthcare IT

Is EHR a Money Loser for Physicians?

In most cases, the answer is yes.

Policymakers, however, have been very excited about EHR and for good reason.  For instance, the  Health Information Technology for Economic and Clinical Health (HITECH) Act, part of the 2009 stimulus package, provided
direct dollars to doctors and hospitals who adopt and “meaningfully use” an EHR system.

A paper by Milstein, Green and Bates in Health Affairs examines the impact of Massachusetts eHealth Collaborative on physician practices.  The authors state that “The Massachusetts eHealth Collaborative is one of the largest EHR pilot programs…with more than eighty ambulatory care practices in three diverse communities agreeing to adopt EHR systems simultaneously…” The effect on physician practices is defined as the 5-year return on investment (ROI) for ambulatory care practices in the pilot. The authors use a survey–one modelled on the Medical Group Management Associations (MGMA) annual cost survey–to measure ROI.


The authors found the following results from their survey:

Average projected five-year return on investment was negative, with the average physician losing $43,743. Only 27 percent of practices achieved a positive five-year return on investment

Larger firms were more likely to see a positive return but the ROI differentials were not as high as you may have expected.

Practices with six or more physicians had a small positive average return on investment. Thirty-eight percent of practices with six or more physicians achieved a positive return on
investment, compared to 26 percent of practices with one or two physicians


What’s the problem?

The problem here is the fixed reimbursement schedule physicians face. Physicians incur extra costs to implement EHR. They can recover these costs either by charging higher prices or increasing patient demand. In a typical market, physicians would likely raise prices and patients who valued meaningful EHR would pay for this convenience. Since fees are set by large insurers (i.e., primarily private insurers, Medicare and Medicaid) there is little to no pricing flexibility for these providers. Thus, technological advances that improve care, such as EHR, often are not profitable from the clinicians perspective.

Methodology and Limitations

EHR costs and benefits were measured in two parts.  First, the authors measured one-time costs (e.g., initial EHR purchase and initial implementation; costs paid by practices for scanners and other types of hardware; and the cost of temporary labor, productivity losses, or extra working hours incurred when the EHR system went live).  Next, the authors measured on-going costs and benefits after EHR. The main drawback of this approach, however, is that by measuring overall costs and benefits, it is difficult to disentangle changing costs and benefits from other changes in the health marketplace between 2005 and 2011.

  • Julia Adler-Milstein, Carol E. Green, and David W. Bates. A Survey Analysis Suggests That Electronic Health Records Will Yield Revenue Gains For Some Practices And Losses For Many. Health Affairs, March 2013.


  1. EHRs are an important tool in the efforts to modernize healthcare, but not because they drive revenue. They are about standardization of care and data aggregation to improve care quality. Practices concerned with increasing their fiscal returns should look for software that is focused on optimizing billing and coding practices, like Charge Capture.

  2. Indeed, implementing EHRs has been toted as an important tool in modernizing healthcare. However, in the end, private medical practice is a business, and business owners do not prefer losing money on their investments. I think Shafrin hits the nail on the head here with his comment on price flexibility. Doctors adopt costly technology to provide higher quality care, yet the price of their care does not rise with quality – doctors are subsidizing their own patients. Agreed, EHRs may reduce billing inefficiencies, but this seems neither the main object of adoption nor universally sufficient to entice adoption. One issue I do have is the horizon here. Large practices, or even hospitals, with inordinate communication costs will benefit short- to medium-term, but small practices where communication costs are likely more limited will be in for a longer haul if they want to see monetary rewards. Intuitively, where does a two-man practice make up 100-200K in investment over 5 years with electronic records? Billing efficiency? I dont think so.

  3. As we see such variation in gains by size-of-practice, it appears the gains are largely in reducing communication costs within an establishment – also note hospitals have noted significant returns. If small practices, where communication costs are lower, benefit mostly from communication between firms as opposed to within, then peer effects are of great concern and we may simply not be at a level of saturation that allows for immediate returns. For this reason, I think small practices face longer investment horizons. However, its possible that horizon shrinks with each marginal adoption in the network.

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