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VUMC Sees Operating Income Decrease After EHR Implementation

Vanderbilt University Medical Center expected operating income to dip after an Epic EHR implementation project concluded in 2017.

EHR implementation and healthcare operating income

Source: Thinkstock

By Jacqueline LaPointe

- Tennessee-based Vanderbilt University Medical Center (VUMC) may have reported increased revenue in the first nine months of the 2018 fiscal year, but the medical center finished with lower operating income compared to last year because of its recent Epic EHR implementation.

“We successfully completed our EMR implementation in November and we anticipate the new system will yield future efficiencies,” the non-profit medical center reported in the most recently released financial report.

“However, in the year of implementation increased operating expenses related to implementation caused a reduction in operating income. The EMR implementation put pressure on clinical volumes in the post-live period although we have achieved net patient services revenue in excess of our budget, the implementation has muted volumes.”

According to the report, operating revenue at VUMC increased by about $191 million, or seven percent, by the end of March 31, 2018. Operating revenue reached $3.037 billion in the first three-quarters of the 2018 fiscal year, up from $2.8 billion a year earlier.

Increases in net patient service revenue drove the boost in operating revenue. Patient revenue grew by $115 million, or five percent, compared to the previous year, totaling $2.58 billion.

The remaining boost in operating income at the medical center stemmed from a $55 million increase in academic and research revenue, the report stated.

Despite rising revenues, operating income at VUMC dropped $66 million below the March 2017 fiscal year operating income. By the end of March 2018, the medical center had an actual operating income of $44 million.

The medical center’s expenses grew by $257 million in the 2018 fiscal year, representing a nine percent hike compared to last year. Financial executives attributed the growth in operating expenses to increases in salaries, wages, and benefits, which grew by $100 million.

Services and other expenses also contributed to the spike in operating expenses in 2018 with a $79 million increase, followed by drug costs with a $32 million boost, and medical supplies with a $10 million growth.

Specifically, VUMC’s labor expenses grew because of the medical center’s Epic EHR implementation.

“The increase in salaries, wages and benefits is primarily due to increased staffing to meet additional demand associated with higher net patient service revenue, research contracts, and training costs for staff related to our EMR system implementation,” financial executives wrote.

“Services and other expense increase is mainly due to increased consulting, management fees, and contract labor ($34 million) primarily related to EMR implementation combined with an increase in sub-contracts expense ($20 million), related to increased grant and contract revenue.”

The new EHR system went live in November 2018, concluding a $200 million EHR implementation project. The project was one of the most expensive EHR implementations in 2017.

While its Epic EHR implementation project took a toll on operating income, the medical center expects to bounce back from the financial loss. Financial executives pointed out that the EHR system will yield long-term financial and clinical benefits despite recent clinical volume decreases.

“Although lower operating results were noted thus far in FY 18 compared to prior year, we expected and planned for this decrease in our budget in conjunction with the EMR system conversion,” the report stated. “We continue to monitor volumes and net patient services receivable balances during the post-implementation period.”

Short-term financial losses are not uncommon with large EHR implementation projects.

Medical Center Health System (MCHS) in Texas reported persistent billing issues and workforce issues after launching its new Cerner EHR system in 2017. An independent consultant found medical billing issues stemming from the new technology, which created tension between hospital staff and management.

The Cerner EHR implementation was slated to cost the health system $55 million over five years.

In 2015, Brigham and Women’s Hospital in Massachusetts also reported short-term financial losses because of their Epic EHR implementation. The hospital was $53 million short of its financial expectations in 2015 partly because of the costs associated with implementing the EHR system.

However, health systems and hospitals remain optimistic that EHR implementation costs will go down as the systems become an integral part of the organization.

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