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MD Anderson Epic Implementation Led to Financial Decreases

Adjusted income at MD Anderson dropped by $160.5 million as a result of an Epic implementation and other projects.

By Kyle Murphy, PhD

- Clinical productivity at University of Texas MD Anderson Cancer Center took a sizeable hit to its adjusted income in the buildup to an Epic implementation completed in March 2016.

Epic implementation at MD Anderson

Documents from a recent meeting of the UT System Board of Regents indicate that the top-ranked cancer hospital saw a $160.5-million decrease in adjusted income “primarily attributable to an increase in expenses combined with a decrease in patient revenues as a result of the implementation of the new EPIC Electronic Health Record system (EHR).”

Compared to the same period in the previous year, that represents a 56.6-percent decrease, according to figures presented to the health system’s Finance and Planning Committee earlier this week.

Those same documents provide insight into the decline in adjusted income:

Expenses increased due to the following: salaries and wages and payroll related costs increased due to an increase in fulltime employees, salary increases and increased premium sharing rates; professional fees and services increased as a result of increased consulting expenses primarily related to the EPIC EHR project; and depreciation and amortization increased as a result of the completion of several large projects such as the Zayed Building, which was placed into service in February 2015, and the EPIC EHR system, which was placed into service in March 2016, as well as various other facility management and software projects.

As the explanation makes clear, the Epic EHR implementation was one of many significant one-time projects at the cancer hospital (e.g., new construction). All told, MD Anderson reported $326.5 million in adjusted income (excluding depreciation and amortization expense), which represented 12.5 percent of revenues.

MD Anderson officials, however, are optimistic that the financial impact of the Epic implementation and other capital projects is only temporary and that it will return to previous levels as the cancer hospital transitions to EHR optimization and other enhancements and refinements.

“M. D. Anderson anticipated a material impact to revenues and expenses as a result of the EPIC EHR implementation. The post implementation strategy will focus on clinical productivity and operational efficiencies to return to normalized operations by year-end,” the documents state.

The March 2016 Epic go-live at MD Anderson followed more than three years of planning and work. The cancer hospital completed its EHR vendor selection of Epic Systems back in December 2012, a decision motivated by the inability of the organization’s former EHR technology to match the comprehensiveness of the care provided by its care teams.

Data from Definitive Healthcare puts the Texas health system in the 99th percentile for net patient revenue ($2.78 billion with total revenue exceeding $5.58 billion). Similarly, MD Anderson maintains significant advantage in both inpatient and outpatient markets, 53.3 percent (86th percentile) and 59.1 percent (98th percentile), respectively.

As for health IT, DefinitiveHC reports an estimated operating budget of $69.2 million and an estimated capital budget of $38.7 million.

By the numbers, the Texas health system has dominated national rankings of cancer hospitals over close to 15 years, taking top honors a total of eleven times and currently holding the top spot for 2015-2016 in the U.S. New & World Report's ranking of best cancer hospitals. Additionally, MD Anderson is a top-ten hospital for ear, nose, and throat (#5) and gynecology (#7). More importantly, the health system is one of few to be recognized as an original comprehensive care centers along with two others.

As the experiences of other hospitals implementing Epic demonstrate, a failure to prepare for the financial impact of a hospital Epic implementation can easily lead to negative consequences.

Back in March, a report in the Boston Business Journal indicated that Southcoast Hospital in Massachusetts was forced to cut one percent of its workforce one year after its Epic implementation whose costs were higher than expected.

According to hospital executives, the costs for the EHR were higher than expected, adding to the $9.9 million operating loss the hospital experienced in the first quarter of the 2016 fiscal year. The hospital has reportedly also faced losses in this second quarter.

“These financial challenges are attributable to higher-than-budgeted operating expenses, largely a result of our Epic implementation,” said Southcoast President and CEO Keith Hovan in a letter to employees.

Given MD Anderson’s history of excellence, it is unlikely that the cancer hospital underestimated the challenges related to an Epic implementation and more likely that its clinical and operational efficiency will improve.

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