Financial Returns from E-Prescribing – Saving Medicare $2.1 billion

The leadership of HHS had a tele-conference on Monday to highlight the new Medicare incentives for physicians to adopt e-prescribing systems.  What the Washington Post and Kaiser Family Foundation reported about this press briefing that wasn’t in the HHS press release was that the Acting Administrator of CMS said that the per physician cost of e-prescribing systems is about $3,000 up front, and then $80-400/month for operation and maintenance.

These numbers caught my eye, because with the incentives in the Medicare bill, the break-even point for physicians is as follows:

First, let’s assume that the per month cost is $240 (the mid-point between $80 and $400), or $2,800 per year. Since the Medicare incentives for e-prescribing are a net 2% of Medicare reimbursements, that means to break-even the physician has to have $144,000/year in Medicare reimbursements – just for the operation and maintenance costs.  Additionally if the up front costs are spread over two years ($1,500/year), that raises the break-even point another $75,000, to $219,000/year.

For some clinicians, this amount of revenues from Medicare might be low, and therefore, it would make sense to get an e-prescribing system. However, if the doctor only sees a minority of Medicare patients, then the incentives could be a penalty.  Which is exactly what Congress expects the financial effects of the e-prescribing incentives to be. According to the Congressional Budget Office, “CBO estimates that the net budgetary effect of the electronic prescribing provision will be to reduce Medicare spending by $0.2 billion over the 2008-2013 period and $2.1 billion over the 2008-2018 period.”

Of course, if other insurers were to match (or exceed) Medicare’s incentive payments for having e-prescribing systems, then obviously the break-even point for physicians would come down, since the calculations wouldn’t balance solely on Medicare revenues.  However, I’m not aware that other insurers are rushing to provide financial incentives for physicians to use e-prescribing systems.

Additional Points
There are additional important points about e-prescribing that need to be made.  First, e-prescribing can have additional costs for physicians’ offices in the form of training time and lost productivity, and unlike electronic medical records, e-prescribing itself is unlikely to improve the office’s billing accuracy and revenues.  Second, e-prescribing can certainly provide clinical benefits by reducing medical errors with better communications about individual prescriptions.  I wrote about these issues a couple of weeks ago (see “Challenges to Making E-Prescribing Increase Efficiency and Improve Quality”), but want to reinforce one point here: Going from paper to computer communications can also introduce new opportunities for medical errors – particularly if people rely on the computer generated information while they might question the legibility or accuracy of a hand-written prescription. That is, technology is great, but its appropriate role needs to be understood by the users, who also have to use it correctly for it to provide real value.

5 thoughts on “Financial Returns from E-Prescribing – Saving Medicare $2.1 billion

  1. >We will get less call-backs from pharmacies and less errors.

    Why on Earth would you take calls from pharmacies? Waste of time. Not billable. Hang up on them.

    >We will get automatic requests for refills without a phone call – electronically querying us if we agree with this refill.

    Refills require billable visits.

    > We will see the real-time formulary for the patient online and have much fewer calls for meds not being on formulary.

    Formulary? It seems to me that a doctor’s mandate and sacred duty is to prescribe the BEST drug, not the formulary drug. I have no idea what is on any formulary, nor do I care.

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  3. Yes, we are fully “paperless.” I think the business case for doing so is becoming increasingly compelling. Things like this are just another reason to computerize the medical office.

    I worry about there being funding from outside sources, as there are always strings attached. I don’t recommend for people doing EMR to do so with the hospital’s help. Hospitals are not really aware of the function of a medical office.

    I actually did an interview with the AMA on EMR adoption: http://www.ama-assn.org/go/hit

  4. Rob – thanks for expanding the discussion on this. Does your use of technology include some form of electronic medical record that incorporates or somehow links to the e-prescribing system? It seems to me that some of the functions you mention would provide the greatest benefits as part of that type of integrated package.

    Also, great to know that United is looking into the 5% bonus for e-prescribing – that certainly could make the financial ROI calculation look better. I’m also wondering if some local government, community or foundation groups are looking at funding the purchase and start-up costs of e-prescribing the same way the state gov. is doing here in MA with EMR systems. Or perhaps they are just exploring support for the full EMR packages. Anyone know?

  5. Counterpoint: We are going to e-prescribing without this in mind. We are doing it because it will save us money. We will get less call-backs from pharmacies and less errors. We will get automatic requests for refills without a phone call – electronically querying us if we agree with this refill. We will see the real-time formulary for the patient online and have much fewer calls for meds not being on formulary.

    In short: the business case for e-prescriptions does not rest on what Medicare does. If an office is smart and knows how to use technology, the benefits are very high.

    Oh yes, and United healthcare is looking into a 5% bonus on the entire fee schedule for having several electronic processes in place, one of which is e-prescribing.

    Slam dunk.

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