Financing Options to Benefit from Implementing Electronic Health Records

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By Michael J. Sweeney

The federal government recently increased its efforts to promote widespread usage of electronic health records (EHR) at outpatient healthcare facilities by introducing legislation that provides financial incentives for the implementation of EHR systems.

The American Recovery and Reinvestment Act of 2009 included $19 billion in funding for the Health Information Technology for Economic and Clinical Health (HITECH) Act, which aimed at advancing electronic health records. Starting in 2011, the HITECH Act will provide incentive payments for healthcare providers that implement EHR systems and meet “meaningful use" requirements. Penalties for those who fail to comply with the requirements will begin in 2015.

Overview of the HITECH Act

The objective of the HITECH Act was to encourage the use of EHRs in a meaningful manner while improving the quality of care through the efficiencies the electronic exchange of healthcare information creates. The financial incentives the HITECH Act provides will come in the form of Medicare and Medicaid reimbursements.

However, simply purchasing new software and hardware will not qualify a provider for the incentive payments. Outpatient healthcare facility operators must demonstrate that they are using the equipment in a meaningful way – as defined by the Centers for Medicare and Medicaid Services (CMS) – thereby reducing the redundancy and the cost of patient care. Once approved, healthcare providers will be eligible for $40,000 to $65,000 in incentive payments. Federally qualified health centers, rural health clinics, children’s hospitals and other healthcare facilities are also eligible for funding through Medicaid.

The incentive payments for providers will be phased out through time, and Medicare payments will be reduced for those who fail to adopt certified electronic health records. Meaningful use will be implemented in three stages, with stage one covering 2011 and 2012. For full details on the HITECH Act and the meaningful use requirements, visit the CMS Web site at www.cms.gov or the Office of the National Coordinator for Healthcare Information Technology’s website at www.healthit.hhs.gov.

The Benefits of Leasing

While there are clear incentives for outpatient healthcare facilities to invest in new technology, the healthcare industry at large continues to be prudent in the current economic environment. Outpatient healthcare facilities need to preserve their cash reserves and credit facilities to deliver services and fund operations, as well as undertaking projects that are not easily financed.

Acquiring the necessary equipment through a lease provides an outpatient healthcare facility with access to the cutting-edge technology needed to maximize the benefits of EHR without bearing the full up-front cost of ownership. Term financing enables the lessee to match a long-term capital acquisition with a long-term finance solution. Off-the-shelf software put into use during the course of the year may also qualify for the Section 179 deduction.

An appropriate solution may be to employ a capital lease where there is a generally a $1 purchase option or a finance agreement. Some of the costs could potentially be offset through increased efficiency and by taking advantage of recent government incentives such as expanded Section 179 allowances.

While there are many financing options, all decisions should be reviewed against the facility’s credit profile and business plan. Commercial lenders will assess an outpatient healthcare provider’s creditworthiness based on several metrics, including profitability, liquidity, debt coverage and the length of time in business. To ease the financing process, it is best to have all financial statements, tax returns, planned uses of funds and other relevant information prepared in advance. The sooner the equipment and software necessary to adopt EHRs is installed and operating, the sooner it begins paying for itself.

Benefits of Implementing Electronic Health Records

Electronic health records aim to improve the quality and efficiency of healthcare while, most importantly, reducing patient costs. Through EHRs, the industry stands to take a major step toward modernizing our healthcare record management systems, which will lead to a reduction in errors and redundant, often costly, procedures. Outpatient healthcare facilities that meet “meaningful use" standards currently have an opportunity to financially benefit from EHRs, while improving their reputation among the patient community as a leading healthcare institution.

Sweeney

Michael J. Sweeney is the general manager of the Healthcare Platform at EverBank Commercial Finance Inc., the successor to Tygris Vendor Finance and US Express Leasing (USXL). Sweeney joined USXL in 2004 and has run the Healthcare Platform since the company’s inception. In addition to more than 20 years of experience in the equipment finance industry, Sweeney holds a bachelor's degree from Long Island University and a master's degree in business administration from the University of Connecticut. He is the author of several recent articles on healthcare finance including both electronic health records and financing in the community hospital marketplace.

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