Who Spends More on Health IT, Hospitals or Private Practices?

Ken Terry

August 04, 2017

Health information technology (IT) spending on a per-physician basis is much higher for private practices than for practices owned by hospitals, according to a recent survey by the Medical Group Management Association (MGMA). But the costs of buying and maintaining computers and electronic health record (EHR) systems are increasing quickly for both types of practices.

For privately owned practices, an MGMA news release noted, the expense per FTE physician per year ranged from $14,000 to $19,000, depending on specialty.

"These expenses include the cost of purchased IT services such as the maintenance of EHRs and patient portals, as well as any contracted expenses for the repair of practice hardware and software needs," MGMA said.

At Medscape Medical News' request, MGMA supplied breakout figures that showed the difference between IT costs in private practices and hospital-owned practices. For example, independent primary care single-specialty groups spent a median $19,215 per FTE physician vs $7940 for primary care groups owned by hospitals or integrated delivery systems. (MGMA defines primary care specialties as internal medicine, family medicine, pediatrics, and obstetrics/gynecology.)

Surgical single-specialty groups owned by doctors spent a median $14,095 vs $5892 for similar groups owned by hospitals and healthcare systems.

In smaller practices, the same relationship held. For private primary care practices of four to six FTE physicians, the median cost of IT was $13,540 per FTE physician, vs $8191 for hospital-owned primary care practices of the same size.

The main reason for the difference in IT costs is that hospitals have economies of scale that independent groups lack, explained Meghan Wong, assistant director of data solutions for MGMA, in an interview with Medscape Medical News. For one thing, a healthcare system can purchase an EHR for its owned practices at a much lower per-unit cost than a small or medium-sized private practice can negotiate, she noted.

Another major difference between the two types of practices is that hospitals and healthcare systems have their own IT departments. Most private practices, in contrast, must depend on local computer maintenance services and their EHR vendors for IT support, and they must pay an annual maintenance and upgrade fee to those vendors. For a client/server setup, this is about 18% of the initial software cost, and it doesn't cover all upgrades.

Thus, hospitals can provide hardware and software maintenance and other kinds of IT support at a much lower cost per physician than a private practice can, Wong noted.

Nevertheless, IT expenses "are on a slow and steady rise for most practices," the MGMA news release pointed out. Within the last year, for example, private practices spent between $2000 and $4000 more per FTE physician on IT operating costs than they did the prior year. MGMA didn't explain why, but EHR developers are investing in rewriting their software to meet new government certification standards.

Mark Anderson, a veteran IT consultant and CEO of the AC Group in Montgomery, Texas, told Medscape Medical News that the government's meaningful-use EHR incentive program had driven up software costs. The addition of patient portals, as well as upgrades and replacement of older computers, have also contributed to rising costs, he said.

However, Anderson was skeptical about MGMA's cost data. He argued that it is unlikely that private practices paid $14,000 to $19,000 per FTE physician unless they all purchased new EHRs last year. Moreover, he said he didn't believe there is as large a difference between the IT costs of private practices and hospital-owned groups as MGMA claims.

As a consultant, Anderson has negotiated EHR acquisitions for a number of practices in both camps, he said. Based on IT contracts involving over 10,000 employed physicians and over 15,000 independent doctors, he said, independent practices spent $19,500 per FTE doctor, while hospital-owned groups spent $7960 per FTE physician on IT costs, in the year when they bought an EHR.

Those figures are not too different from MGMA's numbers, but they changed radically in the ensuing years, Anderson noted. In the second year after an EHR purchase, the costs dropped to $6000 for private practices and $8214 for employed groups. By year 5, they were $6847 and $9373, respectively. For the 5-year period, private practices spent $45,169 per FTE physician, just a tad more than the $42,999 per doctor that hospital-owned groups spent.

In response to Anderson’s remarks, MGMA said that its data include many IT-related costs for items other than EHRs, including practice management systems, patient portals, data aggregation software, clinical trials software, and claims-scrubbing applications. Also, the numbers include the costs of telephones, radio paging, and Internet service providers.

One reason for the different spending patterns of hospital-owned and physician-owned practices, Anderson noted, is that a hospital spreads its employed physician IT costs over 5 years, based on accounting guidelines, while physician practices usually record actual annual costs.

That being said, Anderson agrees with Wong that hospitals may spend considerably less per physician on EHR licenses than do small or medium-sized private practices.

"They're buying in bulk — 100 [EHR] licenses vs 2 licenses for a small practice. Also, if you spread the lab interface cost over 100 doctors rather than two doctors—there are a lot of reasons why it would be cheaper. The hospital is also probably doing the training vs the [private practice] doctor paying the vendor to do it."

Hospitals and healthcare systems also tend to spend more on analytic software for population health management than small to medium-sized private practices do, according to a Chilmark Research report. But an HIMSS Analytics survey in 2015 found that only a small fraction of healthcare providers had purchased third-party software for population health management; most relied on their EHR vendors for these solutions. So it is unclear how much of a role this kind of software plays in the disparity in IT spending between hospital-owned and physician-owned practices.

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