At first glance, the formula for quantifying a return on investment for electronic medical records looks like an Albert Einstein equation: ROI = TCO. But quantifying the total cost of ownership for EMR systems is hardly rocket science, industry sources say.

Without a systematic reimbursement schedule from health plans, many small clinics are balking at the start-up cost and skeptical of getting a tangible return on that investment. By examining the TCO aspect of EMR, however, physicians may see an incentive for automating their practices.

EMR proponents contend that there are various ways to justify the expense for the automated systems and that in the long run it will benefit the physician's pocketbook. Among the ingredients in the TCO recipe:

* Savings generated by eliminating transcription services.

* Labor cost recovery from fewer support staff.

* Revenues gained through more accurate procedure tracking, resulting in additional reimbursement.

John Quinn, principal with New York-based Capgemini, advises integrated delivery networks on the TCO concept.

"When you look at TCO for these facilities, which include physician practices, you come up with some staggering numbers," he said. "Plus, TCO is easier for executives to understand than ROI because they often have difficulty translating it into something tangible."

An age-old story with IT in healthcare, providers continue to seek immediate financial gain from any front-end investment. Some vendors assert that a practice can earn an ROI within a year, while others are more pragmatic, forecasting three years or more.

In reality, some benefits are realized faster than others, said Scott Irwin, eastern regional manager for Horsham, Pa.-based NextGen. "The low-hanging fruit in the ROI world is transcription," he said. "Any good medical record system should reduce transcription costs by 80 percent in year one and 100 percent in year two."

After that, each practice should look at its individual cost-savings goals, whether it be staff reduction, increased revenues from coding procedures or seeking wider reimbursement opportunities, Irwin said.Bruce Kleaveland, CEO for Seattle-based Physician Micro Systems, agrees that discarding transcription brings the fastest return, but adds that practices opting to keep transcription should also see an ROI.

"The rate of ROI is variable according to how a site deploys," he said. "A site that deploys to eliminate transcription can get a quick return – $300 to $1,000 a month. If they want to keep transcription, they can download into the EMR, which still frees up staff from filing."

Another Einstein-esque formula is "EMR – FTE = ROI" and consensus among sources is that automated systems alleviate support staff needs. If the average physician needs four assistants, that number can be reduced by one or more, Irwin said, using NextGen client Crystal Run Healthcare in Middletown, NY, as an example.

"It's the fastest growing practice in New York state, maybe the country," he said. "They have gone from 20 to 120 doctors in just two years because they only had to hire two or three FTEs per doctor instead of four or five."

Getting more from evaluation and management coding is also an ROI component – a way to boost the ledger through revenue enhancement rather than cost cutting. Irwin maintains that through EMR, physicians will be able to retrieve money that's being left on the table.

"Groups that are monitoring what they did with paper will see between a 5 percent and 20 percent increase in coding level," he said. "EMR tells you what you can code for, which doctors who still work with paper will typically forget or be unaware of."

Evan Steele, president and CEO of Montvale, NJ-based SRS Software said intangible ROI benefits are also relevant.

"Things like access to a patient chart and easier file location create happier employees, which contributes to lower turnover," he said. "And by reducing time spent looking for charts, staff overtime should also decrease."

The upshot about ROI, observes EMR expert Mark Anderson, is that healthcare has reached a point where physicians can't afford not to have an automated patient record system. For about $800 a month, practitioners can buy a full-blown system.

"They want to be incentivized and well they should," said Anderson, principal of Spring, Texas-based AC Group. "But the incentive is already there. A good EMR does better coding and you get paid more. If you comply with formularies, it pays. So the incentive is there."