Expensive EHR implementations threaten hospital credit ratings

Huge capital outlays for  electronic health record (EHR) implementations are threatening the credit ratings of some large medical systems by tying up large amounts of cash and temporarily reducing profits, Becker's Hospital Review reported.

The financial challenges are not insurmountable and most hospitals should recover fairly quickly, according to the article. The biggest problems occur when EHR implementations cost more than expected, driving up accounts receivable, or if costs strangle a hospital's cash flow, Jim LeBuhn, director of the nonprofit hospital group for Fitch Ratings, told the publication.

Hospital finance managers can minimize the negative impact by communicating expected financial challenges related to EHR implementation, LeBuhn said. "From our standpoint, when a problem does arise, communicate that to us," he told Becker's. "We understand these are not easy installs."

The article examined the Wake Forest Baptist Medical Center in Winston-Salem, N.C., case, in which the hospital saw its credit rating slip from AA- to A+ in November after problems arose during an EHR installation, which it said played a major role in a $56.6 million operating loss in fiscal 2013.

Experts told Becker's that health IT expenditures typically represent a quarter to a third of hospital costs, up from a norm of 5 percent to 10 percent. Those numbers are expected to fall as hospitals across the country complete major EHR implementations, according to the article.

Fitch previously has said revenue from EHR meaningful use payments could be masking "anemic medical growth," warning that hospitals must be financially strong to afford the large capital investment required for EHR implementations. Penalties for hospitals unable to demonstrate meaningful use by 2015 will "lead to a wider gap between higher and lower credits," Fitch said.

Standard & Poor's Ratings Services (S&P) issued a report in October noting that some small, nonprofit hospitals were having financial difficulty because of EHR expenses, decreased volume and physician turnover, FierceHealthcare previously reported. S&P found in a test sampling of 80 hospitals that credit ratings were downgraded for 9 percent of small hospitals versus 6 percent of all stand-alone hospitals. Higher-rated small hospitals were getting stronger, the ratings service said, while lower-rated hospitals were weakening.

For more information:
- read the Becker's article