Tucson area's largest health network racks up nearly $30 million in losses

Southern Arizona’s largest health network is $28.5 million in the red so far this fiscal year, and officials say a costly electronic medical records system is largely to blame.

The operating loss is unprecedented for the four-year-old University of Arizona Health Network, which includes two local hospitals.

The electronic records system, from Wisconsin-based Epic Systems, has cost an estimated $115 million, including $32 million in unbudgeted costs for the first eight months of the fiscal year, which ends June 30, financial documents show. The extra costs are due primarily to a delay in getting the system live and funding additional training and support, officials said. It was supposed to be up and running by Sept. 1, but wasn’t operational until Nov. 1.

“This is the biggest operational change this organization has ever undertaken,” said Dan Critchley, who started working with the UA Health Network as a consultant last July and has been chief information officer since Feb. 1.

“We’re in what we call support mode now,” Critchley said. “We’re fully done with our install.”

There are other reasons for the network’s weak finances. UA Health Network officials say uninsured patients aren’t getting health insurance coverage through the federal Affordable Care Act as quickly as they’d anticipated, resulting in $11 million less than expected in patient revenue through February.

The network also lost federal dollars from a program that helped bridge the funding gap created by Medicaid rate cuts and a rise in uninsured patients. The Safety Net Care Pool, which also included Maricopa Integrated Health System and Phoenix Children’s, pumped $33 million into the UA hospitals for the first six months of the fiscal year. But that infusion ended Dec. 31 to coincide with greater health insurance availability through the Affordable Care Act.

Theoretically, the UA Medical Center hospitals should have seen a big enough decline in uninsured patients to make up for the money that stopped coming from the Safety Net Care Pool.

Network board chairman Steve Lynn said the network’s finances are a concern, but he’s optimistic.

“The issue is more about where we are going and what things are in place to change the trajectory,” Lynn said. “It was an especially difficult time financially because of Epic, there was no choice in the matter. That period of time has fortunately passed and now we can do much better.”

6,300 employees

The University of Arizona Health Network is a $1.2 billion nonprofit organization that includes about 6,300 employees and two hospitals — the UA Medical Center’s university and south campuses. It also includes a physician practice plan, clinics and health plans. The organization — the seventh-largest employer in Southern Arizona, according to the 2013 Star 200 — was created in 2010 through a merger between University Medical Center Corp. and University Physicians Healthcare. Its beginning was marked by turbulence and chaos: In its first four years, the network has had four chief executive officers. The fourth and current CEO is Dr. Michael Waldrum, who has been with the network since January 2013.

The new electronic records system brings uniformity to the UA Health Network, which had various entities — south campus, university campus and outpatient clinics — working in separate silos of computer record-keeping.

A financial report presented to the network’s board of directors on April 24 says the Epic system’s higher-than-expected expenses this fiscal year were due to “implementation delays, additional training support and planned schedule reductions.” Some of the expenses were originally supposed to be in the prior fiscal year.

The report attributes $6.8 million of the current year’s losses to physicians spending enough time training to use the new system that they couldn’t see as many patients between November and January. Schedules were back to normal as of February.

Implementing the new system has hit the network’s finances hard, but over time it should improve patient safety by cutting down on unnecessary testing and medication errors, among other things, officials say. Eventually it is expected to save money because of its added efficiency.

At the UA Medical Center’s south campus, the Epic system has taken doctors from paper charts and uncoordinated computer records to having all patient information — from angiogram and CT scan results to billing updates — in one place, accessible via iPhone.

“This is the future. We have to have electronic medical records,” said Dr. Kwan S. Lee, a cardiologist who is medical director of the UA Medical Center’s south campus.

Rather than going into a separate lab to see test results like CT scans and angiograms, it’s now all in the same electronic file.

Lee cited a recent case where a patient who had been previously treated at Tucson Medical Center came to the UA Medical Center’s emergency room, having an acute heart attack. The standard of care in such cases is opening the artery within 90 minutes. In a rush against the clock, Lee was able to click on the patient’s record from TMC and see the area where the patient had prior surgery.

“The patient had consented to share information from Tucson Medical Center and it helped us immensely,” Lee said. “We would have possibly wasted a lot of time. The patient did very well.”

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One con is that the system is “a little overly complicated” because it tries to be all things to all people, he said.

“It was painful ... A lot of us are technophobes,” he said. “But there was no way we could move forward without adopting it.”

Chief Information Officer Critchley agreed, saying that with the infrastructure in place, the system will be improved as needed over time.

“For better or worse, only when it’s live are you going to get the doctors and staff to engage and do the fine tuning of what it really means, and what they want to see happen,” Critchley said.

WIDESPREAD ADOPTION

Federal agencies are providing incentive payments to encourage all health care providers to adopt “meaningful use” of electronic health records. To qualify as meaningful use, a records system must improve quality and safety and provide information to patients, said Peter Ashkenaz, spokesman for the National Coordinator for Health Information Technology, part of the U.S. Department of Health and Human Services.

The UA Health Network, which began its Epic implementation in 2012, receives a little over $1 million per year in incentive payments, Critchley said.

Adoption of electronic records is voluntary, but hospitals that don’t make the switch by October face Medicare payment cuts of about 1 percent, and increasing reductions each year.

In Arizona, 37 medical organizations — including 12 hospital systems — are linked through the state’s medical information exchange network, said Melissa Kotrys, CEO of the nonprofit Arizona Health-e Connection and the Health Information Network of Arizona. That represents almost half the hospital beds in the state, she said.

The exchange network provides a platform for providers with different electronic record systems to share patient information with one another to better coordinate care. Adopting these systems is expensive for providers, Kotrys said, but the payoff in improved patient safety and coordination of care is worth it.

“This is a cost that has to be borne now in order to result in better patient care down the road,” she said.

TUCSON MEDICAL CENTER

Critchley has worked on at least four other Epic installations around the country as part of his consulting work and says the UA Medical Center’s has been the least expensive, with the most aggressive timeline. He has worked on projects that cost more than a half billion dollars.

But cost also depends on an organization’s size and when it put a system in place.

At Tucson Medical Center, a $31 million upgrade to its electronic medical records system — also the Epic system — began to reduce expenses almost immediately after it went live in 2010. TMC is among 3 percent of hospitals nationwide at the highest stage of electronic records adoption, based on an electronic records ranking system.

“We started to see efficiencies the first day,” said Frank Marini, TMC’s chief information officer. Transcription expenditures dropped by half, as doctors who had previously dictated patient notes instead documented them directly into the electronic record, he said.

TMC began its push to upgrade its partial electronic records system in 2009. The hospital’s early investments in infrastructure, starting in 2002, lowered the cost of adopting a comprehensive system, he said.

But much of the cost of adoption came from third-party contract labor, at a cost of $14.5 million, plus $3 million after the system went live. Since TMC adopted its system gradually, the hospital had more time to train in-house staff as experts in the system, minimizing reliance on outside workers for system maintenance and IT support, Marini said.

Hospitals with a shorter time frame for adoption must lean more heavily on outside workers until staff is fully trained, to ensure their new system runs smoothly once it goes live, he said.

TMC is starting to connect its internal electronic records system with other hospitals’ to share patient records. That’s already happening at UAMC: In one recent case, a new patient got a quick diagnosis, thanks in large part to a query of University Medical Center’s electronic records, which revealed medical history details and previous CT scans that were critical for the diagnosis.

“It altered the course of treatment,” Marini said. “It was good for the patient, it was good for the hospital in terms of not running unnecessary testing, it was good for the payer. It just really speaks to the power of information exchange.”