The topic of calculating the total-cost-of-ownership (TCO) and return-on-investment (ROI) for an EMR and LIS arises frequently. Art Vandelay addresses it in a recent HIStalk note (scroll to bottom). I copy his comments, including his pun, below with boldface emphasis mine. He makes specific reference to the recently revealed capital costs and yearly maintenance fees associated with the Kaiser Epic HealthConnect project which I covered in a recent note (see: An Update on the Kaiser HealthConnect Project).
Art Vandelay on TCO (Total Cost of Onerous-Ship)
Kaiser’s announcement about its annual maintenance costs is déjà vu. I often feel it is the "total cost of onerous-ship" in my organization. Kaiser’s maintenance for HealthConnect is right in the middle of the range we see for TCO, which ranges from 20 to 36% of the cost of installation. (Before you fall off your chairs, I am very detailed in the costs I include, right down to power and cooling, percentage of time operations staff spend on monitoring, usage of tapes, and partial FTEs of support staff).
The wide variation in our TCO is driven mostly by the maintenance contract we negotiate with the vendor. The next largest driver is the human resources we need to maintain the application and supporting hardware. For example, clustered databases, redundant servers, and those with bi-directional interfaces typically require the most support. The rest of the costs are relatively minimal.
Two observations. Kaiser’s costs are not out of range by my calculation, but I would have expected more efficiency from their scale. Maybe their geographic distribution eats into their efficiencies. I would bet they will begin to look at more offshore support if their financial prospects don’t improve. They will likely also be eagerly awaiting Epic’s web browser client transition. That would hopefully move them away from one of the world’s largest Citrix farms.
Second, if users are looking for a real return on investment, the TCO can be a large hurdle to jump. In Kaiser’s case, the investment in the system has to cover the 25% maintenance (forever) and then be large enough to pay back a $4B investment in a reasonable amount of time. That can be a daunting proposition. By my calculations, a 50% annual ROI would break-even in 10 years when considering depreciation in the mix. A 50% annual ROI without depreciation would break-even in 7 years.
Art's comment is so clear and insightful that there is no need for me to comment further about it.