Running head: BUSINESS PROPOSAL 1

Cerner Business Proposal for Heartland Health

Nguyet Allbaugh

University of San Diego

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Executive Summary of Heartland Health EHR Proposal

The Heartland Health Primary Care Clinic (HHPCC) mission is to provide quality

primary health care and services to those in need. However, services were restrained due to the

constraints of the paper-based system. The inability to exchange patient information among

providers and track patients' test results and medication intakes made providing services to

38,393 patients a year challenging. Implementing Cerner's EHR resolved many issues and

improved overall functionality at the point-of-care. When switching from paper charting to an

EHR, the clinics will increase their efficiency, access to care, and decrease costs while providing

high-quality care.

The primary care clinics have been in business for 20 years and the clinicians have over

15 years of experience. The emergence of a new competitors like the popular and successful

Health Management Organization (HMO) in a nearby town is a threat to the HHPCC. The

Yamaha Industries is coming to town that brings in 3,000 full-time jobs. HHPCC has the

opportunity to invest in a certified EHR to meet the demands of an influx of people moving to

town for job opportunities and to be in compliance with the Health Information Technology for

Economic and Clinical Health (HITECT) Act for reimbursement.

The health information technology project proposal is for the implementation of Cerner

Millennium in the offices of Heartland Health. In the first year, RVUs are forecasted to increase

by 1200 with an additional revenue of $54,000. The first year’s operating expense for the EMR

installation is $44,200 with the operating margin of 18% and the cost per unit is $36.83. A

capital cash purchase of $9,000 is required. Cash at the ending of a 3-year period is $71,200.
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There are many benefits to implementing Cerner. Unlike the paper medical record, the

EHR has features that will streamline the workflows and make it more efficient for the end users.

Some of the functionalities included are Clinical Decision Support (CDS), Computerized

Physician Order Entry (CPOE), e-prescribing, results views, and the patient portal with secure

messaging.

Cerner has the most profitable market opportunity based on the market analysis. The

analysis showed that the price, ease of use, and functionality are rated as medium compared to

other vendors. The EHR allows multiple staff to access to the patient’s chart at the same time. It

reduces duplicate ordering in radiology, laboratories, and medications. The Computer Decision

Support System (CDSS) provided evidence-based recommendations during the e-prescribing

process on prescription costs, which is a step toward reducing the cost of drugs. The two clinic

locations will each have a Nurse Practitioner (NP) as the champion. The NP will advocate on the

functionalities of the EHR such as the clinical decision support, computerized physician order

entry, and the health information exchange capabilities to the staff. To increase adoption rate,

Cerner’s vendor will meet with Heartland Health’s leadership and provide an outpatient visit

demonstration using the EHR. End users can also participate in a product survey.

Tracking the results of successfully implementing Cerner’s EHR is done by looking at

the return on investment. The report function will allow the manager to extract data on numbers

of patients seen in the clinics. The patient portal allows patients to have access to their own

medical record that engages patients in their own health care where they can use secure

messaging to communicate with their providers without having an office visit.

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Economic Climate of Healthcare Organizations

The United States healthcare system has been evolving as the state and federal regulations change

to meet the demands of the population. For-profit and non-profit healthcare organizations need to follow

state and federal regulations to operate their businesses. Contractual services and physician

reimbursements are changing as new regulations emerge.

Health care organizations (HCOs) are the provider of health services. In order to operate in the

healthcare business, HCOs need to receive dollar payments from their consumers. The funds can be paid

directly by the patients or a third-party payer. HCOs also receive their non-patient funds from grants. Blue

Cross, Medicare, Medicaid, and managed-care organizations are the largest third-party payment for health

care organizations as Cleverley and Cleverley (2018) mentioned. In order to provide quality health care

services, HCOs need resources such as healthcare employees, equipment suppliers, service contractors,

vendors of consumable supplies, and lenders. About 32% of all healthcare expenditures are from the

hospital industry, then physicians for 20%, and prescription drugs for 10% for all healthcare expenditures

as Cleverley and Cleverley (2018) pointed out.

Hospital industries derive roughly half of its total funds from federal governments programs such

as Medicare and Medicaid. According to the 2014 health services funding sources, hospital revenue from

Medicare is approximately 26% and Medicaid 17%. A hospital’s revenue from private insurances is

approximately 37% (Cleverley & Cleverley, 2018, p.35). Medicaid funding plays an important role in the

funding of the hospital industry. The Balanced Budget Act (BBA) of 1997 cut provider payment by

reducing Medicare inpatient payments by cutting the annual diagnostic-related group (DRG) payment. To

save money, HCOs cut back on hospital expenditure by reducing operating costs per bed. Wu and Shen

(2014) pointed out in respond to the BBA cuts, HCOs cut back in staffing, especially nursing staffing. In

the long term, studies found that reduction in Medicare payments is linked to deteriorating patient

outcomes.
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Unlike other markets, healthcare markets have different contractual relationships with payers.

Physician reimbursements can be categorized by pay for services or capitation. Pay for services is when

the payers get charged for the services received. This can cause an increase in healthcare expenditure

since providers may provide more services than what the patients really need. To control healthcare costs,

insurers shifted their payments to capitation. In this method, providers get paid a set amount for each

enrolled person assigned to them regardless of the amount or type of care the person requires as Cleverley

and Cleverley (2018) mentioned. Physicians would want to have the healthiest patients on their panels to

minimize financial risk. Since providers do not get paid extra for additional services, having sicker

patients on the panel could harm their revenue.

With increasing healthcare expenditures, the healthcare delivery reform emphasized shifting from

hospital-based to patient-centered medical home (PCMH) and accountable care organization (ACO) for

care delivery. A strong primary care provider and ACO model that emphasized the alignment of

incentives and accountability for providers across the continuum of care can result in higher quality care

and lower cost as Rittenhouse, Shortell, and Fisher (2009) pointed out. This shift of care focus is essential

for cost saving care.

Many factors can influence the economy of the healthcare system. With mandated regulations to

control cost of care and drugs, HCOs, insurers, and the government play a vital role in delivering quality,

affordable, and accessible healthcare system. The passing of the Affordable Care Act offers financial

incentives for primary care settings to improve their population health is a step toward improving quality

and lower healthcare cost.

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Product and Services for Heartland Health

Heartland Health needs to implement an Electronic Health Record (EHR) to avoid financial

penalties and get reimbursed as part of the American Recovery and Reinvestment of 2009 stimulus

package. After market research, the most affordable product that meets the needs of this primary care

clinic is Cerner vendor. The product has to be affordable, easy to use for consumers, and enough

functionality to complete tasks.

Heartland Health has been using paper charting for the past 20 years. Some disadvantages are

illegibility, only one person can access the record at once, and data stored cannot trigger decision support

tools as Bates, Ebell, Gotlieb, Zapp, and Mullins (2003) pointed out. Therefore, with Cerner Millennium,

the EHR should eliminate these disadvantages and improve quality, increase access to care, and decrease

costs.

Cerner (2018) product will have the capability for patients to communicate with their providers

via the patient portal. Providers will also have the ability to message their patients via secure messaging.

Patients can initiate a request for an appointment. The scheduling system will allow the staff to check

patients into the clinic for the appointments and registered their patients.

An EHR will allow multiple staff access to a patient’s chart at the same time. Providers are able

to document and place their orders electronically for labs, x-ray, or medications etc. E-prescribing will

allow providers to send the prescriptions to the patient’s choice of a local pharmacy. Providers will also

be able to request a consult or referral with another provider and track the progress of the consultation or

referral.

As the providers document the care, the software has the ability to identify the correct codes

based on the diagnosis and procedure performed. Fletcher and Payne (2017) emphasized the ability for

configuration options for documentation templates, order menus, and appointment templates are

important for implementation that requires planning and time.

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Improving patient education can lead to quality care. Cerner offers an online resource in multi-

media and multi-lingual formats that can be customized to a patient’s needs. Education topics on medical

conditions, procedures, or medications are available to providers so they can easily access as a resource

for themselves and the patient.

I recommend Cerner product based on the market analysis between GE Centricity, Medisoft

Clinical Software, and Cerner. The analysis showed that the price, ease of use, and functionality are rated

as a medium for Cerner. GE Centricity is high on price and ease of use, but medium on functionality.

Lastly, Medisoft Clinical Software analysis showed high on price, and medium for ease of use and

functionality. Cerner vendor is the cheapest on the analysis and their product can deliver care that meets

the meaningful use requirements. When switching from paper charting to an electronic health record,

Heartland Health primary care clinic will increase their efficiencies, access to care, decrease costs, and

provide high quality care.

Vendor 1: GE Centricity Vendor 2: Medisoft Vendor 3: Cerner

Clinical Software

Price H H M

Ease of use H M M

Functionality M M M
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Organization, productivity and labor costs of Heartland Health

There are four types of cost assumptions, Providers’ Time (PT), technology, supplies, and

indirect costs that made up the annual cost for Heartland Health. For PT, there is one medical

director at $250,000, one physician at $200,000, and two nurse practitioners at $120,000 each.

Total annual expense for PT is equal to $690,000. Technology has a total of $33,000 for two

EKG machines, two copiers, eight computers, two ultrasound machines, and two electronic

scales. Supplies cost is $25,000 for paper, tongue depressors, bathroom, and exam room

supplies. Indirect total annual expense is $358,000, which consists of part time information

technologist at $60,000, one biller at $40,000, two receptionists and four medical assistants at

$30,000 each, lease for $72,000, and utilities for $6,000. The total annual expense for all the cost

assumptions is $1,106,000.

The basic unit of service or a Relative Value Scale (RVU) is a 15-minute office visit.

Total RVU cost per 15 minutes is $39.51, which consists of $24.65 for PT, $1.18 for technology,

$0.89 for supplies, and $12.79 for indirect costs. The cost for PT is calculated by each provider

works 35 hours per week, one hour for lunch each day and two weeks of vacation per year. There

are 50 remaining weeks multiplied by 35 hours, which equals 1,750 hours a year. For monthly, it

is 1,750 hours divided by 12 which is 145.83 hours per month per provider. Since the clinic has

four providers, total hours per month for all providers is 583.32 hours. There are 4 15-minute

RVUs used for fee-for-service rate reimbursement. With four providers, there should be a total of

2,333 RVUs per month. The annual expense for PT is $690,000, which is $57,500 per month.

The cost per PT RVU is calculated by PT monthly budget ($57,500) divided by total RVUs

(2,333) per month which equals to $24.65. PT is the most costly component of the visit.

Technology annual budget is $33,000 which is $2,750 per month. Cost per technology RVU is
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$1.18 ($2,750/2333 RVUs). Supplies annual budget is $25,000 which equals to $2,083.33 per

month. Cost for supplies per RVU is $0.89 ($2,083/2333 RVU), which is the least costly

component. Indirect costs have an annual budget of $358,000, which equals to $29,833.33 per

month. Cost per indirect RVU is $12.79 ($29,833/2333 RVUs).

Heartland Health's one-month budget expense is $92,177, but the actual expense is

$90,553 with a favorable variance of $1,624. The budget is calculated by cost per category RVU

(PT, technology, supply, and indirect cost) multiply RVUs per month (2,333). For example, PT’s

budget is calculated by cost of PT RVU ($24.65) multiple by RVUs per month (2333) which is

$57,508. The actual expense is $56,000, which yields a favorable variance of $1,508. The

technology budget is $2,753, but actual expense is $3,000, which has unfavorable variance of

$247. Supply budget is $2,076, but actual expense is $2,588, which has an unfavorable variance

of $512. The indirect budget is $29,839 but actual expense is $28,965, which yields a favorable

variance of $874. The clinic spent more on technology and supply costs than the original budget.

However, the one month total budget yields a favorable variance of $1,624.

Heartland Health has a total of 2333 RVUs per month productivity reported for two

locations. The South location has 1,166 and the North has 1,167 RVUs. The actual RVUs for

Heartland South is 1,111 which yields an unfavorable variance of 55 RVUs. Heartland North's

actual RVUs is 1,166 which also yields an unfavorable variance of 1 RVU. Both locations have

unfavorable variances but the South Office variance is much higher than the North. Providers

might take more than one RVU per appointment due to patient’s medical complications. Other

reasons for unfavorable variance is providers are not seeing patients for the scheduled

appointments or they took emergency vacation days.

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Heartland Health
Costs and RVU Development

Annual cost assumptions Total annual expense Total relative value scale
(RVU) cost per 15-minute

a. Providers time Providers’ time =$690,000 $24.65

1 medical director =
$250,000
1 physician = $200,000
2 nurse practitioners=
$120,000 x 2 = $240,000

b. Technology (EKG machines x Technology = $33,000 $1.18

2, copiers X2, computers x 8,
ultrasound machines x 2,
electronic scales x 2) $33,000

c. Supplies (paper, tongue Supplies = $25,000 $.89

depressors, bathroom and exam
room supplies $25,000

D. Indirect costs Indirects = $358,000 $12.79

.5 information
technologist = $60,000
1 biller = $40,000
2 receptionists = $30,000
x 2 = $60,000
4 medical assistants =
$30,000 x 4 = $120,000

Lease $6,000 per month for 2

office suites = $72,000
Utilities 500 per month for 2
offices= $6,000

Total: Total =$1,106,000 $39.51

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RVUs calculations
Assumptions:
The basic unit of service is a 15-minute office visit, a relative value scale (RVU)
Costs:
a. Provider
A provider works 40 hours per week less 1 hour for lunch = 35 hours/wk. Each provider has 2
weeks vacation/yr. There are 50 remaining weeks x 35 hours = 1,750 hours a year. For monthly,
it is 1750 hours divided by 12 = 145.83 hours per month per provider. With 4 providers there are
4 x 145.83 = 583.32 hours per month.
There are 4 15-minute relative value scale (RVU) used for fee-for-service rate reimbursement.
583.32 x 4 =2333 RVUs per month.
Annual expense per year is $690,000. To obtain a monthly expense,$690,000 divided by 12 =
$57,500. $57,500 divided by 2333 RVU = $24.64 Average expense for provider time per RVU
is $24.64/month
b. Technology $33,000 per year divided by 12 = $2750 per month. Average expense for
technology is 2750 divided by 2333 RVUs per month = $1.18 per RVU
c. Supplies $25,000 per year divided by 12 - $2750=$2083.33 per month; 2083.33 divided by
2333 RVUs per month = $0.89
d. Indirects $358,000 per year divided by 12 =29,833.33 divided by 2333 = $12.79
Heartland Health
One-month Expense Budget

Cost Category RVU Actual Budget Variance

Provider’s Time $24.65 $56,000 $57,508* $1,508*
Technology Cost $1.18 $3,000 $2,753 $(247)
Supply Cost $.89 $2,588 $2,076 $(512)
Indirect costs $12.79 $28,965 $29,839 $874
Total $39.51 $90,553 $92,176* $1,624*
* Budget errors calculation corrected from original table
Heartland Health
One Month Productivity Report

Heartland Offices Actual Budget RVU Variance

Heartland South 1111 1166 (55)
Heartland North 1166 1167 (1)
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Leadership and SWOT Analysis of Heartland Health

Leadership can be a formal or an informal title. Heartland Health has two primary care

offices. The organization structure consisted of a medical provider, two nurse practitioners, four

medical assistants, two receptionists, one health informatics technician and a part-time biller that

reported to the medical director. At the other location, 14 miles from the primary office, the

nurse practitioner was in charge of that office and considered an informal leader.

The productivity of the clinic will decrease for the first month of implementing Cerner

since everyone is learning the new system, but additional hiring is not needed. The Cerner

vendor will provide two full-time super users to provide support at the elbow during the first

week of go live, then one consultant for the next two weeks. Phone support will be available for

three weeks after the three weeks of onsite support concludes. Since Heartland Health is a small

primary care practice with two offices, any proposal will be reviewed by the providers and the

nurse practitioners. However, the Medical Director is the only person that will sign off on the

proposal based on majority consent.

The mission of Heartland Health is to provide quality primary health care and services to

those in need. The vision is to improve the health, independence, and spiritual life of the

community and become the first choice of provider by being a leader in urban healthcare. The

organizational values are commitment to excellence, integrity, compassion, and respect.

The Strength, Weakness, Opportunity, and Threat (SWOT) analysis of Heartland Health

showed that the organization has a skilled workforce. The primary care clinics have been in

business for 20 years and the clinicians have over 15 years of experience. Another strength is

their two office locations are geographically distributed across the city. The weakness identified
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is due to their religious beliefs. The primary care practice providers only support natural

methods of birth control and refer their patients to the network who do not believe in natural

methods. In addition, they do not have an obstetrician specialist to take care of pregnant patients

past the 16th week of gestation. Opportunities are Yamaha Industries is coming to town that

brings in 3,000 full-time jobs and fifty percent of its employees will relocate to this town. In

addition, with the passing of the Health Information Technology for Economic and Clinical

Health (HITECT) Act, it is an opportunity for Heartland Health to invest in a certified electronic

health record to get reimbursement from Medicare. One threat is an emergence of a new

competitor. A popular and successful Health Management Organization (HMO) is located in a

nearby town. Another threat is the local population is faced with economic challenges and lack

of health insurance. The top five conditions of the Heartland Health population served are heart

disease, cancer, obesity, infant mortality that is higher than the national average, and uninsured

patients.
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Electronic Medical Record 3-Year Financial Prospectus

Revenue and Expense Assumptions

1. Sales/Revenue—First year’s annual volume increase is 100 RVUs per month x 12 months =
1200 RVU/yr. Revenue is RVU= $45. 1200 x $45 = $54,000. Second and third year annual
increases in patient visits of 80 visits a month= 960 RVU/yr. x $45 = $43,200. Similar electronic
medical record implementations experienced an increase in the volume of patient office
visits/revenue due to ability to send automatic text messages reminders of visits and seasonal
reminders of flu shots (Menachemi & Collum, 2011).
2. Expense—sum of lines 5-9
3. Operating income—sales/revenue minus cost/expense
4. Operating margin—divide operating income by revenue x 100 to obtain percent

Expense Assumptions
5. Salaries and wages--Training and productivity loss; 4 providers 40 hours training each x
$200/hr. = $32000. 6 receptionists/medical assistants 40 hours training x $15 = $3600. 1 biller 40
hours training x $15 = $600. $32000+$3600 +$600=$36,200 Informatics technician training
required—No additional.
6. Materials and supplies required—no additional
7. Technology—contract services annually--support for computerized technology is $8000
8. Depreciation and Amortization—none {use when recording the depreciation of an asset [e.g.
land, building or equipment (computer)] reducing their historical cost by accumulated
depreciation (refer to page 264 in textbook for more details) Amortization schedule records the
principal and interest contained in each payment.}
9. Interest—none (use when loan is involved and cost of interest must be considered)
10. Total expense— sum of lines 5-9

Net Income Assumptions

11. Net Income—sales/revenue minus the total expense

Cash Flow Report Assumptions

12. Net income—repeat net income from line 11
13. Depreciation—repeat line 8
14. Borrowing—repeat line 9
15. Total sources—add lines 12-14
16. Capital purchasing—software $9,000 for cash purchase; no building; no equipment
17. Working capital—none
18. Total Uses—add lines 16 and 17
19. Cash at Beginning of Period—none
20. Net Cash activities—total sources minus total uses
21. Cash at Ending of Period—add line 19 and line 20

Volume/Productivity Report Assumptions

22. Volume statistic—RVU = 15 minutes of office time with provider; the volume indicator
relates to the sales/revenue: Year 1: 1200, Year 2: 960, and Year 3: 960
23. Cost per unit—total expense divided by RVU
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Table 1 Heartland Health: Electronic Medical Record 3-Year Financial Prospectus

Year 1 Year 2 Year 3

1.Sales/Revenue 54,000 43,200 43,200
2. Expense 44,200 8,000 8,000
3. Operating Income 9,800 35,200 35,200

4. Operating Margin 18.1% 81.5% 81.5%

Expenses
5.Salaries and Wages 36,200 -- --
6. Material and Supplies -- -- --
7. Contract Services and Fees 8,000 8,000 8,000
(technology)
8. Depreciation and Amortization -- -- --
9. Interest -- -- --
10. Total Expense 44,200 8,000 8,000

11. Net Income 9,800 35,200 35,200

Cash Flow
Year 1 Year 2 Year 3
Sources
12.Net Income 9,800 35,200 35,200
13.Depreciation -- -- --
14.Borrowing -- -- --
15.Total sources 9,800 35,200 35,200
Uses
16.Capital purchasing 9,000 -- --
17.Working capital --
18.Total uses 9,000 -- --

19.Cash at Beginning of Period -- 800 36,000

20.Net Cash Activities 800 35,200 35,200
21.Cash at Ending of Period 800 36,000 71,200

Volume
Year 1 Year 2 Year 3
22. RVU (Volume statistic) 1200 960 960
23. Cost per unit 36.83 8.33 8.33
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Financial Summary

The health information technology project proposal is for the implementation of an

electronic medical record (EMR) in the offices of Heartland Health (Table 1). In the first year,

RVUs are forecast to increase by 1200 with an additional revenue of $54,000. The first year’s

operating expense of for the EMR installation is $44,200. The operating margin is 18%. The cost

per unit for Year 1 is $36.83. A capital cash purchase of $9,000 is required. Cash at ending of a

3-year period is $71,200.

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Marketing Proposal for Cerner

There are many benefits to implementing Cerner. Unlike the paper medical record, the

EHR has features that will streamline the workflows and make it more efficient for the end users.

Providers will have the support tools like the Clinical Decision Support (CDS) and

Computerized Physician Order Entry (CPOE) functionalities. Nurse practitioners are able to

view patient’s previous encounter notes, problem lists, past medical histories, and also

electronically prescribe medications for their patients. Medical assistants can effortlessly access

patient laboratory and radiology results when preparing the patients’ charts for the providers. The

billers can easily generate reports for accurate coding and improved claim submission. The

receptionists can manage and book patient appointments online. Patients have access to their

medical record via the patient portal where it is easy to use and is perceived as having value as

Andrews, Gajanayake, and Sahama (2014) pointed out. Patients can be in more control of their

own health and have better communication with their providers via secured messaging.

Cerner has the most profitable market opportunity based on the market analysis. The

analysis showed that the price, ease of use, and functionality are rated as medium compared to

other vendors. The EHR allows multiple staff to access to the patient’s chart at the same time. It

reduces duplicate ordering in radiology, laboratories, and medications. The Computer Decision

Support System (CDSS) provided evidence-based recommendations during the e-prescribing

process on prescription costs. A retrospective cohort study found that the average cost for new

and refilled prescription was lower in the intervention group (O’Reilly, Tarride, Goeree, Lokker,

and McKibbon, 2012). This functionality is a step toward reducing the cost of drugs.
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Heartland Heart is a small primary care practice with two locations in the community.

Each site will have a Nurse Practitioner (NP) as the champion. The NP will advocate on the

functionalities of the EHR such as the clinical decision support, computerized physician order

entry, and the health information exchange capabilities to the staff.

Cerner’s vendor will meet with Heartland Health’s leadership and provide an outpatient

visit demonstration using the EHR. The vendor will show the functionalities and capabilities that

Cerner can provide. The vendor will also get feedback from their consumers by conducting a

simple survey. As D’Andrea (2018) pointed out, the best way to get your customer’s perspective

on the product, it prices, quality, and their purchasing decision is to simply ask them.

Tracking the results of successfully implementing Cerner’s EHR is done by looking at

the return on investment. The report function will allow the manager to extract data on numbers

of patients seen by day, month, quarter, year, type of visit, or even by specific provider. To

attract patient customers, the EHR’s patient portal allows patients to have access to their own

medical record that engages patients in their own health care. In addition, they can use secured

messaging to communicate with their providers without having an office visit. Haun, Patel, Lind,

and Antinori (2015) pointed out that patients who used secured messaging found it useful and

time-saving when completing tasks such as medication refills, managing appointments, receiving

test results, and addressing health-related questions via secured messaging.

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References

Andrews, L., Gajanayake, R., & Sahama, T. (2014). The Australian general public’s perceptions

of having a personally controlled electronic health record (PCEHR). International

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http://dx.doi.org/10.1016/j.ijmedinf.2014.08.002

Bates, D.W, Ebell, M., Gotlieb, E., Zapp, J., & Mullins, H.C. (2003). A Proposal for Electronic

Medical Records in U.S. Primary Care. Journal of the American Medical Informatics

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https://doi-org.sandiego.idm.oclc.org/10.1197/jamia.M1097

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record. PM & R, 9(5), S4-S12. doi: https://doi.org/10.1016/j.pmrj.2017.02.007

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