With government incentives only offsetting EHR costs by about 15 to 20 percent, providers should not only be prepared to make a significant investment in IT, but should also consider a "radical new approach to IT," say the authors of a new study.

The study was published by management consulting firm McKinsey & Company in its business journal McKinsey Quarterly, and was authored by Francois Laflamme and Nilesh Rajadhyax, associate principals in McKinsey's Chicago office, and Wayne Pietraszek, a principal.

The authors point out that not only do providers have to meet the government's accelerated timetable for achieving meaningful use of these systems before facing fines, but also have to meet new data coding standards with revisions to HIPAA and ICD-10. They estimate that providers should expect to spend around $120 billion, at an average cost of $80,000 to $100,000 per bed, for the required project planning, software, hardware, implementation and training required for this.

But this really should not be a newsflash to hospitals, writes Paul Roemer, managing partner, Healthcare IT Strategy, on the company's blog. "In fact, I think that for more than half of the providers, the ARRA money will not even cover the additional costs of meeting meaningful use, let alone the costs of implementing the EHR," he adds.

Authors of the McKinsey paper say that if providers can make the initial investment in IT they can generate savings later on down the road. They estimate total savings to be in the order of $40 billion annually. According to their research IT could generate savings in a typical hospital of $25,000 to $44,000 per bed a year by optimizing the use of labor, reducing adverse drug events and duplicate tests, and instituting revenue cycle management.

However, authors say this will require "distinctive change-management skills among hospital leaders, better governance, and sustained engagement from key clinicians."

Using examples of hospitals who have already made such IT investments, authors point to three success factors that distinguish the best IT implementations among healthcare providers: governance with real authority, radical simplification of architecture and methodical planning and execution.

Authors say if providers can keep these three factors in mind they "will be well positioned not only to meet their compliance responsibilities but also to lower their operating costs significantly while improving the quality of patient care."

Roemer recommends that providers approach EHR implementation as if meaningful use doesn't exist. Instead he recommends that they come at it with a business perspective, asking how EHR implementation will help them be more efficient and effective.

"If your EHR can help you do these two things, you will meet the other goals, goals like providing better care, reducing the number of errors, saving time, and eliminating processes that add not value. Therein lays the all too elusive ROI," he writes.