The License Is the Smaller Part: A Five-Year Total Cost of Ownership for Two Bed Management Options
Student Name
American College of Education
HLTH5643: Information Systems Management for Healthcare Administrators
Module 6 Assignment
Instructor Name
October 9, 2028
Why the Quote Is Not the Price
Module 3 scored Option B, a standalone bed management product, at 92.2 percent against the hospital's requirements and Option A, the capacity module from the electronic record vendor, at 80.4 percent. The steering committee agreed to accept Option B only if its full five-year cost was no more than 20 percent above Option A's. The vendors' quotes cover subscription fees and implementation services, but they leave out much of what the hospital would actually spend: interface work, devices, staff time for training, go-live support, ongoing analyst time and the replacement of hardware during the contract.
Evidence from electronic record adoption shows how large those other costs can be. Fleming et al. (2011) estimated that for an average five-physician primary care practice, implementation cost about $162,000, with $85,500 in maintenance during the first year, and that implementation teams needed 611 hours and end users 134 hours per physician to prepare. A system's price is everything the hospital will spend because it bought it, for as long as it keeps it.
Assumptions
The analysis covers five years from contract signature, matching the length of both proposed contracts. Internal staff time is valued at its loaded cost: $85 an hour for interface and analyst work and $46 an hour for clinical and support staff. Both options use the same 60 hospital-issued mobile devices for environmental services and transport, at $650 each, replaced once in year four. Both require a quarter of an analyst's time for ongoing support, about $28,000 a year, and a project manager for half their time during the eight-month implementation, about $52,000. Go-live support, including super users' extra shifts and the command center, is estimated at $48,000 for either option. Present values use a 5 percent discount rate, the rate the hospital's finance department uses for capital decisions, with year one costs undiscounted.
Option B: Costs
Option B's one-time costs total $377,800: vendor implementation services of $145,000; a vendor interface fee of $30,000 and 320 hours of internal interface work, $27,200; devices, $39,000; training staff time, $36,600, as calculated in the implementation plan; go-live support, $48,000; and project management, $52,000. Its recurring costs begin with a subscription of $118,000 in year one, rising 4 percent a year to $138,043 in year five. Other annual costs total $46,620: interface maintenance of 80 hours, $6,800; a device management license, $4,320; analyst support, $28,000; and training for new staff hired to replace those who leave, estimated at $7,500 a year given the hospital's turnover.
Adding these by year, Option B costs $542,420 in year one, then $169,340, $174,249, $218,354 including device replacement and $184,663. The five-year total is $1,289,026. Nearly 58 percent of that total, about $746,600, falls after the first year.
Option A: Costs
Option A's one-time costs are lower, at $275,200, because it needs no new interface: implementation services of $95,000; devices, $39,000; training staff time of $41,200, higher than Option B because housekeepers need more time on screens designed for clinicians; go-live support, $48,000; and project management, $52,000. Its subscription begins at $96,000 and rises 3 percent a year to $108,049 in year five. Its other annual costs are higher, at $66,500, mainly because the record vendor charges $240 a year for each of 107 nonclinical users, $25,680, in addition to device management, $4,320, analyst support, $28,000, and new-staff training, $8,500.
By year, Option A costs $437,700, then $165,380, $168,346, $210,402 and $174,549, for a five-year total of $1,156,377. About 62 percent falls after the first year, a higher share than Option B, because its savings are concentrated at the start while its user fees continue.
Comparison and Stress Test
Over five years, Option B costs $132,649 more than Option A, 11.5 percent above it, or about $26,500 a year. In present value terms, $1,202,290 against $1,073,255, the difference is 12.0 percent. Both are within the committee's 20 percent tolerance. The difference is far smaller than the quotes alone suggested: Option B's subscription and services are about 30 percent higher over five years, but Option A's nonclinical user fees and additional training close much of that gap.
The estimate could be wrong in ways that favor Option A. The two largest risks for Option B are its price increases and its interface. Its contract, as drafted, allows annual increases of up to 7 percent rather than the 4 percent in the proposal; at 7 percent, the five-year subscription would rise by $39,461 and Option B would be 14.9 percent above Option A. If the interface work also took twice as long as estimated, 640 hours rather than 320, Option B would be 17.2 percent above. Even with both risks realized, Option B stays within the tolerance, though with little room left, which is why the contract terms below matter.
Costs That Appear Only If the Hospital Lets Them
Some costs depend on the hospital's own choices. The most important is running old and new processes side by side. Adler-Milstein et al. (2013), projecting five-year returns for 49 community practices adopting electronic records, found that the average physician would lose $43,743 and that almost half of the practices did not realize savings on paper records because they continued to keep them. The equivalent risk here is that supervisors keep the whiteboard, or a new private spreadsheet, alongside the system, so that the hospital pays for the system without gaining the time it was bought to save. The implementation plan's retirement of the old tools on day three is therefore part of protecting this estimate.
The other choice-dependent cost is leaving. If the hospital changes systems after five years, it will need its historical bed and throughput data. Option B's draft contract charges for data export at the end of the term; Option A's data remain in the electronic record. An exit cost has not been added to either total, but the contract terms address it.
Contract Terms and Recommendation
The committee recommends Option B, on three contract conditions that keep its cost within the estimate: an annual subscription increase capped at 4 percent for the full five-year term; a fixed vendor fee for the two-way interface, including rework if the vendor's own software changes; and export of all hospital data in a standard format at no charge at the end of the contract. If the vendor will not accept the cap on increases, the committee should return both options to the steering committee, because Option B's margin under the tolerance would then depend on the interface estimate being right.
At about $26,500 a year more than Option A, Option B buys a higher fit with the hospital's requirements, a single-screen bed view the supervisors strongly prefer and mobile tools housekeepers can learn in less time. Kaplan and Harris-Salamone (2009) identify poor fit between a system and the work it supports as one of the recurring reasons health IT projects fail, so part of what the premium buys is a lower risk of the failure that is most expensive of all: a system the hospital pays for but its staff work around. Whether that premium is worth paying is ultimately the steering committee's judgment, but the analysis shows that it is modest, that it stays within the agreed limit under plausible risks and that more than half of the money for either option will be spent after the first year, which is where the hospital's attention to cost should stay.
References
Adler-Milstein, J., Green, C. E., & Bates, D. W. (2013). A survey analysis suggests that electronic health records will yield revenue gains for some practices and losses for many. Health Affairs, 32(3), 562-570. https://doi.org/10.1377/hlthaff.2012.0306
Fleming, N. S., Culler, S. D., McCorkle, R., Becker, E. R., & Ballard, D. J. (2011). The financial and nonfinancial costs of implementing electronic health records in primary care practices. Health Affairs, 30(3), 481-489. https://doi.org/10.1377/hlthaff.2010.0768
Kaplan, B., & Harris-Salamone, K. D. (2009). Health IT success and failure: Recommendations from literature and an AMIA workshop. Journal of the American Medical Informatics Association, 16(3), 291-299. https://doi.org/10.1197/jamia.M2997
How this HLTH 5643 Module 6 example is structured
HLTH 5643 Module 6 usually prices the whole purchase, including what continues after the first year; your classroom's instructions decide the time horizon and whether a present value is required. This example sets out its assumptions first, then lists one-time and recurring costs for each option separately so each figure can be checked. A five-year comparison follows, with nominal and discounted totals, and a stress test shows how far the costs could rise before the decision changes. The paper closes with contract terms that protect the estimate and a recommendation.
HLTH5643 Module 6 questions, answered
What does HLTH5643 Module 6 usually ask for?
HLTH5643 Module 6 usually asks students to price the full purchase of a health information system, including costs that continue after the first year, such as subscriptions, support and hardware replacement. Many sections expect a multi-year comparison of options. Your classroom's instructions decide the time horizon and whether a present value is required.
What belongs in a total cost of ownership for a health IT system?
Include one-time costs such as implementation services, interfaces, devices, training time, go-live support and project management, and recurring costs such as licenses with their annual increases, user fees, maintenance, analyst support, training for new staff and hardware replacement. Value internal staff time at its loaded cost.
How do I test a cost estimate?
Identify the assumptions most likely to be wrong, such as price increases or internal labor hours, and recalculate the totals with less favorable values. Report whether the decision would change and use the results to decide which contract terms matter most.
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