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A Tutorial on Activity-Based Costing of Electronic Health Records

Federowicz, Marie H. BSc; Grossman, Mila N.; Hayes, Bryant J.; Riggs, Joseph

Quality Management in Health Care: January-March 2010 - Volume 19 - Issue 1 - p 86–89
doi: 10.1097/QMH.0b013e3181ccbd71

As the American Recovery and Restoration Act of 2009 allocates $19 billion to health information technology, it will be useful for health care managers to project the true cost of implementing an electronic health record (EHR). This study presents a step-by-step guide for using activity-based costing (ABC) to estimate the cost of an EHR. ABC is a cost accounting method with a “top-down” approach for estimating the cost of a project or service within an organization. The total cost to implement an EHR includes obvious costs, such as licensing fees, and hidden costs, such as impact on productivity. Unlike other methods, ABC includes all of the organization's expenditures and is less likely to miss hidden costs. Although ABC is used considerably in manufacturing and other industries, it is a relatively new phenomenon in health care. ABC is a comprehensive approach that the health care field can use to analyze the cost-effectiveness of implementing EHRs. In this article, ABC is applied to a health clinic that recently implemented an EHR, and the clinic is found to be more productive after EHR implementation. This methodology can help health care administrators assess the impact of a stimulus investment on organizational performance.

Georgetown University, Washington, DC.

Corresponding Author: Marie H. Federowicz, 3200 Brunton Dr, Glenshaw, PA 15116 (

This article was completed under the supervision of Farrokh Alemi, PhD, as part of undergraduate “Information Systems” course in the School of Nursing and Health Studies at Georgetown University.

This article was made possible also by the contributions and guidance from the staff of the University of Wisconsin Medical Foundation.

©2010Lippincott Williams & Wilkins, Inc.