Software to run your medical practice is like any other kind of so-called boxed software. You can buy a license to install it on your computers and the servers on your own network. This can get pricey. Such software can cost anywhere from $10,000 to $50,000 to buy. In addition, most products come with a 20 percent annual maintenance fee, which take care of updates and other issues the vendor is responsible for. You'll also need your own IT staff or computer-savvy person around to make sure your systems operate correctly.

We discuss the basic features of medical practice management and electronic medical records software in The Basics of Medical Practice Management Software.

There's a relative new alternative, thanks to the Internet and widely available high-speed networking. It's known as hosted software, or software-as-a-service (SaaS).

Instead of installing the software on your own hardware, hosted software runs on the vendor's servers. The vendor "hosts" the application and makes it available for users to access through their Web browsers, using secure passwords. All your data is stored at the vendor's site; all maintenance of the software and server hardware, data backups, and tedious details of that nature are handled by the vendor. You just pay your monthly fee depending on your activity level, and maintain the computers on your own desktops in the usual way; there are few extra costs.

Whether you select a hosted application or software installed on your premises, read our Tips for Success in selecting and beginning to use medical practice software.

One big advantage to the vendor of offering hosted systems is that it can more quickly add updates to a system it controls. There's no need to pay attention to the PCs in the physician's office, or to the differences in versions of computer operating systems, to ensure compatibility. Because of this efficiency, hosted systems also tend to be cheaper for the customer.

The medical practice using hosted applications finds similar advantages: Upgrades happen automatically, and any glitches are the responsibility of the vendor.

Given the ongoing hassle of updating contracts and payment policies, physicians may want to offload that responsibility to a hosted system, too. The vendor running a hosted system can create a centralized rule database, and work through a claims payment problem that will automatically benefit all its clients.

But there are downsides to hosted applications. If you lose your Internet connection, you lose access to the software. Your vendor, too, may have problems with its server or data center that make the application unavailable just when you need it. Therefore, if you choose hosted software, you should look for a product that includes an offline mode, so even if your Internet connection is lost, you can perform basic tasks, and then resynchronize with the hosted system later.

Security is an issue too, especially in these days of HIPAA requirements for protecting the privacy of patient data. Where does that hosted data live? Who owns it? How can physicians be sure that their patient data is protected from people who aren't supposed to see it? It’s important to quiz hosted vendors on their security policies.

On the other hand, it’s just as important to consider the alternatives. Paper records are no more secure than electronic files. The key to protecting your practice is to make sure that duplicate records are kept in a safe location that is accessible both to the physician and to the hosting service.