Decision making process for clinical IT investments in a …€¦ · · 2015-05-15Johanna...

Johanna Lamminen, May 11, 2015, SoTeTiTe

Decision making process for clinical IT investments

in a public health care organization – contingency approach to support the investment decision

process

Johanna Lamminen, Lic. Sc.(Tech.), Tampere University of Technology, Industrial Management

Heikki Forsvik, M.Sc. (Eng.), M.D., Ph.D., Tampere University of Technology, Signal Processing

Ville Voipio, D.Sc. (Tech.), Tampere University of Technology, Signal Processing

Lasse Lehtonen, M.D., Ph.D., LL.D., Hospital District of Helsinki and Uusimaa


Structure of the presentation

1. Motivation of the study

2. Contingency Theory

3. Contingency Theory in health care

4. IT investments in health care

5. Case description

6. Results

7. Next steps


THE MOTIVATION OF THE STUDY

Why has this study been carried out?


The motivation of the study

Health care organizations are lacking a clear decision-making

framework in IT investment decisions.

� We need a practical tool which ensures the performance of

an investment and takes both financial and non-financial

factors into account.


CONTINGENCY THEORY

One possible theory to be applied


The contingency theory

• Fundaments of the contingency theory:

• No one best way of organizing or leading a company.

• The optimal way of organizing or leading is contingent upon the

internal and external situation.

• Variables might have a role designing a management accounting system

• internal variables: organization’s strategy, culture, technology, structure and size

• external variables : organization’s operating environment.

• Originally, the contingency theory was formulated to be used as a test of a decision-making model.


Contingency theory in decision-making

• The contingency approach is not commonly applied into the

study of decision-making

• it is chosen to be evaluated due to its main proposition

that structure and process of an organization must fit its

context in order to be effective

• Contingency theory brings up a discussion about a specific

situation

• including the amount of relevant information and decision

quality and acceptance

• the theory acknowledges the complexity and uncertainties

behind decisions


CONTINGENCY THEORY AND

HEALTH CARE

Can it be applied, has it been applied?


Earlier study

• Pizzini (2006) tested the relations between managers’ beliefs

about cost data and actual financial performance,

• the absolute level of cost-system functionality

• the extent to which cost-system functionality is aligned with a hospital’s strategy, structure, and environment.

� There is a positive correlation between the managers’ evaluation of the relevance and usefulness of cost data and the extent to which cost-systems can

• provide greater cost detail,

• better classify costs according to behavior,

• report cost information more frequently


IT INVESTMENTS IN HEALTH CARE

Different aspects of health care IT investments


Cost-centric approach

• Health care organizations rarely use financial analyses beyond cost analyses

• There are several relatively straight-forward cost factors:

• hardware cost

• software cost

• availability and cost of data networks (e.g. broadband and mobile)

• ongoing maintenance costs

• Cost analyses (CxA) used in the health care sector:

• CMA: Cost-Minimization Analysis

• CBA: Cost-Benefit Analysis

• CEA: Cost-Effectiveness Analysis

• CUA: Cost-Utility Analysis


Dimensions of the CEA1

1Martikainen, 2008


Non-trivial factors

• There are other financial factors which are difficult to evaluate, such as:

– ongoing development of technology

– present level of standardization

– interconnectivity between IT systems

• There are also non-financial factors associated with the clinical IT systems, such as:

– factors related to the health care outcome (e.g. patient comfort, equality of care)

– organizational factors (e.g. willingness to adopt new technology)


Investing in information technology

• Factors to be taken into account:

• financial, technical, and functional aspects

• social obligations and impacts

• Evaluated on the basis of the type of objectives or the problems addressed:

• infrastructure requirements

• operational performance objectives

• strategic objectives

• Evaluation methods can be divided into:

• formative-summative

• objectivist-subjectivist


CASE DESCRIPTION

How well would contingency-based decision-making have performed

with a real-world case?


Hypothesis

The investment decision-making process for a clinical IT system in a

public health care organization is positively correlated to the concept of

contingency fit which is comprised of three independent variables:

1. Strategic priorities: external variables including health care

legislation, politics

2. Organizational configuration: internal variables including

organizational culture, the role of public organization, the state of

existing technology at the time of the final investment decision

3. Internal management accounting systems: non-profit

organization, cost-benefit analysis


HUSLAB’s digital ECG system

• HUSLAB purchased a digital ECG recording, analysis, and storage system in 2008.

• At the time HUSLAB carried out some 240 000 ECG examinations a year and over 200 ECG recording devices were in use.

• As it was not possible to determine in advance the legal and economic conditions, or exact technical specifications of the system, Public Procurement Act § 29 (competitive dialogue) was applied.

• Vendors who were able to provide interfaces with existing systems were chosen.

• During negotiations, vendors were able to present the Hospital District with systems meeting the requirements set by the project management


Decision-making for clinical IT investments


RESULTS

Which factors would have been taken into account if the decision had

meen made by applying the contingency theory?


The relevant variables

A set of relevant variables (variables which should have been taken into account if the contingency-based approach had been applied) was identified:

• Externalities:

– legislative pressure which enabled the organization to renew its present system

– process redesign resulting from the acquisition of the new system

• Organizational culture:

– environmental factors–both political and legislative–drove the need

– organization itself had a major impact on the decision

– organization’s culture had a palpable influence over the degree of innovation for providing health care services

• Technology:

– better integration due to the new open application interface

– important role of standards


Conclusions

• The Contingency Theory found a relevant set of variables to

consider in the decision-making process.

• The set of variables mostly coincides with the actual

parameters considered in the decision-making process.

• The actual acquisition process emphasized cost factors more

than the Contingency Theory approach would have done.


Model for economic evaluations

• We suggest a modified formula for the net present value to be

used in economic evaluations:

where the “standard” NPV variables are:

I – the actual cost of the required investment,

N – number of years to take into account,

Rt – net cash flow on year t (excluding initial investment), and

i – discount rate

the modification to account for contingency variables:

α – possibility for the system to be integrated into the present and future

environments (α ≥ 0),

β – factor describing the level of IT technology (β ≥ 0),

δ – the strategic fit of the required investment (0 < δ ≤ 1)

“Good contingent fit

for the organization

makes the investment

smaller”


NEXT STEPS

Looks good, but deserves a closer look


Next steps

• Contingency theory should be further tested on cases in

which the independent variables are not aligned

symmetrically, to

• gain more insight into how the variables interact with one

another under less than optimal conditions

• have the opportunity to scrutinize the role of individual

agency more closely.

Decision making process for clinical IT investments in a …€¦ · · 2015-05-15Johanna...

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