The Business Value of Information Technology
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Transcript of The Business Value of Information Technology
© 2009 Health Care Information Consultants, LLC
The Business Value of Information Technology
Georgetown UniversityHealth Information Systems
January 20, 2011
James L. Oakes, Jr., PrincipalHealth Care Information Consultants LLC
© 2009 Health Care Information Consultants, LLC
James L. Oakes Thirty years in healthcare information systems and management engineering Extensive experience as an operating manager, vendor executive, and consultant Specializes in helping healthcare providers plan and optimize use of information
resources, systems, and technology to improve clinical, operational, and financial outcomes
Worked with return on investment methodologies and analysis for over 25 years and pioneered the use of healthcare-specific economic analysis of healthcare information technology, including financial, clinical, and decision support
Developed and deployed healthcare value-based planning methodology for healthcare now adopted at a 600 bed regional medical center, a nationally known pediatric referral center, etc.
Served as interim Chief Information Officer in 3 healthcare institutions in financial or operational turnarounds and provided CIO level leadership assistance and development in 12+ others
Assisted in the development of a business case and pilot methodology for a community-wide health information exchange initiative (HIE) and recently completed planning and implementation options for a statewide HIE
Co-authored the recently released book, Return on Investment for Healthcare: Maximizing the Value of Healthcare Information Technology (HIMSS 2003 book of the year) advocating the development of a disciplined business case for technology investments
Appeared on the Hospital Satellite Network and spoken at numerous professional conferences, including CPRI, HFMA, SIIM, and HIMSS on such issues as effective governance, value realization, and strategy alignment
Holds a Bachelor of Industrial Engineering and a Master of Industrial Management, both from the Georgia Institute of Technology
© 2009 Health Care Information Consultants, LLC
“The Press Can’t
Tell You What to Think, but They Can Tell You What to Think About…”
John Naisbitt
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Health Care Technology in the 21st Century
• Still predominately paper based
• Systems not interoperable• Slow, expensive
implementations• Increasing public pressure to
“do something”• Continuing economic
pressures• Provisions of ARRA (Stimulus
Act) incent use of IT• Many provisions of Health
Reform depend on its use– Best practices– Information exchange– Reduction in errors– Standardization of care
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Stimulus Update• First payments made in January 2011• Implementations ratcheting up, but
slowly• Many providers waiting until 2012 for
greater clarity• Risk of losing incentive in out years if
start too soon• ONC estimates 80+% of eligible
providers will participate• CIOs estimate only 15% are ready for
“meaningful use”• Growing number of studies showing
that EHRs do (or don’t) add value• Health Reform is “elephant in the
room”
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Why was the casualty rate so high in the civil war?
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HIT - It is not just technology!
• It is a massive reengineering effort that converts paper processes to digital workflow
• It is about ROI or achieving the benefits from the use of technology in healthcare to gain the full value in:– Quality – Efficiency– Revenue
• Numerous studies have been published attesting of the value of health information technology
• Numerous other studies have been published finding it has little value
• Both are correct!
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IT Strategy Alignment
NecessaryEvil
Cost of Doing
Business
IncreasedEfficiency
IncreasedEffectiveness
CompetitiveAdvantage
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Return on Investment is Essential
Historical measurements have focused on tactical items, but should also focus on strategic goals. A broader focus: Can technology contribute to the bottom line?
$$$
$$
$
Enterprise Level Financial Strategy Marketing Strategy Business Line Strategy Customer Service StrategyProcess Level Work & Process Redesign Functional/Programmatic
TransformationTactical Level Incremental Improvement Automation Benefits (ie, cycle
time reduction, FTE reduction, error elimination)
TraditionalHealthcareIndustryROI
The Economic Value Pathway
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For Example…
• A metropolitan community hospital• Full service medical/surgical• Busy emergency services• Competitive environment• Battle for market share
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Develop a vision for the future….
• Phase in applications in a logical manner• If moving towards a “core vendor” strategy, phase in as
contracts expire• Look for “quick wins” along the way• Recognize that users must see continuing benefits to
support a long term plan• Be prepared to adapt plan as circumstances dictate• Communicate, communicate, communicate!
© 2009 Health Care Information Consultants, LLC
One Organizations Portfolio – Leading to CPOE
UniversalPatient
ID
PatientDemographics
OrderManagement
IntegratedHomeHealth
Radiology LAB Pharmacy
Ad-HOCReporting
Dictation/Transcription Bar Code Scheduling
PhysicianRemoteAccess
ElectronicEKG
Results
ClinicalAlerts
CaseMgmt.
100%Codified
MedicalNecessity
OutpatientAssessments
DocumentImaging
ElectronicSignature
Vital SignsI/O’s
IntegratedMonitors
NursingAssessments
ProblemLists
Today
18 + Months
18 Months
OperatingRoomMgmt.
OnlineMAR
CommonOrderSets
Care Plans
CPOE
OnlineResults
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System Operational
Patient-Centric Information Systems
February 2007
Sequenced orSimultaneousInstallations
Orange Indicates
FY 08Emphasis
1. Business Continuity Plans that provide for Redundant Storage and Communications to ensure constant availability of the systems
2. An adequate number of appropriate user devices connected to a Robust Infrastructure that provides data that is shared (interfaced or integrated) across the continuum of care
3. Common Identification of the Patient across the continuum of care
4. Adequate Technical Support to ensure continuous operation.
Clinics/Ambulatory/Physician
NTierprise PMHealthmaticsEMR
Home HealthHomeworks
TransitionalCare
AccuCare
Home MedicalEquipmentMestaMed
CodingQuantim Coding*
Homeworks
Medical RecordManagement
Affinity*MRI*, MRA*, MRC*
MedicalNecessity
CaremedicLMRP
Billing & Collections
Affinity*, SSI, Medifax MestaMed, Homeworks,
Medware, Zirmed
MaterialsManagementDimension21
PatientRegistrationAffinity Reg*
NTierpriseHomeWorks, Mestamed
OBQS Sentinel
Order Mgt.Viewable Results
Common Order SetsOrder Mgmt*
PathologyMediSolutions AP
RadiologyRMS
LabMedilab
Pharmacy Affinity Pharmacy*
Etreby
ManagementAd-HOC ReportingCrystal Reports
Dictation/Transcription
Precyse Solutions HealthNotes*, SpeechQ
CaseManagement
MIDAS+
Utilization ReviewMIDAS+
OR ManagementORSOS
ElectronicEKG Results
Pyramis
ElectronicSignature**
Quantim e-Sig**
Document Imaging/Storage
EDM*
ED Documentation
& TrackingT-System EV
Picture Archiving& Communication
System (PACS)
McKesson HMINursing
Assessments**Vital Signs
I/O**
Care PlansProblem Lists**
OutpatientAssessments**
ClinicalAlerts**
OnlineMedication
AdministrationRecord**
Integrated PatientMonitors**
(OB, ICU, ER, Telemetry)
Web-basedPhysician
Remote Access**
ElectronicScheduling**
Web-basedViewable Results**
Computerized Provider
Order Entry**
ElectronicMedicalRecord
System yet to be Installed
Legend
The FOUNDATION REQUIRED to make these components into a Fully Functional Electronic Medical Record includes the following:
* Installed Quadramed Product**Planned Quadramed Product
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What Value does the system bring?
ValueAnalysis
Costs• Direct, one-time• Direct, ongoing• IndirectBenefits• Level I• Level II• Level III
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Benefits
• For the CFO– Capital Avoidance– Efficiency
Improvements– Reduced A/R– Denials Reduction– Paper Storage
elimination– Etc.
“Its got room for the kids”
• For the CMO– Improved Registration
Process– Decreased Turnaround
Time– Streamlined Coding– Increased Customer
Satisfaction– Physician Satisfaction– Etc.
“Its got a Hemi”
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Should we invest in this technology?4 Useful Calculations
• Benefit-Cost Ratio• Payback Period • Net Present Value• Internal Rate of Return
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Benefit-Cost Ratio vs. Payback Period vs. NPV vs. IRR
• Measures are complementary• Intended to guide, rather than substitute for,
decision making• None of these measures attempt to account
for intangibles• Particularly useful in comparing alternative
investment opportunities• Never assume that just because numbers are
in a spreadsheet, they are necessarily accurate
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Investment Analysis Example
• Proposed acquisition of a Document Imaging System
• System hardware and software will cost $250,000
• Use of the system will lead to greater efficiencies in the HIM department
• Should we approve the purchase?
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Costs:
Annual Maintenance (3% inflation)
$30,000
None identified
Direct, one time (negotiated with vendor):Hardware/Peripherals $100,000
Software $150,000
Training $35,000
First Year Maintenance $15,000
Direct, Ongoing (negotiated with vendor):
Indirect:
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Projected Benefits: Level 1Year 0 1 2 3 4 5
Microfilm Equipment $ -
$ 100,000
Microfilm Supplies -
15,000 15,450 15,914
16,391
16,883
Copier Costs -
5,000 5,150 5,305
5,464
5,628
ED Printing Costs -
500 515 530
546
563
HIM ED Postage -
7,500 7,725 7,957
8,195
8,441
Marginal Facility Costs
- 17,500 36,050 54,075
72,100
74,263
Autoindexing 36,000 37,080 38,192
39,338
40,518
Total Benefits $ -
$ 181,500 $ 101,970
$ 121,973
$ 142,035
$ 146,296
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Cash Flow - Level I benefits only
($400,000)
($300,000)
($200,000)
($100,000)
$0
$100,000
$200,000
$300,000
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash FlowCumulative Cash Flow
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Net Present Value and Internal Rate of Return – Level I Benefits only
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Level II Benefits
• Process Redesign Across Departments and Functions– IT Enabled Registration and Scheduling:
• Inpatient Registration Process• Outpatient Registration Process• ED Registration Process• Satellite facilities Registration Process
– Document Retrieval Process
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Level III Benefits
• Revenue Cycle– Reduction in unbilled $– Reduction of days in AR– Reduction of denials
• Customer Satisfaction– Faster, more user friendly patient registration– Faster access to billing and payment
information– Increased market share
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Cash Flow - With Level I, II, III Benefits
($500,000)
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash FlowCumulative Cash Flow
© 2009 Health Care Information Consultants, LLC
Net Present Value and Internal Rate of Return – Level I, II and III Benefits
($500,000)
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Net
Pre
sent
Val
ue
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Inte
rnal
Rat
e of
Ret
urn
Net Present ValueInternal Rate of Return
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Comparison of Benefits: Level I, II and III
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
Year 1 Year 2 Year 3 Year 4 Year 5
Level IIILevel IILevel I
© 2009 Health Care Information Consultants, LLC
Intangible Benefits
• Brand Advantage • Competitive Advantage • Management Information • “Catch-Up” To Standard Practice • Stakeholder Satisfaction
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EHR Return on Investment Analysis Example
• Methodology– Interview based approach– Combines industry experience with client specific
environment– Utilizes information gained from multiple sources
• Vendor Claims• Prior studies• Literature review (including Davies Award submittals)• Consultant experience
• Benefits Identified in Four Categories– Revenue– Hard dollar savings – Soft dollar savings– New opportunities
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ROI Analysis – BenefitsBenefit Category FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 TotalRevenueReduced ER Walkouts 93,562$ 190,866$ 194,683$ 198,577$ 202,548$ 206,599$ 210,731$ 1,297,567$ Reduced Denials 125,000$ 255,000$ 260,100$ 265,302$ 270,608$ 276,020$ 281,541$ 1,733,571$ Reduced DNFB 126,891$ 258,857$ 264,034$ 269,314$ 274,701$ 280,195$ 285,799$ 1,759,789$ Copay Collection 250,000$ 500,000$ 510,000$ 520,200$ 530,604$ 541,216$ 552,040$ 3,404,060$ Total Revenue -$ 595,452$ 1,204,723$ 1,228,817$ 1,253,393$ 1,278,461$ 1,304,030$ 1,330,111$ 8,194,988$
Hard Cost ReductionForms reduction 12,857$ 26,228$ 26,753$ 27,288$ 27,834$ 28,391$ 28,958$ 178,310$ SCC Maintenance 40,000$ 81,600$ 83,232$ 84,897$ 86,595$ 88,326$ 90,093$ 554,743$ Logicare Maintenance 16,000$ 32,000$ 32,640$ 33,293$ 33,959$ 34,638$ 35,331$ 217,860$ Keane Maintenance 77,500$ 155,000$ 158,100$ 161,262$ 164,487$ 167,777$ 171,133$ 1,055,259$ Avoided Capital Expense - Dictaphone 275,000$ -$ 275,000$ Total Hard Cost Reduction 645,000$ 335,675$ 995,436$ 1,181,065$ 1,385,226$ 1,412,931$ 1,441,189$ 1,470,013$ 8,866,534$
Soft Cost ReductionReduced RN Charting time 514,239$ 1,049,048$ 1,070,029$ 1,091,430$ 1,113,258$ 1,135,524$ 1,158,234$ 7,131,763$ Reduced RN turnover 39,780$ 40,576$ 41,387$ 42,215$ 43,059$ 43,920$ 250,937$ Reduced infection rate -$ Reduce ADEs -$ Reduced malpractice insurance -$ Pharmacist time (tracking down MD) 59,363$ 121,101$ 123,523$ 125,993$ 128,513$ 131,084$ 133,705$ 823,283$ Total Soft Cost Reduction -$ 573,603$ 1,209,929$ 1,234,128$ 1,258,810$ 1,283,987$ 1,309,666$ 1,335,860$ 8,205,983$
New OpportunitiesIncreased Lab Outreach 137,500$ 280,500$ 286,110$ 291,832$ 297,669$ 303,622$ 309,695$ 1,906,928$ Total New Opportunities 137,500$ 280,500$ 286,110$ 291,832$ 297,669$ 303,622$ 309,695$ 1,906,928$
Total Potential 645,000$ 1,642,229$ 3,690,588$ 3,930,120$ 4,189,262$ 4,273,047$ 4,358,508$ 4,445,678$ 27,174,433$
Additional FactorsMD SatisfactionPatient SatisfactionStaff SatisfactionPatient SafetyCompetitive Advantage
Inflation Rate 2%
© 2009 Health Care Information Consultants, LLC
ROI Analysis – Cost/Benefit ProjectionsFY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14
One Time CostsApplication Software 2,166,360$ 1,444,240$ 3rd Party/Operating SW 428,454$ Hardware 922,697$ 395,441$ Implementation 2,867,514$ 1,911,676$ Out of Pockets 430,127$ 286,751$ Conversions/Interfaces 295,373$ Infrastructure Costs 635,000$ Foundation Costs 155,500$ 773,500$ Total One Time 155,500$ 8,519,024$ 4,038,109$ -$ -$ -$ -$ -$ -$
Ongoing CostsSoftware Maintenance 1,500,210$ 1,530,214$ 1,560,818$ 1,592,035$ 1,623,876$ 1,656,353$ 1,689,480$ Hardware Maintenance 146,460$ 149,389$ 152,377$ 155,425$ 158,533$ 161,704$ 164,938$ Total Ongoing 1,646,670$ 1,679,603$ 1,713,195$ 1,747,459$ 1,782,409$ 1,818,057$ 1,854,418$
Grand Total Cost 155,500$ 8,519,024$ 5,684,779$ 1,679,603$ 1,713,195$ 1,747,459$ 1,782,409$ 1,818,057$ 1,854,418$ Cumulative Cost 8,674,524$ 14,359,303$ 16,038,906$ 17,752,102$ 19,499,561$ 21,281,970$ 23,100,027$ 24,954,444$
Benefits 645,000$ 1,642,229$ 3,690,588$ 3,930,120$ 4,189,262$ 4,273,047$ 4,358,508$ 4,445,678$
Cash Flow (155,500)$ (7,874,024)$ (4,042,549)$ 2,010,984$ 2,216,924$ 2,441,803$ 2,490,639$ 2,540,451$ 2,591,260$ Cumulative Cash Flow (155,500)$ (8,029,524)$ (12,072,074)$ (10,061,089)$ (7,844,165)$ (5,402,362)$ (2,911,724)$ (371,272)$ 2,219,988$
Net Present Value $17,180.07
Discount Rate 4%Inflation Rate 2%NotesHighest cost vendor assumedAssume discounts from RFP pricing as follows:Software 25%Hardware 10%Implementation 20%
© 2009 Health Care Information Consultants, LLC
Things to keep in mind….
• You can’t do everything at once• Not all applications need to be state-of-the-art• Value is in the mind of the beholder• You must decide how far out on the “bleeding
edge” your institution wants to be• A well implemented middle of the road system is
more valuable than a snazzy one that is poorly implemented
• Paper will always be with us?
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Understand Your Institution’s Risk Profile
Conservatives
Pragm
atists
Skeptics
Innovators
Early A
dopters
Ù ChasmÚ
The Healthcare TechnologyAdoption Life Cycle
EarlyMarket
Mainstream
Market
Mainstream
Market
Conservatives
Pragm
atists
Skeptics
Innovators
Early A
dopters
Ù ChasmÚ
The Healthcare TechnologyAdoption Life Cycle
EarlyMarket
Mainstream
Market
Mainstream
Market
Innovators Mainstream Skeptics
TraditionalTechnology
Adoption Curve
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No Longer Supported
Last Generation
State of the Art
Leading Edge
Emerging from the Lab
In the Lab
Num
ber o
f Ins
talla
tions
Time
Credentialing
Physician OfficeManagement
Budgeting
EKG
Billing
PharmacyRadiology
EMR
Lab
RFID
PACS
AutomatedPathways
Voice Activated Systems
AI
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LifeCycleSuccessPlan
Organizations tend to plan extensively for technology acquisition and the resulting implementation. Very few health care organizations plan for success of the technology throughout its entire life cycle
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The IT Value Planning Process:Life Cycle Success Plan
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What about Quality?
• Many processes in healthcare are quality or safety driven, not financial
• Processes may or may not be amenable to financial measurement, but are usually amenable to some form of quantification
• The more specifically a process can be quantified, the more it can be measured – and therefore analyzed and improved
• Specific tools may vary, but the underlying principles are the same
• Different constituencies will perceive value in very different ways, although they may all be looking at the same process
• Quality improvement can be achieved and expressed in a variety of ways…..
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Eliminating Illegibility
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“Technology is just a matter of using the right wrench to pound in the correct screw”