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Achieving hi-tech ROI.

Clinical information systems seem to be the "new hot thing" in health care. Their promised benefits are numerous and varied.

* They can improve hospitals' ability to redesign care processes and integrate multiple facilities.

* They can enhance focus on patient safety and reduce adverse drug events.

* They can enable implementation of best care practices such as evidence-based medicine, standardized order sets and clinical decision support.

* They can optimize clinicians' workflow and care processes, to minimize paperwork and improve efficiency and productivity.

* They can bring providers a step closer to an electronic medical record.

* They can facilitate information access and sharing between caregivers.

* Ultimately, they can improve patients' experience and outcomes.

It's no wonder, then, many health care executives plan to invest in a clinical information system. But the upfront capital requirements are significant. And many--if not most--of the purported benefits are not quantifiable. The financial return is far from guaranteed.

So at the end of the day, how do health executives considering a new system convince their boards that investment in information technology is essential? And for those that have already invested in a system, how can they demonstrate and communicate value?

Financial planning principles

By incorporating just a few relatively simple principles into their business planning and accounting, health executives can quantify some of the financial benefits of their technology investments. In brief, health executives should adopt the following approaches:

Be realistic

In forecasting the commitment required for a clinical information system, health executives typically focus on hardware and software costs, and often neglect to account for the other expenditures. They need to look at the "total cost of ownership (TCO)," rather than just the upfront capital required to purchase the system.

As shown below, direct hardware and software actually comprise a small portion of the total costs. The majority of costs, 60 percent, are for process changes required to implement and support the system. Technical applications and hardware comprise only 25 percent of the total costs.


Take a long-term view.

Health executives need to look at a time horizon that is long enough to capture the full range of costs and benefits associated with the system, particularly those that are indirect. A seven-year time horizon is usually sufficient to account for most of the associated costs and benefits. For a $500 million health system, experience shows that the seven-year total cost of ownership is likely to be approximately $75 million.

Look at costs avoided, as well as costs saved.

Health executives typically look at cost savings, which are the benefits that positively impact the bottom line over a projected period of time. They often neglect to consider cost avoidance. These are benefits that reduce, defer or avoid increases in future potential expenditures. Unfortunately, many financial analyses of CIS count avoided costs as true cost savings.

An example of a CIS cost avoidance is length-of-stay reduction and resource utilization related to caring for a patient with a medication error who requires further inpatient observation and treatment.

Without the system, a patient's length of stay and total costs are increased. The hospital is reimbursed under a different drug related group (DRG), with a higher acuity level. So there are no cost savings, per se, from reducing the patient's length of stay.

Rather, by implementing the clinical system and avoiding the medication error, the hospital can avoid incremental costs associated with the longer stay. In many organizations, there are additional opportunity costs related to this avoidance--a new admission could have used that bed and resources.


Cost avoidance is not a reduction in the current expenses of an organization; however, it does impact the future operations of an organization. While there are many cost savings that can be related to implementing advanced CIS, executives must be careful to segregate these types of costs.

Looking beyond the technology

To capture the full benefits that the system has to offer, health care organizations need to redesign many of their core processes. Otherwise, they will simply automate inefficiencies. A clinical information system, taken by itself, delivers a modest--or even disappointing--ROI.

The most significant gains come from the associated redesign of clinical and business processes and redeployment of resources that information technology makes possible. Approximately 75 percent of the value derived from a clinical information system occurs not when IT is purported to be the entire solution, but when it enables and sustains transformational changes in core business and clinical processes.

The financial benefits associated with redesigning core clinical processes while implementing a clinical information system can be significant. Specific areas of opportunity and actual benefits vary by health care organization, but the overall order of magnitude for total benefits is typically in the 3 percent to 5 percent range.

Demonstrating an annual financial benefit of $23.5 million in a $500 million health care organization, for example, goes a long way toward building a strong business case for an implementation project. Sustaining these cost savings throughout the seven-year expected lifetime of the system, and comparing them with the total cost of ownership of the system (hardware, software, implementation/transformation, and support) over the same length of time could result in an ROI of about 2-3 to 1.

Spending the time to look for the best financial opportunities is time well invested. There are opportunities to improve processes throughout the clinical enterprise. Organizations may not be able realistically to address all of these opportunities at the same time, but they should be able to prioritize opportunities and focus on those areas that offer the greatest chance for improvement. From this prioritized list of opportunities, the business case can be constructed.

In addition to the well-accepted qualitative benefits associated with advanced CIS, each of the following areas of opportunity can be evaluated to identify quantifiable benefits that can accrue to the unique nature of your delivery system:

Physician clinical practice

Computerized physician order entry (CPOE) can reduce variation by supporting the systematic adoption of leading practices. It increases accuracy and legibility of patient information and orders, and reduces redundant and unnecessary orders through rules and alerts.

It can promote real-time access to patient information to support informed decisions. It can enhance communication between the multidisciplinary clinical team members. Physician workflow efficiencies and system-wide access to providers' schedules can increase revenues from additional patient appointments.

The maintenance of a single patient record provides clinicians easy access to a patient's full health history, care provided throughout the health care organization, medications prescribed and other clinicians' dictated notes.

These benefits accrue in the inpatient and outpatient settings. In the latter environment, benefits are seen in reduced chart pulls per physician, reduced total transcription costs and improved charge capture and revenue collection.

Pharmacy/medication safety

A pharmacy system can integrate with clinical documentation and CPOE to achieve value from a quality and service perspective, and support the entire medication use process. This enables the design of cost-effective approaches to medication selection and utilization.

Pharmacists have the ability to have a greater focus on patient-specific issues that can provide more opportunities to improve the cost effectiveness and safe use of medications. Standardization and integration of IS applications across the enterprise enable design of enterprise-wide approaches and solutions for patient safety. Improving medication safety can reduce length of stay and prevent an increase in length of stay due to serious patient injuries (cost avoidance and opportunity cost).

Significant process redesign opportunities exist in the medication use process, including reduction of transcription errors and medications administered prior to the pharmacist order review/verification. Process design and probabilistic tools (e.g., failure mode and effects analysis) can "design out" known and potential sources for potential adverse drug events across processes. The ultimate benefits include reduced adverse drug events and a reduction in pharmacy costs.

Care management

Practice standardization of clinical care delivery can support benchmark length-of-stay, cost-per-case, and clinical resource utilization targets across the health system. Patient care is enhanced through electronic communication of information regarding needed length of stay and patient placement at discharge.

A seamless system of risk identification facilitates care coordination. Reduction in length of stay of targeted DRGs provides the opportunity for additional admissions in current services lines and exploration of new service lines.

Capacity management opportunities may also exist to improve productivity, utilization, scheduling and length of stay in the operating room, post anesthesia care unit, cardiovascular operating room, cath lab and pre-admission testing.

A clinical information system with rules and alerts can reduce redundant tests and support leading practice outcomes in reducing preventable errors.

Clinical documentation

Documentation consumes approximately 40 percent of nurses' time. The implementation of improved processes and a clinical system reduces time spent on documentation. This provides increased time available for direct patient care, reduced incidental overtime related to an interdisciplinary approach to documentation, real-time access to patient data by all authorized personnel, increased clinician satisfaction related to ease and usefulness, availability of technology as a recruitment tool, and more accurate and complete charge code capture.

Most health systems can identify benefits in reduced nursing overtime and improvements in nursing recruitment and retention, all of which can be related to dollar savings. A clinical information system allows for significant cost savings opportunities by providing electronic access to health information, reducing manual distribution, assembly, and movement and storage of health records within the enterprise system.

Additionally, the implementation of technology provides for efficient physician workflow and decreases delinquent chart rates and earlier capture of coding and charges.

Patient and revenue management

Health providers can standardize and automate processes for performing accurate and timely insurance verification, pre-certifications, authorizations and re-certifications to significantly reduce clinical denials.

Direct electronic communication with third-party payers can shorten claims turnaround time, improve claims accuracy and increase cash recovery from payers for previously denied claims. Applications that keep abreast of current denial strategies can help further reduce overall denial rates.

The implementation of inpatient and outpatient clinical data management tools facilitates the integration of physicians' workflow into the hospital's workflow process. Coordinated processes for online editing of transcription, electronic signatures, ordering and data lookup promote accuracy, ease of use and usefulness in practice.

It's clear that clinical information systems are rapidly becoming a requirement of doing business in order to meet the quality of care standards demanded in today's marketplace. But implementing a clinical system is a complex and expensive undertaking.

It is important for health executives to consider creating a seven-year total cost of ownership and an appropriately conservative financial benefits analysis prior to or in the early phases of implementing an advanced CIS.

When adequate effort is invested up-front in identifying and quantifying opportunities for financial improvement, and associated clinical processes are redesigned, a clinical system can quickly begin to deliver value and substantial financial benefits.


Discover how to calculate potential cost savings and returns on investment by implementing new clinical information systems.

Robert B. Williams, MD, MIS is a principal in the Cap Gemini Ernst & Young Healthcare Consulting Practice and is based in Vienna, Va. He can be reached by e-mail at


By Robert B. Williams, MD, MIS
COPYRIGHT 2004 American College of Physician Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2004, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Special Issue: Health Care Technology; return on investment
Author:Williams, Robert B.
Publication:Physician Executive
Geographic Code:1USA
Date:Mar 1, 2004
Previous Article:Removing barriers to technology.
Next Article:CPOE primer.

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