The value of healthcare IT - Special Advertising Section - determining the value of potential investments in healthcare information technology

Healthcare Financial Management, Jan, 2003

Traditional methods of calculating ROI work particularly well with IT applications that automate a previously manual system. "Many of the early IT systems were easy to justify on the basis of ROI because they, in fact, were cost effective. The new, automated system did things more quickly, accurately, and efficiently than the manual system it replaced, and these benefits could be quantified," says Stuart B. Boxerman, D.Sc., associate professor and director of Washington University's Health Administration Program in St. Louis, and co-author of a textbook on information systems for health care. (6) Sidebar provides information on the standard method for calculating ROT.

"Determining and realizing an IT return on investment requires a clinical cultural transformation," says Ann Keillor, RN, EdD, Vice President of Superior Consultant Company, Southfield, Michigan. "The transformation requires standardization, integration, and consolidation of operational processes, services, data elements, key performance indicators, etc. to realize the full opportunity for the return on investment. A first step in this transformation requires organizations to map current clinical processes and identify segments of the current processes that can be supported through technology, therefore realizing a measurable 'substitution effect.'"

Another Approach Needed?

An ROT analysis is not as straightforward with clinical and decision support IT investment opportunities. "Now the opportunity represents an enhancement of some aspect of care delivery. The benefits against which the costs must be compared are highly intangible and difficult to quantify," says Boxerman.

For example, based on the Leapfrog Group's recommendations, many hospitals currently are evaluating investment in a CPOE system. Needing to determine the business impact of such systems, finance departments are trying to quantify such benefits as eliminating misinterpretation of orders due to indecipherable physician handwriting, reduced phone calls to physicians when transcriptionists can't read orders, reduced transcription errors, and reduced administration of incorrect dosages. What kind of numbers should be assigned to these benefits?

Response to this question is critical because the question often proves to be a show-stopping point in ROI analysis. "Information technology must be put through the same kind of analysis as the construction of new hospital beds," notes Jeff Goldsmith. (9) Data must be obtained and projected for benefits such as preventing a medication error-related death or injury. Avoided costs include the cost of compensating the victim of a valid malpractice claim and the cost of corrective medical and/or surgical treatment. Goldsmith encourages financial leaders to consider the cost associated with not implementing a system that will streamline nurses paperwork requirements, for example. "What's the cost of burning out your most experienced nurses with 20 years of tenure who can no longer tolerate working in such a paperwork-intensive environment?" he asks.