FEATURE STORY

Ben MelsonRandy ThomasLynn Harold Vogel

returns, not burnshow to ensure successful health IT investments

When it comes to investing in health IT, one rule isparamount: never proceed without clearly articulatingthe types of financial and nonfinancial returns youexpect to achieve.

in*vestFunction: veri)

1: to commit (money) in order to earn a financial return2: to make use o\ for future benefits or advantagesMerriam-Webster Online Dictionary

Whenever you make an investment, whether it'sconstructing a building, purchasing an MRI.building a newcath lab, or selecting a new infor-mation system, you should expect some type ofreturn, indeed, most hospital leaders regard thesize ofthe potential return as one ofthe primaryconsiderations in setting investment priorities.

Investments in health IT pose a particular chal-lenge, however, because it's hard to know exactlywhat kind of returns to expect, how extensive theymight be, and how long it will take to achievethem. The uncertainties surrounding the poten-tial returns on any major investment in health ITare enough to make hospital leaders hesitate totake tbe plunge.

Still, the reasons for investing in health IT arecompelling. The technology can improve health-care effectiveness and efficiency by enhancingthe workflow of physicians, nurses, and otherclinicians. And because of its ability to enhancepatient safety and reduce costs, health IT has

been hailed by the president. Congress, andindustry leaders as a critical element in tbeformula to "save" the U.S. healthcare system,

Tbe problem is negotiating the right path toachieve such results. Implementing an advancedclinical computing solution, sucb as computerizedphysician order entry or a nursing documenta-tion system, in a way that actually promotes moreeffective and efficient health care, requires astnictured, disciplined approach. And it typicallyrequires that most of a hospital's staff members,including physicians and nurses, fundamentallychange the way they perform their work.

What Kind of Return Should You Expect?

In general, the returns you should expect from ahealth IT investment should be measurable andachievable. Such returns migbt include improvedpatient safety and throughput, increased laborproductivity, enhanced revenue, and improvedworkflow processes. Identifying the specificreturns to expect from a given project can hechallenging, however, because not all health ITinvestments are alike—even ifthe purpose issimply to automate manual processes.

For example, measuring the returns on an invest-ment in a patient accounting system capable ofprocessing large volumes of structured transac -tions may seem relatively straightforward—bringin the computers, and you reduce staff working inthe patient accounting area. The financial effectof the staff reductions can be measured directlyand easily.

JANUARY 2005 healthcare financial management

But what about measuring tbe financial effects ofgenerating a more accurate bill, or of sending itmore quickly? How do you measure the financialbenefits of improved patient satisfaction resultingfrom a better managed billing process?

Measuring the financial benefits of IT systemsthat automate work processes in clinical depart-ments such as radiology, clinical lahorarory, andpharmacy poses a different challenge. Here, too,you can anticipate tbe effect of staff reductions.But it's not so easy to measure the financialeffects of improved inventory management andtrackingtbe flow of products, sucb as films, spec-imens, or medications. Also difficult to measureare the benefits of improved satisfaction ofpbysicians who are able to view clinical data muchmore quickly and easily, and of patients whoreceive faster responses from tbeir physiciansbecause the data are more readily available.

Moving up the ladder of IT investment complex-ity, many providers are investing in enterprisewideclinical systems, such as computerized pbysicianorder entry or bar coding at tbe point of care,which focus on improving quality and patientsafety—an important, but even more difficult,return to measure.

Other types of IT investments, such as clinicaldocumentation systems, may enable nursing staffto be more productive. But the new system mayonly free nurses to perform important tasks thathad previously been left undone. So instead ofnursi ng staff reductions, tbe financial benefitmaybe higher quality nursing care. Such returnsare indirect, accrue overtime, and involve multi-ple interdependencies. Installing a clinical sys-tem tbat enables staff to better document theiractivitiesonbehalf of patients, for example, mayreduce costs of malpractice insurance premiums,hut the actual premium reduction may be fiveyears out.

1 mproved employee satisfaction as a result of abealtb IT investment can also result in cost avoid-ance—a kind of return. Tbe University of TexasM.D. Anderson Cancer Center in Houston, for

example, estimates the cost of hringinga newemployee "up to speed"—including orientation,training, and the time required for tbe newemployee to become fully productive—is about$30,000. But how do you track and record the$30,000 "savings" for each employee who decidesto stay? It's difficult, if not impossible, to measurethe degree to which improved job satisfaction dueto an IT investment will determine an employee'sdecision to stay.

In short, reducing employee turnover obviouslycan be a real and measurable benefit, especially ina service industiy with high-stress jobs. But in theanalysis of potential returns conducted to justifythe investment, there's no practical way to accounlfor that benefit in terms of specific doiiars.

Choosing the Right Metrics

One of the touchstones for success of a healtb ITproject is identifying the key metrics that willdefine success—along with tbe process and timeframes for measurement. It's crucial tbat a dis-crete set of metrics he identified at tbe onset.These metrics should include quantifiable finan-cial returns in addition to "softer" types ofreturns that may yield financial benefits down theroad but are barder to measure. Improvedemployee satisfaction, for example, could beidentified based on changes from an establishedsatisfaction baseline.

Consider, for example, the following metrics thatcould be identified to assess the returns from acomputerized physician order-entry system.

Reduction in duplicate lab orders. Measure the rate

of orders before and after implementing CPOEfor a specific unit, and use the time incrementbetween orders that are the same to determinewhether orders are duplicates. Dollars saved canbe calculated based on the cost per test and tbereduction of duplicates.

Reduction, in turnaround timefor pharmacy orders.

Measure the time it takes from when a physicianorders a medication to when it's administeredto the patient, before and after CPOE

AT A GLANCE

With many types offinancial investments,the hospital financialcommunity has long-established, and rela-tively straightforward,practices for project-ing and measuringreturns. Not so withhealth IT investments,however, wherereturns can be diffi-cult to identify andquantify and evenharder to track. Yetthe success of such aninvestment dependson measuring thereturns—whether theybe tangible or intangi-ble, short-term orlong-term—becauseeffectively trackingreturns is the onty wayto be sure of achievingthem.

h fm JANUARY 2005 51

FEATURE STORY

THE STEPS TO ITIMPLEMENTATION

To find out more about

how to successfully

implement a health IT

system, see also

"Way to Go Live: A

Framework lor New IT

Implementation," by

Joseph E. Addiego III,

on page 6 8 of

this issue.

implementation for a specific unit. Although thefinancial return is indirect and the effect onquality of care is difficult to measure (theassumption being that speedier interventionsresult in a better therapeutic response for tbepatent), the improvement in efficiency is a real,and measurable, benefit.

Elimination of medication order transcription in the

pharmacy. Measure the time spent on medicationorder transcription before CPOE implementationand after eacb unit goes live with CPOE. The timespent should decrease to zero, eventually result-ing in reduced staffing requirements.

Redaction in days in accounts receivable. Measure

the days in A/R before and after implementation.Improved access to timely pbysician orders anddocumentation by the medical records depart-ment may improve and speed up coding, therebyreducingtbe days inA/R attributable to tbisdepartment.

Reduction in the lag time (in tiays) between a phrsi-

cion order and the time of hilling. Compare the lag

times before and after implementation, andbetween departments. A well-installed CPOEshould significantly reduce this lag time. Thecomparison of lag times also can help identifysubstandard processes, allowing them to be actedupon quickly.

Reduction in lost charges. Audit charge capture

before and after CPOE implementation. Thismetric shoidd be significantly reduced witbCPOE, as cbarge capture reconciliation processeswill most likely he automated, witb exceptionsquickly identified and resolved.

Other metrics for evaluating the return on aCPOE system might include improved physiciansatisfaction, reduction in insurance denials dueto physician documentation on orders, andimproved data on physician productivity.

Dealing with Change

Ensuring a project achieves the initially projectedfinancial returns becomes a management

challenge as the project gets under way.Perceptions and assumptions about an IT projectcan change almost from the start, and the invest-ment returns initially identified for an IT systemcan change as well. Such changes are likely tooccur as you learn more about the system's actualcapabilities in yoxir environment and discoveradditional, unforeseen benefits. Always bewilling to reexamine your initial assumptionsabout the projected return on investment, andmake adjustments as necessary.

Avoid the pitfall, however, of allowing tbe focus toshift from tracking the initially projected retxirnsto negotiating a continually changing "path to thedollars." in which the projected returns changewith every unanticipated turn. Even if you mustmodify the initial model, you should continueidentifying and measuring the initially projectedreturns from the IT investment. To this end, it'shelpful to keep to your original set of metrics. Youcan always add metrics as the systems additionalunanticipated capabilities become apparent. Forexample, your focus for implementing a positivepatient identification .system for bar-coded bed-side medication administration migbt be reduc-tion of adverse drug events. However, you mayrealize overtime that tbe system has the addedbenefit of improved patient satisfaction becausepatients feel safer.

The challenge of monitoring progress on a healthIT investment highlights ihe difference betweensuch an investment and most business ventures.If you are a CFO and are considering investing ina business venture, it's customary foryou to pre-pare a pro forma statement. Ifthe pro formadoesn't look good, or if tbe venture doesn't meas-ure up to the pro forma early on. you probablywould not hesitate to discontinue the venture.Once an IT investment is under way, however, it'slikelyyou will have changed organizationalprocesses, trained as many as several hundredpeople to change their behaviors, and investedseveral million dollars. There's no easy way to calla halt to such a project. Although it's not out ofthe question to simply stop the investment, manyhealthcare organizations find such a decision too

52 JANUARY 2005 healthcare financial management

FEATURE STORY

ACTION STEPS FOR HEALTH IT INVESTMENT SUCCESS

Four steps are key to eHectively defining and measur-

ing return from a health IT investment.

Define specifically what you expect from the investment.Are you looking simply for staff reductions? Improvedproductivity? Tfie ability to produce a better productor offer a higher quality service? A reduction in liabil-ity or risk in the products or services you currentlyoffer? In some cases, returns that cannot be easilymeasured quantitatively may nonetheless be ihe mostimportant returns to consider.

Evaluate returns using the most appropriate metrics.Such metrics may be easy to track, such as staffreductions. But it's also important lo identify metricsfor measuring intangible benefits, such as improvedphysician satisfaction and reduced employeeturnover. Also, be sure to include both short-termand long-term returns, because an IT investment,If managed properly and accompanied by appropriateorganizational and workflow changes, almost invari-ably takes time \o have an impact,

Make the evaluation of returns and change managementan integral part ofthe project management and reportingprocess. As the project proceeds and you learn moreabout the new system s capabilities, consider whetheradditional returns should be expected or the tinneframefor achieving a return should be changed. Are staff whoare being trained to use the system discovering newways to perform their work more productively? Is theinvestment affecting areas that were not initially identi-fied, and is this effect positive or negative?

Retrospectively review your original investment plan andprojected returns. Look back! Not all IT investmentsachieve the type or level of return originally expected,so learning from the differences between expectedand actual returns is important. Make sure that reviewsof past projects are collaborative—the failure of an ITInvestment to deliver expected returns is seldom oneindividual's or department s fault. Use the results of theretrospective assessment not to punish mistakes but toimprove your understanding of what to expect fromcurrent and future IT investments.

painful. They often are more inclined to increasetheir initial investment or simply try to "muddlethrough," in the hope the expected return willcome eventually.

Again, tbe best way to avoid such circumstances isto start witb clearly defined projected returns andto make a commitment to implement all theworkflow changes required to take full advantageof tbe new lechnology. Refocusing implementa-tion efforts on those process changes that directlyeffect tbe project objectives (that is, the metrics)is one of the best ways to get a derailed invest-ment back on track.

The Retrospective ReviewIt s good business practice always to perform athorough retrospective review after eacb ITinvestment to determine the extent to whichexpected returns were actually achieved. Toooften, hospitals fail to ask objectively, "Was thisproject really worthwhile?"

To ensure ohjectivity, it's best to have an inde-pendent third-party perform the review. There'san inherent conflict of interest in having the

returns reviewed by the same people wbo madethe initial investment decision or led tbe systemimplementation. It will be hard for them to shiftfrom the "sales" mode of promoting the project,where they are staking their position on theexpectation of positive returns, to the "audit"mode of assessing whether their assumptionswere correct. In the words of one industryobserver. "It's like having the umpire and thehatter be on the same team!"

Also, as was noted earlier, health IT investmentsoften deliver returns over time. Even after an ITsystem implementation has been completed, thevendor will likely provide updates—sometimes ona monthly, quarterly, or semiannual basis.Sometimes, these enbancements can change tbefunctionality of a system, whicb can affect tbereturn on investment as well. The return oninvestment also may increase as staff membersincorporate the system's functionality into theirworkflow, and their knowledge ofthe system'sfeatures and fimctions increases.

With more complex systems, such as enterpriseclinical IT systems, the project may involve so

LEARN MORE!

To find out more abouthow metrics can beused to measure thefinancial returns froman IT investment, read"Using Metrics toAchieve OptimalROI," hy RandyThomas, in the April2004 issue of Mm(pp. 98-99).

M m JANUARY 2005 53

FEATURE STORY

many long-term intangible benefits tbat it's dif-ficult to determine exactly when the project couldbe deemed a financial success. This challengeunderscores the need to start with a clear set ofmetrics, both tangible and intangible, at tbe outset.

There also is always the risk that tbe retrospectivereview of a completed IT project might lead you toconclude that the returns are insufficient to havejustified the investment in the first place.Unfortunately, being tbe messenger with such aconclusion is often a thankless task. Be sure youalways encourage an honest assessment, withoulthreat of recriminations, and are ready to admitto and leam from mistakes.

The Importance of Accountability

As important as calculating and monitoringreturns on a health IT investment is assigningresponsibility to someone to see that the returnsare achieved. Wlien making this assignment. it"simportant to keep in mind that, with almost aDhealth IT investments, the true souree of returnsis not the !T system itself, but what the systemenahles the organization to do differently.Moreover, these "enabling" effects usually occurin tbe business or clinical areas of tbe organiza-tion, outside tbe IT department. For this reason,accountahility for investment returns shoiUdalmost never reside with the IT departmentalone. Rather, such accoimtahUity sbould, in tbevery least, be sbared between tbe IT departmentand representatives from the departmentsaffected by the investment.

Assigning shared accountability addresses aconsideration tbat's of paramount importance:The success of an IT project in achieving itsintended objectives and return depends on howdecisions are made and who is perceived as aproject owner. Certainly, IT staff should he intri-cately involved at every stage, from initial plan-ning through implementation, and ongoing forupdates. But an IT investment that's perceived as"just another IT project," with no buy-in andownership from those who will he using the sys-tem, will almost certainly fail. Thus, ultimately,financial system investments sbould be led by

financial staff, clinical system implementationsled by clinicians, and so forth. Only tben canyouhe assured that return targets will be appropri-ately identified and there will be an ongoing

commitment to achieving them.

Patience and Perseverance

Automating a hospital's ciinicai and administra-tive processes can bring significant financialreturns. You just have to identify wbat you wantto acbieve, set the metrics and mechanisms tomeasure success, balance discipline through thelife of the project witb flexibility to adapt to newopportunities, and objectively review whatworked and what didn't. Remember, the financialreturns associated with health IT projects are notalways immediate and direct—especially witbenterprisewide clinical systems. But that shouldnot stop you from making the commitment totrack progress toward those hard-to-measureintangible returns, in addition to the financialreturns that are easier to measiu'e. In the end,such an effort will raise your entire organization'sawareness of what it means to effectivelyimplement a new health IT system. •

About the authors

Ben Melson

is senior vice president and CFO, Univer-

sity of Texas M.D. Anderson Cancer Cen-

ter, Houston, and a member of HFMA's

Texas GuH Coast Chapter.

Randy Tfiomas

is vice president, Healthlink, Inc., Houston.

Lynn Harold Vogel, PhD,is CIO, University of Texas M.D, Anderson

Cancer Center, Houston; vice president,

Healthlink, Inc., Houston; and adjunct

assistant professor, Department o( Bioin-

lormatics, Columbia University, New York.

Questions and comments about this article may be sent to

Ben Metson at bmelsonS^mdanderson.org.

54 JANUARY 2005 healthcare financlat management