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Title: |
A Simplified Financial ROI for an
Ambulatory CPR
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Summary:
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Most healthcare CIOs have struggled to provide tangible benefits to
demanding CEOs and boards, when asked to justify the exorbitant cost of
computer-based patient record initiatives. Using one physician's example, it
might be possible to quantify an ROI after all.
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Core
Topics: |
Healthcare
IT Drivers and Strategies ~ Industry Applications
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Primary
Key Issue:
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How
will IT reshape healthcare business processes, relationships and models?
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Strategic
Planning Assumptions:
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HCOs
that implement proven ambulatory CPRs in their physician offices by 1999 will
have realized an ROI greater than the cost of the system by 2001 (probability =
0.8).
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Introduction:
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Most HCOs have
acknowledged the need to address healthcare's overwhelming information intensity
by deciding to invest in computer-based patient record (CPR) initiatives. The
ultimate objectives are to improve clinical quality and patient satisfaction,
and to lower the cost of care. Despite many vendors and analysts (see
SPA-05-7373, 25 Aug 1998, "Nonclinical Benefits of the CPR) espousing the
theoretical financial benefits of a CPR implementation, however, very few
demonstrable examples have been celebrated.
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Problem:
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Without integrated
outcomes applications available to quantify improved clinical results or patient
satisfaction, many HCO executives are either reluctant to make large investments
in CPRs, or frustrated by a perceived lack of return on the money they have
already spent.
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Objective:
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One physician in
California realized that by automating his patients' charts in his solo practice
clinic, he could realize both tremendous cost savings and increased revenues.
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Approach:
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The primary care
physician selected and installed the ambulatory CPR offering from Med-Works (MedInformatix),
a Los Angeles-based vendor. He then developed baseline cost and revenue
assumptions, and monitored improvements in his practice over an 18-month period.
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Results:
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The doctor cited the
following cost savings:
1. $200/month on
physical chart savings - $2/each for supplies x 100 new charts/month
2. $1,000/month on
transcription services no longer needed
3. $2,250/month on staff
time related to physical chart manipulation - 6 hours/day on cutting, pasting,
pulling and filing charts x $15/hour salary x 25 work days/month
Total savings:
$41,400/year for a single practitioner.
He then explained his
revenue improvements:
1. He is seeing one
additional patient per hour because of faster information retrieval and
documentation.
2. The average office
visit generates $60 in revenue.
3. He sees patients 45
hours per week, four weeks per month.
Total revenue increase:
$129,600/year.
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Critical Success
Factors/Lessons Learned:
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While it may not be
realistic to expect these types of dramatic cost savings and revenue
improvements from all CPR initiatives or all physicians, the estimating
assumptions and realized benefits are certainly reasonable in a controlled
ambulatory setting. However, the ROI is very unlikely to be linear; the more
physicians, the more complex the implementation, and the more costly the system.
Also, with a sample size of one physician, we are unable to gain insight into
the larger potential return - the economies of scale and improved clinical
quality from physicians sharing patient information across multiple care
settings.
Still, if an HCO
modified the assumptions to a much more conservative level, say $10,000/year
savings and $25,000/year increased revenue per physician, the enterprisewide
financial impact could be enormous. The 1998 GartnerGroup IDS survey reported
that the average IDS employs over 100 primary care physicians (PCPs). If an IDS
with 100 PCPs were to implement a fully-functional ambulatory CPR in each of its
doctors offices, this more conservative scenario could generate annual revenue
increases of $2.5 million and cost savings of $1 million. Of course, this
assumes that the IDS would be able to ensure full CPR acceptance and usage, and
that all of its physicians would realize the improved efficiencies. Still, the
potential implications are staggering, and certainly worth the investment.
It should be noted that
the technical challenges and political barriers to implementing a CPR are far
less in a physician office setting than in an acute care setting. As a result,
many HCOs are shifting their initial emphasis on CPR deployment to their
ambulatory care networks, where demonstrable vendor solutions are far more
plentiful than in hospitals. Ultimately, we expect the largest vendors' R&D
investments to pay off in truly integrated, enterprise CPR products. In the
meantime, it would behoove HCOs to consider taking advantage of the tangible
ROIs available in the office setting.
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Bottom Line:
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It may be possible to
justify the cost of an ambulatory CPR based solely on financial returns after
all. Even using a conservative extrapolation of one doctor's savings and
increased revenues, an HCO may be able to pay for its ambulatory CPR many times
over. HCOs that implement proven ambulatory CPRs in their physician offices by
1999 will have realized an ROI greater than the cost of the system by 2001
(probability = 0.8).
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Acronym Key:
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CPR - computer-based patient record
HCO - healthcare organization
IDS - integrated delivery system
R&D - research and development
ROI - return on investment
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