Value Measurement and Return on Investment for EHRs
Shepherdstown 18 July 2006Health care provider institutions today are faced with many new challenges, including the need to implement Health Information Technology (HIT) solutions, especially Electronic Health Record (EHR) systems. However, these institutions are also faced with a demand for capital investments outpacing their available funds. This means HIT or EHR projects must compete against other capital investment requests for scarce funds. Senior management teams will need to see the business and quality case that justify the return on investment (ROI) and return on quality (ROQ) before significant financial commitments for health information technology are made.
Until recent years, significant investments in the acquisition and implementation of information technology (IT) and electronic health record (EHR) systems have not been that common in many health care provider organizations. However, the tide has turned and now there appears to be widespread acceptance that health information systems are essential to improve clinical and business practices, and enhance the quality of care provided to patients. A 2006 HIMSS survey indicated that more than 80 percent of hospital and health systems in the United States plan on installing clinical information systems over the next five years.
Measuring Value and ROI
A number of projects in the United States over the past years have specifically focused on measuring value of health IT and have documented the results. There is a growing body of information from vendors and health care professionals now about how to measure the ROI and justify the investment in medical informatics and EHR systems.
Many health care organizations are achieving tangible and intangible benefits by adopting health information technology with clinically focused EHR systems. The benefits include:
- Increased Revenue
- Cost Reductions
- Improved Productivity
- Improved Patient Satisfaction
- Reduced Length of Stay
- Improved Quality of Care
- Improved Medication Safety
- Enhanced Compliance Efforts
- Utilization of Evidence-based "Best Practices"
Return On Investment (ROI) has traditionally been measured by organizations in terms of cost and savings and quantifiable benefits. Their approach towards IT has been to follow the same philosophy used to justify typical capital investment projects. They tended to focus on payback period and total cost of ownership. Unfortunately, measuring actual return on investment (ROI) and financial bottom lines can be difficult, especially in a field such as medicine where it may be hard to put a price tag on such intangibles as enhanced patient safety, improved quality of care, patient trust, and physician recruitment and retention.
As health care organizations begin to evaluate the benefits, value, and/or return on investment (ROI) in health IT, they need to remember a few important things:
- Organizations should look at technology as a "business solution" and not simply as a new tool.
- Measuring the ROI for health IT investment projects must include not only cost and quantifiable benefits, but also intangible or value-based benefits that organizations can derive from such projects.
- Some technology investments need to be considered as a cost of doing business. Organizations will not operate an office without electricity or water. Similarly, they should not operate an office without IT systems in this day and age.
- Implementing a health IT system may not reduce cost but will improve outcomes e.g., a surgical information system may or may not reduce operational costs, but it will result in better patient care outcomes.
- Some technology investments are necessary for compliance with HIPAA and JCAHO regulations, accreditation processes, and other state and federal requirements.
- Organizations should also assess the cost of not investing in health IT. For example, if appropriate tools are not implemented to support patient billing office, it could result in additional staffing, an increase in accounts receivable, and lower patient satisfaction.
- Organizations should look at a longer term vision and strategy when considering the acquisition of an EHR system. Use of the planned National Health Information Network (NHIN) and Regional Health Information Organizations (RHIO) will necessitate the use of an EHR system in order to exchange data with others.
- Finally, while it is important to calculate the expected benefits, it is equally important to measure realization of actual benefits a year or so after the system has been implemented.
Value and ROI Findings to Date
To-date benefits of health information technology have been quantified and documented in a number of areas, e.g. Electronic Health Records (EHR) and Health Information Exchange (HIE) solutions. These benefits have been estimated at a global level, but there are some documented case studies that show benefits achieved by specific organizations. The following points highlight some global level benefits that have been observed in the United States:
Health Information Exchange & Interoperability
- Reduction in redundant tests, reduction in delays and cost associated with paper-based ordering and reporting would result in $31.8 billion benefits per year
- Savings from avoided tests and improved efficiencies - $26.2 billion per year
- Medium-size hospital would accrue $1.3 million benefits per year with improved efficiency in transactions with providers, ancillaries, payers and pharmacies
Benefits of Health Information Technology - A recent GAO Study focusing showed:
- 40 percent decrease in radiology tests resulting in $1 million in savings among the pilot group;
- Reduction in staff with automation of manual processes resulting in savings of over $700,000;
- Savings of $4 million in automated claims processing without manual intervention.
The actual benefits can be summarized as follows:
- It is estimated that over 5 years, EHR benefits will be $86,400 per provider and the benefits will be accrued by several stakeholders such as physician practices, ancillary services, pharmacies and most importantly patients
- Ohio State University Health System reduced the time for getting medication to patients by 65 percent from 5.28 hours to 1.51 hours. They also reduced Radiology turnaround from 7.37 hours to 4.21 hours
- Maimonides Medical Center reported 30.4 percent reduction in average length of stay from 7.26 to 5.05 days. They also realized organizational efficiencies by preventing duplicate ancillary tests
- Heritage Behavioral Health experienced 70 percent reduction in cost of clinical documentation with EHR
- University of Illinois at Chicago Medical Center gained significant benefits in reallocation of nursing time from manual documentation to direct care - estimated to be $1.2 million
- Many errors occur because of handwritten prescriptions that can be easily misunderstood and can result in adverse drug events or complications. More than 3 billion prescriptions are written annually and according to an eHI report, medication errors account for 1 out 131 ambulatory care deaths and many deaths in acute care are also attributed to medication error.
- Studies indicate that the national savings from universal adoption could be as high as $27 billion annually
Computerized Provider Order Entry (CPOE)
- The Center for Information Technology Leadership (CITL) estimates that implementing advanced ambulatory CPOE systems would eliminate over 2 million drug events per year; avoid nearly 13 million physician visits, 190,000 admissions and over 130,000 life-threatening adverse drug events per year and save $44 billion per year.
- Brigham and Women's Hospital in Boston reported 55 percent reduction in serious medication errors and 17 percent reduction in preventable Adverse Drug Events (ADE) - average cost of an ADE was $2,595, resulting in projected savings of $480,000 per year. They estimated net savings from $5 million to $10 million per year.
- Maimonides Medical Center in New York realized 55 percent decrease in medication discrepancies and 58 percent reduction in problem medication orders. They also eliminated pharmacy transcription errors.
- Children's Hospital of Pittsburg has eradicated handwriting transcription errors completely and cut harmful medication errors by 75 percent.
Other Value and ROI Examples - EHR & Group Practices in the U.S.
The following are some brief excerpts from an article entitled "ROI Analysis Critical for Clinics", written by Bill Briggs and published by Health Data Management in October 2005. This excellent article contains story after story of ROIs done by clinics or small practices that have been substantiated. The article states that "Physician decision-makers in small group practices or clinics often rely on hard ROI analysis to determine whether they will come out financially ahead or behind with technology investments". Clinics are often are more cautious than large facilities when making investments that they cannot directly link with their practice. They tend to have "more skin in the game". The biggest difference between small group practices and large hospitals is that "physicians are writing personal checks to buy the technology".
Dr. Kenneth Adler in his article "Why It's Time to Purchase an Electronic Health Record System", (
http://www.aafp.org/fpm/FPMprinter/20041100/43whyi.html) mentions that with the speed of current computers, broadband connections and improved scanning technology, information can typically be filed and retrieved electronically faster than it can be manually. Patient note creation speed has improved dramatically with point-and-click technology, more sophisticated templates and integration of dictation with templates. He claims that savings from implementing an EHR system include the following:
Reduced transcription costs. If you currently dictate your notes, you're probably spending $3,600 to $12,000 per year on transcription. Using an EHR typically cuts these costs by 50 percent to 100 percent.
Savings in paper-chart-related costs. Consider how much of your budget for staffing, supplies, copying, printing and storage is devoted to the care and management of charts.
Improved staff efficiency. With an EHR, staff time currently devoted to searching for charts, entering charges manually, etc. can be devoted to value-added activities or eliminated, thereby reducing overtime charges.
Dr. Adler also states that revenue enhancements include increased income through improved coding, improved charge-entry accuracy, and improved provider productivity:
Coding. EHRs now typically incorporate an automated coding adviser. This feature alone may pay for the system.
Charge capture. Automated charge entry eliminates missed or overlooked charges.
Productivity. With an EHR, provider productivity increases as a result of improved office efficiency. If you eliminate half an hour of paperwork, that's two more patients you could see per day or 30 more minutes you could spend with your family.
The American College of Physicians (ACP) has also put its might behind creating a paperless office for doctors. In April 2004, it released a discussion paper entitled "The Paperless Medical Office: Digital Technology's Potential for the Internist". The paper points out the multiple benefits of automating patient records. "The universal use of EHRs will create a quantum leap in the quality of patient care", Dr. Munsey Wheby, ACP president stated in the paper. See American College of Physicians Backs EHR Efforts by Bernie Monegain, Healthcare IT News, April 26, 2004, for additional insights.
Some other documented case studies show the benefits achieved by physician practice offices. For example:
- Texas-based Omega OB/GYN Associates, a five-physician practice with three locations achieved a $30,000 reduction in office supplies expenses, including labels and file folders, six months after implementing EHR, Gail Burdine, practice administrator "comparing the first six months of this year vs. last year, our production and collections are up 15percent".
- Central Utah Clinic based in Provo, the subspecialty group employing 75 physicians that practice in 10 locations throughout the state, saved $1 million in the first year. It also reduced staff and eliminated transcription costs. Those results basically paid for the system.
- North Valley Family Medicine in Glendale, Arizona, a two-physician practice was able to save up to 500 square feet and allocate it for patient care by omitting the need for paper chart storage space. The practice saved about $18,000 right there.
- Mid Carolina Cardiology in Charlotte, N.C., is a group practice with 45 cardiologists in five locations. After 12 months, returns came flowing in, says Stephen A. McAdams, M.D., CEO. The clinic saved $3,000 per physician by cutting out transcription expenses. It reduced postage by $20,000; medical records staff salaries by $105,000 and paper chart costs by $30,000. There were many other unexpected benefits as well.
According to an article entitled "Physicians Buy In, I.T. Pays Off" written by Lance Helgeson and published by Health Data Management (http://www.healthdatamanagement.com), executives at Columbia Basin Health Association decided to convert their five-clinic, rural health care organization to an electronic medical records system. Columbia Basin's switch to electronic records is beginning to show clear signs of payoff. "They report that physicians now see an average of 25 patients per day, seven more than when the organization's care staff relied on paper records. Patient wait times have been cut from nearly 30 minutes down to 11 minutes." In addition, the electronic medical records system "enables faster links to Columbia Basin's lab and pharmacy, which in turn can provide lab results and prescription orders more quickly to patients".
These types of case studies are emerging every day. Automating physician practice office and implementation of EHR in practice offices is not a choice any more, it is a necessity to stay in business and continue to provide quality care.
Quality of Care, Patient Safety, and EHR Systems
While the potential for measurable cost savings are impressive, the real return on investment comes from the many intangible benefits that we cannot yet accurately measure and translate into dollar savings, e.g. better quality of care, improved patient safety, increased patient satisfaction.
For example, the Institute of Medicine estimates that 44,000 to 98,000 deaths each year result from preventable medical errors in hospitals and other estimates indicated that the number could be closer to 300,000. Each year, hundreds of thousands of preventable adverse drug events also occur. This hasn't yet been translated that into dollar savings. Functions commonly found in EHR systems today include allergy checking, drug-interaction checking, medical alerts, access to additional patient data maintained by other health care organizations, and many other features paper-based patient records are not capable of providing. It is these features of EHR systems that significantly contribute to patient safety and better quality of care that provide the real justification for acquiring and implementing these systems.
Other Examples of EHR Impacts on Quality of Care
Brigham and Women's Hospital in Boston reported 55 percent reduction in serious medication errors and 17 percent reduction in preventable Adverse Drug Events (ADE)
Evanston Northwestern Healthcare (ENH) recently successfully implemented a $30 million EHR system and according to their CEO Mark Neaman, the benefits have been impressive. He has said, "Not only is the system enhancing financial performance, it is substantially enhancing patient care. The turnaround time, for example, in obtaining test results has fallen significantly. Entire categories of medication errors and potential errors have been eliminated. In addition, delayed administration of patient medications has decreased 70 percent, while omitted administration of medication has dropped 20 percent across the organization."
Many health care executives have said that health IT is a key solution that is helping them deal with the many challenges facing them. While these executives are investing more in health IT solutions they are still very cautious. They look to their Chief Information Officers (CIO) and Chief Medical Officers to build the business case and show the return on investment (ROI) and return on quality (ROQ) justifying the acquisition and implementation of new health information systems. The methodology, tools, and findings to date presented in this article should prove helpful in developing the justification for investments in these new systems.
The authors delve deeper into this area and further elaborate on the subject in their upcoming book entitled "Medical Informatics 2020" to be published later this Fall.
Douglas Goldstein is a "Practical Futurist", Author and President of Medical Alliances, Inc. He guides leading health care organizations in clinical and business performance improvement through intelligent use of technology, knowledge management and Distinctive Innovation. He can be reached at
Peter Groen was the former Director of the Health IT Sharing (HITS) program within the Veterans Health Administration of the U.S. Department of Veterans Affairs. He recently retired and is now on the faculty of the Computer & Information Sciences Department at Shepherd University in West Virginia. He can be reached at
Douglas Goldstein, Peter Groen
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