198 ◾ Dean Athanassiades
from retrospective analysis rather than prospective analysis during project selection (Menachemi
and Brooks, 2006). In other words, if organizations limit project selection to projects with positive
present worth based upon classic techniques, those organizations would not select projects involv-
ing disruptive technologies.
In the few published ROI studies, Menachemi and Brooks (2006) noted promising results. For
example, in a ve-year study of electronic health record implementations, the researchers found
savings from reductions in drug expenditures, improved utilization of tests, improvements in
charge capture, and decreased billing errors. e savings represented an excess over the costs of the
system, thus providing a positive return on investment. In another electronic health record study
described by Menachemi and Brooks (2006), the researchers measured key cost factors before
and after implementation of an electronic health record (EHR) noting savings in spending and
increases in revenue directly related to the implementation of the EHR. e savings came from
reduction in transcription expenses, reduction in space requirements, and reduction in sta. e
revenue increases came from improvements in coding. In another study described by Menachimi
and Brooks (2006), a medical center attributed savings of almost $1 million from medical error
avoidance. Another medical center reduced transcription costs by 50% and reduced drug costs
stemming from formulary compliance.
Despite the lack of ROI studies providing nancially auditable evidence of the benets of
healthcare IT, the potential quantiable and intangible benets of technology investments bear
further attention. Several healthcare technologies oer the promise of improved patient safety
including EHRs, computerized provider order entry systems (CPOE), and clinical decision sup-
port systems (CDSS).
Example: EHR System
EHR systems are essentially paperless medical records including interfaces with other healthcare
information systems in the laboratory, pharmacy, imaging, and nancial departments. e costs
of electronic health record systems include the hardware, software, implementation, training,
Intangible
Quantifiable
Auditable
Pyramid of Benefits
Figure 22.3 Pyramid of benets.
Assessing the ROI and Benets of New Technology ◾ 199
ongoing support, and temporary reductions in productivity. e costs accrue from fees paid to
vendors as well as the cost of organizational personnel. For example, the cost of training could
include vendor or consultant personnel who develop and deliver the training, but also include the
time spent by system users attending training. With any new technology, and especially with a
disruptive technology, the productivity of the users performing the business process will decline in
the early phases of using the new technology. Organizations must acknowledge the learning curve
and factor that into the benet–cost analysis (Menachemi and Brooks, 2006).
Benets coming from adoption of EHRs can be auditable, quantiable, or intangible. For
example, revenues can increase through improved charge capture, decreased billing errors,
decreases in days receivables are outstanding, reduction in disallowed charges, and increased pre-
ventative care visits. As a result of the Health Information Technology for Economic and Clinical
Health (HITECH) Act, healthcare providers can increase revenues by demonstrating meaningful
use of EHR technology. In addition, EHR technology can aid organizations in avoiding costs.
For example, the EHR can aid in eliminating duplicate tests (for which denial of reimbursement
often occurs). Using the EHR reduces or eliminates the need for transcription services. Similarly,
because the records are electronic, organizations avoid the cost of pulling and ling charts.
Deploying EHR technology can provide quantiable benets that are dicult to present on
an income statement or balance sheet. For example, after full deployment, the EHR can aid
in productivity by improving throughput by reducing “waste” associated with delays. Similarly,
a well-implemented EHR can improve clinician satisfaction by providing clinicians with more
time to spend with their patients. Finally, EHR deployment can provide intangible benets that
will not appear on a nancial statement or are quantied but are still important. ese benets
include improved quality outcomes like better infection control, improved prescribing practices,
improved disease management, and improved immunization rates. Intangible benets can also
include improved patient safety. For example, it is dicult to quantify and monetize the benets
stemming from the ability of a provider to identify and contact patients aected by a drug recall.
Other intangible benets of an electronic health record could include improved patient educa-
tion, improved coordination of care between providers, and better support for research. Ironically,
one intangible benet of an EHR is access to data supporting business initiatives. For example, a
provider could use data captured in an EHR to negotiate with suppliers and payers for favorable
terms, thus positively inuencing auditable and quantiable benets.
Example: CPOE System
CPOE systems enable providers (often physicians) to enter orders into a computer rather than
writing or dictating the orders. is introduces structure into the order entry process eliminat-
ing errors that stem from illegible handwriting, misunderstood instructions, or lack of relevant
information. A key focus of CPOE systems is on medication orders because medication orders
are a common medical mistake that causes the death of at least one person every day and injures
over a million people each year in the United States (Menanchimi and Brooks, 2006). Avoiding
medication errors has auditable, quantiable, and intangible benets. CPOE systems can be the
enabler of achieving these benets. As with EHR systems, the costs of electronic health record sys-
tems include the hardware, software, implementation, training, ongoing support, and temporary
reductions in productivity.
Unlike EHR system deployments, in which cost savings come from reductions in labor
(transcription avoidance) and increases in revenue (increased charge capture)—benets that
appear on an income statement, most of the benets coming from deploying CPOE systems are
200 ◾ Dean Athanassiades
quantiable or intangible. Nevertheless, the benets are substantial to the healthcare delivery
system. Menachemi and Brooks (2006) noted that an adverse drug event costs at least $2,500 and
adverse drug events occur in at least 10% of patient admissions. Evidence suggests that CPOE can
reduce medical errors by 80%. us, CPOE can deliver a substantial quantiable benet in avoid-
ing the costs associated with adverse drug events. CPOE facilitates compliance with formularies
and dosing standards that can reduce drug expenditures.
Intangible benets include standardization of the medication order process, eliminating
unplanned variations that induce errors. Many CPOE systems provide means for customizing and
personalizing the ordering process for individual physicians, thus increasing physician productiv-
ity and satisfaction. Deploying a CPOE system sends a message to healthcare consumers in the
community suggesting the provider takes patient safety seriously, thus improving the provider’s
reputation in the community. As with EHR systems, some payers provide incentives, in the form
of higher payments, to healthcare organizations using CPOE systems, thus oering potential
revenue enhancements.
Example: CDSS
CDSSs are another example of a technology that oers signicant benet to society but may
not demonstrate justication through conventional ROI analysis. A CDSS is a software package
that aids in clinical decision making by matching the characteristics of individual patients to a
knowledge base to provide patient assessments or care recommendations. e outputs of CDSS
include alerts, reminders, and clinician work lists. e costs associated with CDSS are also similar
to those for EHR and CPOE systems. e benets of CDSS are rarely directly auditable and more
often intangible or quantiable. For example, Menachemi and Brooks (2006) note that CDSS
deployment leads to reductions in length of stay, decreased drug cost, improved preventative care,
decreased medication errors (often in conjunction with CPOE), and decreased time to ordering
appropriate treatment.
Summary
Classic discounted cash ow analysis remains an excellent method of analyzing the benets, costs,
and return on investment of projects that have predictable and reliable future income streams.
However, for disruptive technologies like healthcare informatics, management engineers should
consider factoring nonnancial and intangible benets into the analysis.
References
Coye, Molly Joel, and Kell, Jason. (2006). “How Hospitals Confront New Technology.” Health Aairs (Project
Hope) 25(1): 163–173.
Lutz, Raymond P. (1992). “Discounted Cash Flow Techniques,” in Handbook of Industrial Engineering, 2nd
ed., ed. G. Salvendy, New York: John Wiley and Sons.
Menachemi, Nir, and Brooks, Robert G. (2006). “Reviewing the Benets and Costs of Electronic Health
Records and Associated Patient Safety Technologies.” Journal of Medical Systems 30(3): 159–168.
uesen, Gerald J. (1992). “Project Selection and Analysis,” in Handbook of Industrial Engineering, 2nd ed.,
ed. G. Salvendy. New York: John Wiley and Sons.
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