ROI Analysis Critical for Clinics

Bill Briggs, Senior Editor
Health Data Management Magazine, October 2005

A popular comedian from the 1950s named Joe E. Louis once used an ironic one-liner to illustrate his penchant for gambling: "I hope I break even today, I need the money."

Physician leaders at clinics, particularly independently owned facilities, have similar hopes when they roll the dice with information technology. They want I.T. to improve patient care, but they also would like at least to break even on the investment-and wouldn't mind boosting revenue along the way.

Clinics, like their hospital counterparts, typically conduct their own ROI analysis and combine it with vendor projections. But they often have fewer resources in-house than hospitals for making such calculations. They usually also have completely different management structures.

Clinics, a term that here includes group practices and other ambulatory care facilities, often are headed up by physician decision makers. They rely on both hard ROI analysis, such as dollar-to-dollar cost/benefit ratios, and soft, such as "more efficient" staff, to determine whether they will come out financially ahead or behind with technology investments.

While they tend to use the same ROI measures as larger facilities, clinics often are more cautious when making large investments, and place more importance on some returns that play a lesser role in a hospital's calculations, experts say.

Suspiciously good news

ROI analysis, as presented by vendors, tends to arouse suspicion among clinic leaders. As a result, they often develop their own yardsticks.

Gaudy ROI projections and six-figure investments-or more-can strike fear into physicians' hearts, observers say. At Arlington, Texas-based Omega OB/GYN Associates, a five-physician practice with three locations, investing in an electronic medical records system in late 2003 was a frightening proposition, says Steven Seligman, M.D., vice president and one of two managing partners.

"I might have been na‹ve, but I felt electronic medical records could be a catastrophe," he says. "I wanted to at least break even. I've been doing this 26 years and bought enough medical equipment to be a little skeptical when a sales rep makes ROI promises."

When Omega managers put pen to paper and compared old paper-based chart codes and codes assigned through the electronic records system, Seligman's fears subsided. "The improved coding on a couple of diagnoses basically paid for the system."

Soft ROI evades up-front projection and can be confusing for buyers and risky for sellers, but can produce measurable results after the technology has been in place awhile.

"You take out the extraneous stuff, like the vendor saying `you'll save $10,000 due to nursing efficiency,' because you don't know how they come up with it," Seligman notes. "But seeing the code difference and multiplying it by the number of patients we see each month made it an obvious choice."

Omega bought both electronic records and practice management systems from Greenway Medical Technologies, Carrollton, Ga.

Dare to dream

For some clinics, coming out ahead financially while improving patient care in the bargain has been a pipe dream. But today's electronic medical records and practice management systems, among other applications, are yielding dollar-positive results.

Still, comparisons between most clinics and hospitals diverge sharply when it comes to valuing hard ROI analysis. That's because hospitals have capital budgets to fund I.T. projects and if they fail, no one takes a personal financial hit.

At independent clinics, however, I.T. often is funded out of physicians' wallets. That means I.T. projects must have serious potential for ROI to justify costs, says Jim Fisher with PricewaterhouseCoopers, a New York-based consulting firm.

Because hospitals have different funding sources, it's sometimes enough to show that spending is fiscally responsible, he says.

"In hospitals, there is more of a focus on fiduciary responsibility and on providing the best, safest patient care," he says. "ROI is quantitative and more about delivering hard-dollar savings to the bottom line, and a reasonable investment return."

Clinic leaders, however, tend to have more skin in the game. "In physician group practices, it's more about hard-dollar return," Fisher says. "Much less weight is given to cost avoidance for such things as savings from malpractice insurance premiums. The biggest difference stems from the fact that in the group setting, physicians are writing personal checks to buy the technology."

When Omega OB/GYN began looking for an electronic medical records system in late 2003 the practice was struggling to track paper charts among its three locations and a local hospital. ROI analysis was done from several perspectives, says Gail Burdine, practice administrator.

First, a Greenway sales rep calculated ROI on both electronic records and practice management systems. Then the vendor commissioned an outside consulting firm to conduct pre- and post-installation measures.

Finally, Burdine developed her own assessment tool, partly to keep the measures realistic. "The vendor came in and assessed things like chart pools and personnel time to be saved and other little things, but going in I was a bit cynical that would happen."

Her fear was that while savings might occur in one area, something else would arise to draw on personnel resources. So Burdine performed her own ROI on "hard costs I knew we could get out. But I valued both."

She anticipated savings in terms of potentially eliminating supplies, such as file labels, and equipment, including a system for faxing partial patient chart notes to other locations.

The group practice implemented Greenway's practice management application in February 2004 and the vendor's electronic medical records system was in place by July 2004.

Omega's physician decision makers were keenly aware of potential cost factors for such an I.T. project, but their chief criteria lay in the softer side of ROI. "Their primary interest was whether they liked it based on the way they practice medicine and if the technology did what they needed it to do," Burdine says. "But they also had to weigh the expense."

Seligman, one of Omega's managing partners, notes that he had been looking at electronic medical records systems for years, in light of growing problems managing patient charts among multiple locations. "I felt we were on the brink of a medical records disaster," he says.

That pursuit was driven by medical reasons, rather than revenue expectations. "I might have my head in the sand, but I think most physicians are not thinking as much about ROI as office managers are."

Soft ROI is difficult to appraise and encompasses typical labor-sapping chores such as chasing patient charts. "It's hard to imagine if you're not in a medical office and seeing it go on all day long," Burdine notes, "but most physician office personnel spend their day looking for charts. It's very unproductive." In terms of hard ROI, Burdine also brought in an accountant to see what I.T. payments and support costs would be.

Like Omega, other clinics turn to information technology to help manage data flow across growing organizations. Central Utah Clinic, for one, has been in "high growth mode" for the six-plus years that Jamie Steck, director of I.T., has been with the practice.

Renew infrastructure

Based in Provo, the subspecialty group employs 75 physicians that practice in 10 locations throughout the state. In late 2001, Central Utah Clinic decided to implement practice management and electronic medical systems, but also needed to revamp its infrastructure to make them work, Steck says.

Practice management software came from IDX Systems Corp., Burlington, Vt., and the electronic records application from Allscripts Healthcare Solutions, Libertyville, Ill. Underpinning the two applications was network infrastructure from Cisco Systems Inc., San Jose, Calif.

Calculating ROI for such a sweeping I.T. plan was difficult, particularly for the network backbone, Steck explains. "We were looking more for ROI on the software. We didn't see how the infrastructure would be a factor in terms of separating it."

It later became apparent that the whole system contributed to substantial return on the clinic's investment.

At the start, however, vendor predictions of dollar savings for the whole implementation were ambitiously optimistic, Steck says, so his accounting background came to the fore. "I was skeptical of their ROI figures so we set up our own," he adds.

Doubt ran deep among the clinic's leaders as well, because of the chasm between hard and soft ROI projections. "It's tough getting your physicians, amid declining reimbursement and increasing costs, to spend this money," Steck notes. "You have to show they can save money by not creating paper, and save on file storage space. These are the things they look for."

Steck says many vendors seem to say "`you'll have more time,' but don't have good, hard numbers. It was touchy-feely, and needed more substance."

Some aspects of ROI are difficult to predict and vendors are careful not to paint too rosy a picture, which can result in loosely defined savings expectations. But many vendors are parlaying their successes into concrete data, says Barbara Kelly, research analyst for Gartner Inc., a Stamford, Conn.-based research and consulting firm.

White papers

"Vendors are getting much smarter about demonstrating ROI," Kelly says. "Most have white papers to show where a client-who is identified-has achieved ROI."

For Central Utah Clinic, one unexpected benefit of the combined applications and infrastructure was a dramatic reduction in the amount of time a nurse spent faxing patient data to other health care organizations each day. A two-hour process was slashed to 30 minutes per day by sharing data electronically, Steck notes.

"It all goes back to improved patient care and more effective use of staff time," he adds, softer ROI criteria that don't materialize until after new technology is up and running.

Some clinics are devoted to the idea of I.T. helping them run their operations. For them, ROI analysis isn't the most critical factor in an I.T. buying decision, but it's near the top.

The desire to deliver top-notch patient care motivated North Valley Family Medicine in Glendale, Ariz., to implement practice management and electronic medical records systems when the two-doctor practice opened its doors in 2003. While the principals knew that electronic medical records could provide cost savings and better patient care compared with paper records, they also weren't sure how much, says John Ellis, D.O.

Ellis and his partner expected an electronic records system could reduce time spent on paper-based record maintenance and data access along with holding down the physician-to-staff ratio. But there were questions about how various automated tasks would affect patient care.

"How technology is going to impact patient care is not something that lends itself to hard ROI analysis, in terms of cost to a practice," Ellis says.

Ellis and his partner knew that paper charts were a problem from their residency days. "Paper charts lend themselves to being lost," Ellis says. They believed this soft ROI measure would yield solid savings. "We knew from the beginning we wanted electronic records because that negates the whole issue."

I.T. commitment helps

Similarly, at Mid Carolina Cardiology in Charlotte, N.C., leaders committed to I.T. long ago. The group practice has 45 cardiologists in five locations in the Charlotte area and has had an electronic medical records system in place since 1999, says Stephen A. McAdams, M.D., CEO.

The electronic records system is from Gateway Electronic Medical Management Systems Inc., Indianapolis, and has helped Mid Carolina Cardiology reduce transcription fees, staff salaries and claims error rates.

Even though the potential for hard ROI is great from an electronic records system, most physician leaders turn timid when in comes to I.T. investments, McAdams says.

That wasn't the case at Mid Carolina Cardiology.

In some cases, ROI calculation is a moot exercise. Mid Carolina Cardiology is a "partner" organization with MDdatacor Inc., Alpharetta, Ga., a data gathering company that helps cardiology practices glean information from their data as well as other practices.

There's little investment beyond $60 for software that enables customers to transmit patient care data electronically, McAdams says. "There's virtually no investment and the return is overwhelming," he adds. "There is potential revenue from reports that can be generated, based on research and outcomes."

In one example, Mid Carolina Cardiology looked at patients at risk for sudden death from irregular heartbeat, among previous heart attack victims. MDdatacor is able to scan all the clinic's records to find those that meet the research criteria.

The project helped identify and treat patients at greatest risk and generated revenue from some who came to the practice for help.

Passing the test

Nonetheless, the top test for whether I.T. has potential for the cardiology group is how it affects patient care, McAdams notes, "not how much money can we make." Cost and return on investment are next in importance in today's marketplace, in which reimbursement and cost reduction dominate the financial side, he says.

At North Valley Family Medicine, the biggest question was how to calculate the potential ROI of Web-based practice management and electronic medical records systems. Having opened the practice in October 2003, there was little historical data to draw upon.

The group's leaders did some anecdotal research by talking to "many other practices," Ellis says, and corresponding with other providers who had implemented an electronic medical records system.

The overall usefulness of ROI analysis regarding electronic medical records systems itself turned out to be one of Ellis' discoveries along the way. "It's a big topic of debate. My impression is that some providers dismiss the value of ROI. I very much disagree."

The reason is that many doctors think vendor claims don't equate to actual cost savings, he explains. "In our experience that's not the case."

Those who debate the importance of ROI "have not yet implemented an electronic record," Ellis says. "We have seen it firsthand."

North Valley Family Medicine implemented both systems from NextGen Healthcare Information Systems Inc., Horsham, Pa. Ellis believes the systems have helped the group hold its staffing ratio down to 3.5 to the two physicians. "Some groups have four support staff to one physician," Ellis notes. "In Arizona the cost of a medical assistant or front office FTE is $11 to $14 per hour."

Calculating such costs to arrive at ROI is a simple mathematics exercise. And determining the difference between an electronically generated diagnosis or procedure code and a clinic's common codes listed on paper forms is easy.

Some returns, however, are hard to measure until after the fact. That's little help on the front end.

But clinics that track these sometimes hidden returns on the back-end find them a tremendously useful ROI measure, says Fisher, the PricewaterhouseCoopers consultant.

"I've seen a lot of groups using ROI analysis, whether from consultants or vendors, to get over the spending hurdle, but then they don't go back to it," he says.

Clinics also should look to measure their goals against vendors that serve organizations similar to their own. "They should look at vendors that have executed well in their particular segment of the market," advises Kelly, the Gartner analyst. "If it's a medium-sized clinic, then they should develop a short list of vendors who have done well with that size group. Ask for case studies and client references where this has been done."

Some ROI measures just aren't anticipated and therefore impossible to calculate before the fact. At Omega Ob/Gyn, where the administrator set up her own ROI measures, some things slipped through the cracks.

"We were not very good at predicting some things," Burdine says. "We needed a whole lot more technical support than we expected. And some travel and training expenses exceeded our plan."

Greenway handles support issues for its software, but Omega contracted with NetVision Consulting, also in Arlington, for server and laptop maintenance and support.

Regardless of the goals, ROI from any application or hardware won't be achieved without the blessing and hard work of all concerned, adds Omega's Seligman.

"It's not like you just plug it in and money starts rolling in. It's a labor of love you have to get everyone to embrace."

Sidebar

Clinics record good returns

Return on investment analysis can help seal the deal when it comes to satisfying decision makers on information technology investments. Gauging whether those investments paid off depends on comparing front-end estimates with actual results.

In some cases, ROI is easily determined. In others, it's harder to quantify, such as that an organization will run more efficiently or that physicians will be able to spend more time with their families. Returns such as more free time often are not apparent until after technology is implemented and running.

Following are four examples of ROI as reported by clinic leaders:

Central Utah Clinic, Provo.

In 2001, the 75-physician subspecialty group deployed practice management software, from IDX Systems Corp., Burlington, Vt.; a electronic medical records application from Allscripts Healthcare Solutions, Libertyville, Ill.; and network infrastructure from Cisco Systems Inc., San Jose, Calif.

ROI from the electronic records system indicated "we were doing something right," says Jamie Steck, director of I.T.

In the first year, the clinic saved $1 million. It also reduced staff and eliminated transcription costs. "Those results basically paid for the system," Steck says.

Central Utah Clinic's original five-year projection was to save $8 million. "We have exceeded that and gone back to measure some other things," he says.

There were surprises as well, he adds. "We didn't realize physicians were going to be that much more efficient, but at the end of three weeks, they were going home a half-hour or 45 minutes earlier than in the past."

North Valley Family Medicine, Glendale, Ariz.

This two-physician practice began implementing practice management and electronic medical records systems shortly after opening its doors in 2003, says John Ellis, D.O.

Both systems came from NextGen Healthcare Information Systems Inc., Horsham, Pa.

By omitting the need for paper chart storage space, the practice was able to save up to 500 square feet that was used instead for patient care.

"When you look at ROI, you have to dig deep into all costs of running a practice," Ellis says. "One is space savings. We estimated $40 to $50 per square foot for leasing space. That's a tremendous cost saving."

Ellis also notes that industry studies estimate the cost of creating a patient chart to range from $4 to $8. "If we split the difference and say it would have cost $6 to create one for each of 3,000 patients, we saved about $18,000 right there."

Mid Carolina Cardiology, Charlotte, N.C.

The group practice has 45 cardiologists and five locations. It implemented an electronic medical records system from Gateway Electronic Medical Management Systems Inc., Indianapolis, in 1999.

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 unexpected benefits as well. "When you install a new billing system, you usually see a decrease in cash flow," McAdams says. "We had an increase that first year."

Error rates in medical claims submissions also declined sharply. Before the electronic records system, the practice had a 7% rejection rate, caused by inappropriate codes, missing data and other glitches. After implementing the new system, the rejection rate is less than 0.25%, he says.

Omega OB/GYN, Arlington, Texas

The five-physician practice has three locations and implemented electronic records and practice management systems from Greenway Medical Technologies, Carrollton, Ga., in 2004.

Its return included a $30,000 reduction in office supplies expenses, including labels and file folders, after six months, says Gail Burdine, practice administrator.

"Comparing the first six months of this year vs. last year, our production and collections are up 15%."

Sidebar

Hospital-based groups also count on ROI

Return on investment analysis for I.T. projects is playing a bigger role in purchasing decisions for physician groups regardless of ownership. In the case of a hospitalist practice within Our Lady of the Lake Regional Medical Center, a 600-bed hospital in Baton Rouge, La., ROI analysis showed benefits for both practitioners and hospital management.

In 2002, Richard Slataper, M.D., medical director for a 10-physician group of hospitalists, began searching for charge capture technology. "Our collections were not where we wanted them to be," he explains. "It's a rather common need for groups."

Hospital administration left the process to Slataper and his group. "We were left to make the case. Our administration didn't say what to do."

While Slataper did not perform a rigorous analysis of all products on the market, for more than a year he tested many systems and hand-held computers for usability-his usability. ROI was a key factor. "In solving the problem, I wanted to look at solutions that were going to have great ROI, soft and hard," he says.

But hard ROI wasn't critical until later. At first, the group selected a hand-held and PC-based charge capture system from Ingenious Med Inc., Atlanta. "The decision at the time was a combination of usability and price," Slataper says. The cost was $300 to $400 per user.

Then the vendor made a Web-based version available, which would have hiked the costs to somewhere between $1,000 and $1,500 per physician. That made ROI analysis a little more important. Even though the comparisons were made between the actual network-based system and the Web version's potential, collections per encounter rose 50% to 60%, Slataper says.

Other changes made at the time also factored in, including bringing billing staff on site, coding education classes and physician contract incentives tied to charge capture rates.

But the IMBILLS application was deemed by many to be most responsible for the billing improvements, Slataper says.

Satisfying returns

The charge capture upswing and a drop in the days bills sat unpaid in accounts receivable from 110 to 34 were the most satisfying returns for hospital administrators.

Hospitalists saw both hard and soft returns. They were able to eliminate computer performance problems while at the same time better documenting their contributions to the hospital's bottom line.

The outcome was never a lock, however, and ROI for a given application should be taken with a grain of salt, Slataper cautions.

"If you buy technology without making cultural changes it is unlikely to fulfill its potential. And, to my inexperienced eye, ROI should be defined more broadly to include the technology and what you are going to do organizationally around it."