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Formal ROI Analysis Is Rare


By Howard J. Anderson, December 1, 2007

When El Centro (Calif.) Regional Medical Center contemplated investing in an emergency department information system, the hospital's chief nursing officer and other executives demanded a precise quantification of the potential return on investment.

"That was a first for us," says John Gaede, director of information services at the 165-bed hospital. "Now our board has demanded that we do the ROI exercise for all other systems we buy."

Indeed, it's extremely rare for hospitals and clinics to set ROI benchmarks before acquiring software and then actually measure the application's performance against those expectations, many consultants say.

"It has something to do with the culture of health care and hospitals," laments Bruce Eckert, senior manager at Beacon Partners, a Weymouth, Mass.-based consulting firm. "The not-for-profit culture is to avoid creating the business case and having the accountability that a for-profit business might."

Another consultant, however, says that situation is beginning to change.

"Hospitals know they have to invest in clinical information systems to improve the quality of care, but measuring the actual results has dragged behind the recognition that they have to put the system in," says Nancy Chapman, a partner at ACS Healthcare Solutions, a Dearborn, Mich.-based consulting firm. "Hospitals, however, are beginning to recognize that they have to demonstrate how a software investment will improve care."

With a clinical system ranging in price from $2 million for a small hospital to $15 million or more for a large facility, executives are beginning to demand quantifiable evidence of improvement in patient care, Chapman says.

"Some of our clients make a very good business case for a software investment, but then don't do as good a job checking whether the benefits were achieved," says Barbara Cox, senior principal and senior researcher at the Center for Health Information, the research unit of Noblis Inc., a Falls Church, Md.-based consulting firm. "I can't think of a client that's done the entire process very well."

Health care organizations attempting to create ROI benchmarks should form a team of clinicians, I.T. experts and others to tackle the challenging task, Cox advises.

"It takes time to put the right team together to figure out the goal of the project and what type of approaches are needed to create a baseline of measurable information," she says. "It takes a little bit of effort and some research to determine the benefits that can be achieved and determine what approach to take to measuring them."

Cox stresses that CIOs should not take the lead role in measuring ROI. "Justifying the value of an investment should be the primary responsibility of the executive sponsor in the part of the organization that will benefit from the investment," she suggests.

The committee establishing benchmarks first has to understand the goals of the organization before making a business case for the investment, Cox stresses. And the business case should change over time as the goals of the organization change, she adds.

Once software is implemented, the performance against the benchmarks should be measured regularly. "A lot of organizations don't have the energy after an implementation to go back and study whether they have indeed achieved the anticipated savings," she says.

In addition, many organizations also fail to provide an adequate budget for the post-implementation analysis, she notes.

Cox and other consultants acknowledge that setting ROI benchmarks for clinical systems is far more challenging than for financial systems. But many factors, including medication errors reduction and nurse productivity improvement, can be measured.

How Complex?

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