Measuring the Ripple Effect: Calculating the ROI of Health IT

In 2011, Worcester-based UMass Memorial Health Care determined its $7.1 million tele-ICU system, installed in 2006, paid for itself in less than a year.

The tele-ICU technology allowed for remote patient monitoring, an improved alerting system and around-the-clock specialist consults via teleconferencing. The patient benefits of the telemonitoring program were clear — over the course of a year, complications decreased by up to 86 percent, ICU mortality dropped 19.6 percent, overall hospital mortality dropped 13.2 percent and lengths of stays in the ICU and hospital fell 29.7 percent and 26.3 percent, respectively.

Craig M. Lilly, MD, the director of the eICU Program at the flagship UMass Memorial Medical Center in Worchester, discovered the tele-ICU system was also beneficial to the hospital's bottom line. "What happened when we implemented the eICU system is that we were able to take care of more cases with a relatively small increase in our fixed costs," says Dr. Lilly. "Because we were already profitable, simply by doing more cases we were able to generate more revenue." He determined the medical center was able to care for 11 percent more ICU cases per year while reducing the cost per case by more than $5,000, thanks to the shortened lengths of stays and decreased complications achieved through the tele-ICU system.

"Because of the large number of cases we were doing, it didn't take long to reach a return on investment," he says. The tele-ICU's annual operating costs of $3.5 million were quickly dwarfed by additional income and cost savings from the system.

The ripple effect
Health IT investments such at the tele-ICU project often have a ripple effect as the gains from improved healthcare efficiencies are often felt throughout the local healthcare ecosystem. This can complicate the process of calculating returns on investments, says Dr. Lilly. "When considering ROI valuation, it's important to ask, 'Whose return, whose bottom line?'" he says.

Looking at the return on UMass Memorial's investment in the tele-ICU program at affiliated community hospitals offers a different view of ROI. As a large, profitable academic medical center, UMass Memorial was able to foot the initial capital expense for the tele-ICU technology, and could to offer participation in the eICU program to community hospitals for a fixed monthly fee. The technology, particularly the ability to connect with a specialist remotely for consults, allowed the connected hospitals to retain patients they would otherwise have transferred to a tertiary care facility. Fuller beds in these hospitals' ICUs led to financial benefits well above the return to UMass Memorial through the fixed fee charged to the hospitals. "One hospital saw a $4.3 million improvement in total revenue minus total cost after all expenses, including our operating fee, was accounted for," says Dr. Lilly.

Blackford Middleton, MD, chief informatics officer at Vanderbilt University Health System in Nashville, Tenn., and the chair of the American Medical Informatics Associations' board of directors, has spent a good part of his career analyzing the value of health IT. During his time as a professor at Harvard Medical School in Boston, he produced a significant amount of research suggesting hospitals and health systems can save millions through health IT. "But sometimes, the return on an IT investment doesn't come back to the organization making the investment," he says. For example, a hospital's investment in computerized physician order entry with decision support software that screens for drug-drug interactions can prevent a costly adverse drug event, but those savings are seen by the payer that would have picked up the tab, not necessarily the hospital. "So sometimes he who pays is not he who gains," he says.

A new model
Because of this ripple effect of health IT investment, determining the financial return on a specific health IT project to the sponsoring healthcare organization can be a daunting task. The issue came up recently in discussions of the Institute of Medicine's Digital Learning Collaborative. Several hospitals and health system executives expressed a desire for a standardized way to measure the ROI of a health IT project with a large ripple effect — electronic health records.

"Right now, there are some very good, very rigorous studies out there about whether these EHR systems are financially sound investments, but they're usually about one specific system or organization," says Claudia Grossmann, PhD, senior program officer at IOM. "These can be useful, but it often leaves people with the question, 'Does this apply to me?'"

Working with the Healthcare Financial Management Association to help ensure the final model would produce actionable results for hospitals' financial leadership, participants in the IOM collaborative developed a universal model for hospitals and health systems to determine the ROI of EHRs. One of the research team's main tasks was to sort out the cost and benefits that could be most directly associated with an EHR system, and those that were more secondary, says Julia Adler-Milstein, PhD, an assistant professor at the University of Michigan in Ann Arbor and one of the researchers on the project.

"Almost anything a healthcare organization does could be tied back to health IT, it's really a question of what's not affected by it," says Dr. Adler-Milstein. "It underscores how fundamental IT is to everything we do in healthcare."

The model, currently available on IOM's website, ultimately focuses on costs including productivity loss, staffing and consulting costs, technology costs, maintenance, and training. EHR benefits in the model include improved clinical performance, reduced overhead costs, improved operational performance, improved resource allocation and support of clinical trials. Overall, the model seeks to help providers work through the different costs and benefits to arrive at an ROI calculation that gives as accurate picture as possible of the financial implications of their EHR system.

Dr. Adler-Milstein hopes the model is widely used among hospitals and health systems, both to help organizations gain a better understanding of the financial effects of their EHR system but also to help spark dialogue within the industry. "Then, we'd get a much clearer picture of what the costs and benefits of EHR systems really are," she says.

 

More Articles on Health IT ROI:

Top 10 Technologies Healthcare Leaders (Should) Want
Researchers Propose Model for Determining ROI for EHRs
EHRs and Health IT Projects: Are They Battering Hospitals' Financial Profiles?

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