How to Drive ROI in Your Healthcare Improvement Projects (Executive Report)
Today’s healthcare organizations face an unprecedented array of new challenges, many contradictory in nature. As emerging value-based payment models intersect with population-based care, healthcare organizations must find ways to increase the quality of care while decreasing costs; ensure better outcomes despite caring for larger numbers of patients; and become more efficient at preventing many services, such as readmissions, that once contributed to their bottom line.
To help solve this Gordian knot, healthcare organizations of all kinds and sizes are accelerating their efforts to improve quality, streamline operations and reduce costs. Simultaneously, they are increasing their investments in “business intelligence” (BI) technologies such as enterprise data warehouses (EDWs), and analytics to assist in this transformation. According to the research firm KLAS, a “tidal wave” of healthcare BI purchases is expected by 2015, with more than half of the providers in the U.S. looking to buy or replace their BI solutions in that period of time.1
These data extraction, prediction, forecasting and trending technologies promise not only to help manage the regulatory and reimbursement challenges ahead, but also to reap the benefits of healthcare’s investments in earlier technologies such as enterprise resource planning (ERP) systems and electronic medical records (EMRs). Still, many healthcare finance executives have long harbored doubts about the return on investment (ROI) from those earlier systems.
At a time when the average hospital’s margins are stagnating at two percent,2 the prospect of investing in yet another new wave of “indispensable” technologies has them asking some tough questions about ROI. Will the new technologies prove their worth? Are the ROI predictions of vendors to be trusted? With the answers to these questions unclear, a growing number of healthcare finance managers are engaging in the complex and time-consuming process of developing their own ROI estimates for technologies and programs intended to improve clinical quality and streamline operations – both prospectively to justify an investment and retrospectively to prove its value.
In doing so, they are confronting one of the most basic questions in healthcare finance: How do you measure the financial ROI from improvements in outcomes that affect a complex and interdependent matrix of quality, patient satisfaction and operational efficiency?
The Evolving Value-Based Model of ROI
In the past, the ROI of technically-driven outcomes-improvement projects was relatively straightforward. The analysis tended to focus on measurements such as on-time under-budget implementations, lack of system downtime, the speed of user training and similar IT-centric measures. Today, this technology-centric view is giving way to a benefits-driven ROI model in which the strategic goals of the hospital are the measure of business value.3
In a value-based environment, operational and clinical quality improvement programs are critical to ensuring an organization’s long-term success. As a result, technology investments are increasingly determined based on their ability to contribute to operational and clinical quality improvement. The Healthcare Information and Management Systems Society (HIMSS) has developed a value suite called STEPSTM that reflects this new perspective on ROI measurement. The STEPS describe HIMSS’s five areas of value benefit to patients, providers and communities, measuring improvements in:
- Satisfaction of patients, providers, staff and others
- Treatment/Clinical including patient safety, quality of care and efficiency
- Electronic Information/Data including use of evidence-based guidelines, data sharing, population health and quality reporting
- Prevention and Patient Education including improvements in disease surveillance and patient compliance with therapies
- Savings from improvements such as reduced days in accounts receivable and increased patient volume.
Figure 1: The HIMSS Health Value STEPS Model
The HIMSS model reflects the growing consensus that IT success and clinical- operational improvement are interdependent and ought to be measured in tandem. Healthcare ROI encompasses more than money saved or earned; it must take into account both qualitative benefits such as improved patient safety and improved relationships with patients, as well as streamlined clinical operations among others measures.4
All of these measures are interdependent. Improvements in the quality of care within an organization cause a ripple effect that can generate secondary financial returns in the form of shorter lengths of stay, fewer readmissions and similar measures closely related to quality. In failing to consider these corollary benefits, standard ROI models fail to deliver a holistic view of the value of an organization’s investments.
The HIMSS model provides some ideas for ROI measurements and is a starting point to view the work of other healthcare organizations. The Health Catalyst ROI tools – Health Catalyst Clinical Improvement Financial Tool and Health Catalyst Executive Communications Tool – introduced in this paper take into account the five areas suggested by HIMSS and establish a framework that enables communication between multidisciplinary teams, including finance, and provide guidelines for making investments that enhance quality while lowering costs.
A Failure To Connect: Clinical/Operational vs. Finance
A key reason why many healthcare organizations still embrace the old ROI models is the persistent cultural divide between clinicians and finance. Clinicians are intent on improving the care of individual patients, not the organization’s bottom line. Financial managers are equally concerned with patient welfare but focus on aggregate financial measures such as costs and ROI across the population.
When financial managers try to impose cost controls or other disciplinary measures on care delivery, clinicians may perceive the change as a threat to patient welfare, even when its effect is harmless. The clinical perspective has lately been reinforced by healthcare reform’s broad focus on measuring clinical value. Meaningful use, value-based payment, patient-centered care: with so much focus on clinical quality, it is natural for organizations to focus their outcomes-improvement efforts on clinical measures alone.
Unfortunately, in doing so, they perpetuate the clinical-financial divide by neglecting to incorporate financial measures into their improvement goals. To illustrate this divide, consider the Institute for Healthcare Improvement’s (IHI) “Triple Aim”5 for optimizing health system performance, which calls for:
- Improving the patient experience of care (including quality and satisfaction);
- Improving the health of populations;
- Reducing the per capita cost of health care.
In today’s healthcare settings, most frontline staff are not accountable for all three dimensions. Clinicians focus on improving quality and the patient experience and hope that this will improve the health of their population. Financial managers strive to reduce per-capita costs. Each constituency has a different definition of value and, consequently, its own ideas about the return on IT and clinical quality investments.
The Importance Of The Financial Perspective
To bridge the cultural divide between clinicians, clinical operations and finance, it is important that all parties understand the inexorable link between clinical decisions and their financial impacts. A typical example of the failure to do so is an organization that bases its outcomes-improvement efforts on clinical data from the EMR alone, overlooking the opportunity to analyze a rich matrix of additional data from its financial, patient satisfaction, operational and other enterprise applications. Because the data source is merely one among many silos, this approach provides a narrow view of the organization with limited analytic value.
By contrast, an organization that uses an EDW to analyze data from all available sources is able to use that far larger data set to very quickly answer more complex and informative questions. How would length of stay (LOS) be impacted if evidence-based protocol was used to standardize care delivery? What impact would it have on cost per case? How would the patient’s satisfaction level be affected? How many of the early-discharged patients would be readmitted to the hospital within 30, 60 or 90 days?
These types of questions, traditionally the purview of financial managers, have relevance for clinicians as well. For hospitals to succeed under value-based care, clinicians’ actions must be guided by both their clinical and financial impact. Reflecting this thinking, leading healthcare organizations including Intermountain Health Care and Kaiser Permanente have long required multidisciplinary quality improvement teams to include financial managers as well as clinicians, operations and IT experts.
To weed out poor IT and quality improvement investments, these organizations also require quality improvement teams to identify and measure a three-pronged matrix of potential benefits from a project – quality, patient satisfaction and financial benefits. Projects that would improve all three areas are prioritized for implementation. This type of in-depth ROI analysis is a valuable tool for illuminating and ultimately leveraging the inseparable link between clinical, operational and financial data.
A Four-Step Process and Tools for Showing ROI in Healthcare Improvement Projects
The following four-step Health Catalyst process defines best practices you can use for creating and measuring ROI from your clinical and operational improvement projects supported by information technology. This comprehensive plan is based on decades of experience managing successful outcomes-improvement initiatives in some of our nation’s leading healthcare organizations.
A precursor to Step One is the initial stage of identifying areas for clinical improvement. Use of a Late-Binding™ EDW can greatly streamline and speed this process – as well as assist the four steps – by delivering an enterprise-wide view of data from an organization’s clinical, operational, financial and patient satisfaction systems. An analytics tool built on top of the EDW helps to prioritize outcomes-improvement interventions using Pareto analysis. This statistical technique identifies process changes that will produce the most significant overall effect across a health system. The tool helps ensure the outcomes-improvement teams focus on improving areas that will have the greatest impact on patient safety, quality and the organization’s bottom line.
Once you have identified a clinical or operational area for improvement, the first two steps in the process are designed to clarify the purpose of the project and win executive approval. The idea is to scope the project and ensure it passes the strategy and ROI litmus test before proceeding with targeted interventions.
Step One: Define the Project and the Business Need
The first step is to define the project and provide business justification. State the proposal clearly. Keep this basic statement to one or two sentences. Keep it simple, and resist the urge to add benefits to this section. Justify the business need. The proposal’s reviewers will need to clearly understand the business justification for the project and the anticipated benefits. The business need must be in strategic alignment with the organization’s goals. Remember that clear objectives lead to better measurements.
Step Two: Begin to Quantify ROI
As part of the project approval process, the second step is to perform an initial estimate of ROI based on available information. At this point, quantified benefits can only be estimated, but specific targets must still be set.
Identify all costs. These could include hardware, software, maintenance, personnel required for the project (clinicians, data architects, outcomes analysts, knowledge managers, etc.), consulting fees, training, materials, travel, etc.
Estimate benefits. Again, at this stage the benefits are estimated. This can be accomplished using such tools as industry benchmarks for outcomes-improvement projects, vendor case studies and internal estimates. Benefits fall into one of three categories: direct benefits, indirect benefits and revenue opportunities.
Identify direct benefits. Direct benefits and savings tend to fall into one of two buckets, either savings from enhanced efficiency and productivity, or savings from clinical improvement and waste reduction. Examples of efficiency/productivity savings include more effective use of internal resources; reductions in FTEs or less overtime; business process improvement; supply chain standardization allowing lower supply costs; increased departmental capacity; and reductions in capital expense. Examples of savings from clinical improvements and waste reduction include reducing unnecessary tests and procedures; lowering LOS; reductions in uncompensated hospital readmissions; lower medication cost per case or per capita; fewer ICU days; and patient safety improvements leading to fewer complications or medical errors (see Identify Direct Benefits on pages below).
To simplify and guide the process, multidisciplinary teams can utilize a comprehensive project financial overview. The Health Catalyst Clinical Improvement Financial Tool, (see Figure 2 below), provides the organization with a financial framework to help clinicians work with their finance team member(s) to estimate quantitative and qualitative costs and benefits for the project. Finance can use this tool in the current step to estimate project ROI and in step four to perform actual project ROI. This financial tool is not intended to replace an organization’s existing methods for calculating costs and benefits; instead it is a communication tool that enables a comprehensive overview of measures for multidisciplinary teams to consider.
Identify indirect or intangible benefits and set improvement targets. Indirect or intangible benefits tend to be difficult to measure, in part because they can provide longer-term benefits that need to be tracked over time. One example is an improved medical outcome such as a reduction in future infections, which will require long-term analysis to reveal an impact on costs. Another example is an increase in patient satisfaction as measured by the organizations’ HCAHPS score (Hospital Consumer Assessment of Healthcare Providers and Systems).
Click on the following table to download a free Excel Version of this Clinical Financial Tool
Figure 2: Health Catalyst Clinical Improvement Financial Tool
Identify all revenue opportunities. Revenue opportunities include such financial benefits as higher market share and patient volume, an increase in contract compliance, reduction in bad debt, reduction in acounts receivable (AR) days and improved scores for value-based payment. North Memorial Health Care in the Minneapolis-St. Paul area used its EDW and associated analytics to increase charge capture for professional services, and to earn a significant payer bonus (see Revenue Opportunities for details).
Document assumptions. In any project, there are things you do not know. It is impractical to wait until everything is a known fact before work on the project starts. In order to start work, it is necessary to form some assumptions– statements about what you believe to be the case – to create a position from which to begin. These will be proved or disproved as you work on the project. Here is an example of documenting assumptions: Currently six nurses perform a specific task. By automating the workflow, you assume that you can reduce the time required to 0.5 of an FTE. In documenting the assumption, you may want to outline a scale of such reductions over time.
Perform a sensitivity analysis. A sensitivity analysis is a technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. Brokers use sensitivity analysis to estimate the impact of higher interest rates on bond prices, for instance. The analysis should estimate the dollar impact of every piece of measurable progress made in the proposed project. For example, for every 1 percent reduction in overtime, an organization may estimate that it would save $50,000.
Identify risks and alternatives. No investment analysis would be complete without a frank assessment of the risks involved. Be sure to outline these as thoroughly as possible. An example of a common risk is organizational readiness. Is the finance team, for instance, ready to work with a partner, to share data with physicians, and involve them in making decisions leading to meaningful change? Another common risk is lack of sustainability – organizations may not monitor the effect of changes and adjust accordingly to ensure sustained improvement. Be prepared with alternatives to address these risks.
Step Three: Recruit and Train, Plan and Implement
Once the project has been approved, planning and implementation can begin. This step involves everything from selecting front-line leaders to communicating progress to the C-suite.
Establish multi-disciplinary outcomes-improvement teams. The first priority is to build an outcomes-improvement team to focus on the specific clinical or operational improvement project. The teams must include representatives from,at a minimum, clinical, quality, IT, finance and operations. The value of a multi- disciplinary team can be illustrated with the example of an outcomes-improvement team working on reducing the rate of hospital-acquired infections. While the clinical team member may be focused on infection surveillance and reducing reporting hours, the intervention also is also likely to impact LOS. A finance team member could help calculate LOS and costing data from the intervention. To ensure improvements are sustainable over time, these teams should be permanent, with members committed to improving a specific area of care, such as heart failure or asthma, monitoring the results and adjusting the interventions as needed to maximize the benefit.
Agree on business objectives and an Aim statement. An Aim statement is a written, measurable, and time-sensitive description of the accomplishments the team expects to make from its improvement efforts. The objectives and the Aim must be highly specific and include clearly defined success measures (see Sample Aim Statement).
Agree on ROI measures. In addition to the measures themselves, the team must agree on how they will be collected and/or calculated. For example, if a team is focused on reducing hospital-acquired infection rates, the clinician(s) will zero in on surveillance, while finance team members can help with LOS and costing data calculations.
Provide timely executive updates. Consistent communication of project milestones is essential to ensure the project’s long-term success. Monthly executive accountability reports help keep the project on track and establish a precedent for future communications. The Health Catalyst Executive Communication Tool shown in Figure 3 provides a one-page summary that tracks the project’s key success and financial metrics, as well as project milestones. It is an easy way to quickly and graphically communicate project progress and identify any logjams.
Figure 3: Health Catalyst Executive Communications Tool
Step Four: Evaluate Costs, Revenue, and Direct Benefits
The first three steps in the process helped to clarify the design of the improvement project, estimate its benefits, win approval, and deploy its interventions. Now, the final step is to systematically measure the project’s actual costs, revenue and direct benefits, with the goal of attaining a holistic view of its value and tracking its progress. Finance, working with the multidisciplinary team, calculates the actual costs, benefit, revenues and the project ROI using the Health Catalyst Clinical Improvement Financial Tool. A sample clinical improvement project using the Health Catalyst tool for heart failure readmissions is shown in figure 4.
Figure 4: Health Catalyst Clinical Financial Tool, Heart Failure Readmission Example
Identify all project costs. This is a virtual repeat of the first part of Step Two but with one crucial difference: now the costs are actuals rather than estimates. You will want to review all of the costs identified in that earlier step and add any additional categories that contributed to the total cost of the project.
Ensure nothing else has changed. Even if the interventions deployed by the outcomes-improvement team have succeeded, you cannot be certain that the result is positive for the organization until all related factors are analyzed. For example, readmission rates may have decreased for heart failure patients, but the organization may be spending more on emergency department (ED) services and observation usage. A holistic approach to evaluating the program’s success includes measuring every related element of clinical operations.
Perform Financial ROI calculations. Now that the project has been in place for some time, you can review and calculate the actuals for all of the categories of cost and benefit in the Clinical Improvement Financial Tool. Continue to use the tool to measure and compare ROI over the long term at set, regular intervals.
Review ROI calculations with the team. Now that you have actual ROI results, it is critical to review them with the multi-disciplinary team to obtain buy-in and hopefully to generate additional insights.
Make adjustments. As the project progresses, it is important to make adjustments that reflect lessons learned. You will want to adjust the project as needed to maximize benefits and reduce costs.
Monitor and ensure sustained results. This final step is critical. Any change to a process is only successful in the long run if the stakeholders truly adopt and sustain the change. Process and technology improvements in healthcare require constant monitoring to ensure the behavior changes are sustained. Regular communication of progress using the Health Catalyst Executive Communication Tool is an excellent way to monitor and sustain the change. And remember to communicate and celebrate project milestones. A key component of sustaining change is the recognition and reward of contributors and the celebration of successes.
Healthcare ROI and the Data-Driven Culture
Change is inevitable in every industry. But in healthcare, the pace of change seems to be continually accelerating, driven by regulatory flux and the unceasing evolution of technology. Staying on top of these industry transformations is a constant challenge. The approach outlined in this report will help you get started. As the model outlines, achieving ROI from IT-supported outcomes-improvement projects requires a multidisciplinary, collaborative approach.
If the process outlined here is consistently applied across the organization, it will inevitably nurture a new organizational mindset. Call it the data-driven culture of continuous process improvement: when operational and financial teams are engaged in outcomes- improvement with clinicians and IT analysts, the resulting operational focus helps to narrow the targets of improvement and refine ROI measurements.
This constant refinement process spawns ever-more precise and meaningful improvement projects, driving greater overall return on investment. When internalized by enough people, this data-driven culture of continuous measurement triggers a positive feedback loop that can transform a department, an organization and an industry.
1. “Business Intelligence Perception 2012: A Wave is Coming,” KLAS www.klasresearch.com/klasreports. 2. Running on Medicare Margins: Restructuring Costs and Building the Care Management Enterprise to Prosper on Radically Lower Pricing, The Advisory Board Company, 2011. 3. Best Practices for Realizing EMR Business Value, The Advisory Board Company 4. “ROI in Health IT is More Than Just the Price tag.” Smith C. (2012). 5. Institute of Healthcare Improvement. “Triple Aim - The Best Care for the Whole Population at the Lowest Cost” retrieved 30-Sep-13 from http://www.ihi.org/engage/initiatives/TripleAim/Pages/default.aspx
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Would you like to use or share these concepts? Download this ROI in Healthcare Improvement Projects presentation highlighting the key main points.