This is the final installment in a three-part series on executive management issues. In February, part one tackled capital planning while part two in April analyzed cross-functional teams.When it comes to clinical IT, Jim Leo, M.D., and Larry Garber, M.D., are brothers in arms. Each is overseeing clinical automation projects - from the same vendor no less - with price tags that run into the tens of millions of dollars. When the topic swings to ROI, however, the two physicians have little in common. Measuring the return on their investments is a radically different proposition for each. Garber's effort is taking place in a large, multi-specialty group practice. For him, the ROI metrics are straightforward - and measurable. Leo, in contrast, is attempting to automate data sharing in a multi-hospital health system. The ROI metrics there are nearly impossible to pin down with any authenticity.The two physicians typify a broader industry dilemma - among IT proponents at least. The value of IT is almost instinctively assumed by those familiar with the waste and duplication that plague the industry. Yet, trying to measure the value of the systems that can eliminate the inefficiency is remarkably difficult, particularly in the tangled inpatient setting. Many don't even make the effort."We could try to calculate the cost of medical errors, but that is not what it is about for us," says Leo, the associate chief medical officer at Long Beach (Calif.) Memorial Medical Center. The five-hospital system is midway through an eight-year, $55 million clinical automation project using software primarily from Epic Systems Corp., Verona, Wis. Linking multiple departments under a common, integrated system, Leo says, will enhance safety and eliminate duplicative services. "We recognize what is wrong," he says. "There's a tremendous amount of waste, information is not accessible and you end up getting tests done three to four times. This system will decrease the likelihood of that occurring."Any "hard ROI" measures for Long Beach, however, are elusive, Leo says. One factor is the way inpatient care is reimbursed. "We are responsible for episodes of care, not covered lives, like Kaiser Permanente [the Oakland-based integrated health system and insurance company]. Eliminating waste may not benefit us directly."Physician group practice economics, however, are more straightforward. They may not be rewarded for preventing illnesses, but their overhead and service lines are readily identifiable. Before it decided to embrace electronic health records, Fallon Clinic was spending "millions each year on transcription," says Garber, medical director for informatics at the 250-physician group practice based in Worchester, Mass. With some two dozen clinic sites, Fallon's specialists had great difficulty obtaining charts, even after visit documentation had been transcribed and made its way into the paper chart. The clinic began considering EHR technology in 2001, ultimately opting to invest $24 million in an ambulatory system, also from Epic. During a three-year roll-out that began in 2005, the clinic laid out several hard ROI metrics: reduced transcription and payroll expenses among them.

A Competitive Edge

Despite their differing approaches to ROI, Garber and Leo are solid proponents of clinical IT They see their respective automation efforts as giving their organizations a long-term competitive edge. The federal economic stimulus package, which allocates nearly $20 billion in incentives for use of EHRs, only adds to their justification for such large outlays (see April 2009 issue, page 16). "The stimulus takes some of the heat off me," Garber says. "We will use the money to enhance our system."Even without the stimulus money, Fallon Clinic is on its way to breaking even on its $24 million investment, Garber says. Like other physician practices that have introduced EHR technology, its ROI draws from three key areas: reduced transcription expenses, reduced personnel costs and expanded revenue. Before adopting the EHR, Fallon Clinic was running up annual transcription tabs of $10,000 to $15,000 per physician. The group expected to cut that expense by 75%, but has fallen short, reducing it by only a third, Garber says.Adding speech recognition to the mix will speed the expense reduction, Garber hopes. An early pilot with technology from Burlington, Mass.-based Nuance Communications suggests he may be correct. "We did a formal study with 10 doctors to see if the technology would save money and how it would affect physician satisfaction," Garber says. After analyzing the data in a blind study, Fallon concluded that the speech recognition technology could nearly eliminate any remaining transcription habits with only a minimal disruption to physician productivity.Even physician practices without large transcription bills can realize savings from EHRs. Block & Nation Family Medicine, a four-physician group practice in Oviedo, Fla., has long since broken even on its $88,000 system, which it deployed five years ago. The practice's savings largely stemmed from reducing its support staff, says Brad Block, M.D. These assistants would spend their days tracking down paper charts (they no longer exist), filing lab results (they pour in electronically), and transferring charges into the group's billing system (they also flow automatically). "We went from 12.5 FTEs to 8.5 FTEs over two years," he says. "We were saving about $84,000 in payroll annually by year three."There's more to Block's hard ROI calculus than expense reduction, however. The group's remotely hosted EHR, from Westborough, Mass.-based eClinicalWorks Inc., also enables it to do a better job of capturing charges and justifying higher evaluation and management service levels, Block says. The system is integrated with the vendor's practice management system. "It automatically charges for any testing we do in the office," Block notes. "Now we don't forget to bill for vaccines." The practice has increased its charge capture by $58,000 per physician per year, Block adds.Part of the boost came from a reduction in no-shows. For $4,200, Block purchased a reminder system from PhoneTree, Winston-Salem, N.C., that works in conjunction with the eClinicalWorks practice management system. The reminder system automatically calls patients one and two days in advance. "No-shows went from 100 to less than 50 a month," says Block, who maintains detailed documents on the practice's technology ROI. "Missed appointments went from 7.3% to 3.4% of total visits.If the average visit is a level 3, that is equal to $36,000 in income over a year."In contrast to the physician practice setting, a hospital poses a far murkier ROI environment - at least as far as enterprise data sharing systems go. Eliminating duplicate tests may improve the billing picture for an individual Medicare patient, for whom a hospital is reimbursed on a case rate basis, says Leo, the associate chief medical officer at Long Beach Memorial Medical Center. "If we have been needlessly duplicating tests, there is potential benefit there," he says. "But it is not something we felt we could measure."One hard cost that Long Beach has reduced since deploying its EHR is the expense of photocopying and forms reproduction. Following a mid-year "big bang" deployment of its enterprise system, the hospital reduced its copying charges in 2008 from $2.01 million to $1.3 million in the second half of the year, Leo says. "We had unbelievable mountains of paper. But since we went paperless overnight, we would not expect huge further reductions." The remaining copying expenses, he says, derive from administrative forms not affected by the EHR, which handles clinical charting and order entry.

Drill Down

That's not to say that the inpatient environment is devoid of ROI for clinical IT It just requires drilling down to some niche areas with well-defined cost centers, such as imaging. Using a picture archiving and communications system instead to store images digitally rather than on film can be an enormous time and money saver. On the other hand, the upfront investment can be enormous.Five years ago, 800-bed Rochester (N.Y.) General Health System invested about $1 million in PACS technology, from locally-based Carestream Health. "Our doctors went crazy and wanted four monitors for everything," recalls Pam Moseley, director of radiology informatics at the two-hospital health system, which generates about 185,000 annual images across all modalities. In addition to the PACS spending, Rochester invested another $1 million on cassette-based computed radiography devices and digital radiography devices, which capture images directly in a digital format. The outlay required board approval, and the hospital wound up floating a special bond to finance the purchase. "You just don't have $2 million lying around," says Moseley.Despite the extra spending, the health system has recouped its investment, she says. It has reduced its outlay for film by 90% and also reduced staff by nine FTEs in the first year. "People had been pulling files from the basement and looking for lost film," Moseley says. The health system also recently closed its on-site storage room for old films. There's a limit, however, to direct measures of the value of PACS technology, says Moseley.Another niche where health systems can wring out excess costs is purchasing. Catholic Health Initiatives, a 77-hospital system with facilities in 20 states, is attempting to reduce its overhead by standardizing its purchasing. In a massive project that began in 2002 and was completed earlier this year, Catholic Health deployed a common supply chain and human resources system from Minneapolis-based Lawson Software Inc. "We had not been taking advantage of our size for purchasing," says Paul Parish, vice president financial and administrative systems for the Denver-based system. "Each hospital negotiated its own contracts."

Common Language

Catholic Health now has standardized nomenclature for the supplies it purchases and can keep more accurate tabs on use, adds Joni Rittler, vice president, supply chain. "It is easier to track what we are spending," she says. Member hospitals may not have always obtained the most favorable product cost, she explains.Rittler estimates that the organization saved nearly $125 million over a three-year span beginning in 2005, a period when hospitals were in various phases of implementation. The estimate reflects better pricing hospitals obtained on a wide array of supplies-everything except pharmacy, food and big-ticket capital expense items, like MRI machines. Catholic Health recently did a bulk purchase of stents - nearly 5,000 of them-based on usage data from the system."We closed the transaction in a week and a half," Rittler says. "An individual hospital could have done a bulk purchase on its own, but not got the price we did."While hitting the break-even point on an IT investment may be proof of the pudding to some, the "soft ROI" of clinical IT is its real value for many executives. They can appreciate the value of their EHR purchases without measuring them down to the nickel. Since it implemented CPOE, for example, Long Beach Memorial Medical Center has seen its transcription errors on physician orders drop by 90%, says Leo, the associate chief medical officer. Some 1,300 physicians now enter medication and other orders directly into the system, bypassing the old route of either dictating an order which is later transcribed or handing off a scrawled order on a piece of paper."We could see the results very quickly of going to CPOE," Leo says. "We had systems in place to catch errors, but the process of catching them, the time that is involved to enter and review orders became part of the waste that the EHR helps to eliminate. Our passion has to do with eliminating needless harm to patients, not ROI."For Block, the family physician, the soft return on EHR technology is even more basic. "I used to work one night until 8 p.m. just to complete charts," he says. "Now I can go home and have dinner."

What's Measurable, What's Not

Automating clinical documentation has its advantages, but not all benefits are easily measurable.Hard ROI:

  • Eliminate transcription expenses
  • Cut film costs
  • Reduce FTEs devoted to chart pulls

Soft ROI:

  • Improved patient safety
  • More direct care time
  • Enhanced clinician communication

Downright Murky ROI:

  • Competitive edge
  • Lawsuit avoidance
  • Clinician recruitment

 Click here to read parts one and two.

This article can also be found at

Register or login for access to this item and much more

All Information Management content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access