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EHR: Pathway to Healthier Communities Analyzing the Financial Proposition: Developing a Cost-Benefit Analysis May EHR: Pathway to Healthier Communities Analyzing the Financial Proposition: Developing a Cost-Benefit Analysis May 4, 2005

Agenda n EHR Usage Models n Typical EHR Implementation Process n Overview of Cost-Benefit Agenda n EHR Usage Models n Typical EHR Implementation Process n Overview of Cost-Benefit Approaches n Benefits Analysis n Cost Analysis n Results n Conclusions 785/90/82806(ppt) 1

Objectives n n n Understand some approaches for developing a costbenefit analysis relevant to Objectives n n n Understand some approaches for developing a costbenefit analysis relevant to your environment. Link costs or benefits to specific implementation approaches or strategies, as well as system components. Capitalize on materials that are readily available. 785/90/82806(ppt) 2

EHR Usage Models The way in which an EHR is implemented and used, and EHR Usage Models The way in which an EHR is implemented and used, and the functionality available, greatly influences the cost-benefit equation. 785/90/82806(ppt) 3

EHR Usage Models Components While adopting components of an EHR strategy may have benefits, EHR Usage Models Components While adopting components of an EHR strategy may have benefits, they have their own unique cost-benefit propositions. 785/90/82806(ppt) 4

Typical EHR Implementation Process Reporting Health Maintenance Document Encounters Order Interfaces E-Prescribing Scanning/Abstracting Result Typical EHR Implementation Process Reporting Health Maintenance Document Encounters Order Interfaces E-Prescribing Scanning/Abstracting Result Interfaces (lab, transcription) E-Mail and Messaging Configuration and Work Flow “Live Operations” Jan 06 n n System Selected n n 785/90/82806(ppt) n Assess provider readiness. June 06 Oct 06 Develop paper-to-electronic strategy. n Begin implementation of Evaluate impact on operations. phased-in EHR functionality. Convert transcribed documents. n Stabilize first site. Develop and test interfaces. n Prepare to implement Configure and test system. health maintenance. Train users (general, system). 5 Jan 07 n n Mar 07 Roll out to sites. Add interfaces. Review use of tools. Develop QA/reporting systems.

Overview of Cost-Benefit Approaches n Customized/bottom-up. » Obtain data on current costs and revenues Overview of Cost-Benefit Approaches n Customized/bottom-up. » Obtain data on current costs and revenues (staffing, overhead, medical records, lost charges, etc. ). » Document desirable “nonquantifiables, ” such as patient care enhancements. » Have individuals (managers, leads) identify potential benefits (reduction in effort, staffing re-allocation, etc. ). » Summarize assumptions and translate to benefits (either cost reduction or revenue generation). n Evidence-based. » Obtain data on current costs and revenues (staffing, overhead, medical records, lost charges, etc. ). » Survey the literature to identify potential benefit quantification. » Ask “how likely is it to happen here? ” and apply a probability. » Quantify opportunities. 785/90/82806(ppt) 6

Overview of Cost-Benefit Approaches (continued) Developing the best approach for your clinic depends on Overview of Cost-Benefit Approaches (continued) Developing the best approach for your clinic depends on the outcome you are trying to achieve. Bottom-Up Pros n n n Cons n n n 785/90/82806(ppt) Evidence-Based Achieve buy-in and participation from as many individuals as necessary. Individuals identify the benefits, and then can be held accountable for achieving them (in theory). Provide an expectation for implementation. n n n There is some basis for assumptions. Can be accomplished very rapidly (i. e. , workshop setting). Not as much pressure on individuals or areas. n There may be undue pressure to identify benefits (area by area). May take a long time. 7 n Not all assumptions are understood. n Assumptions may not be realistic. Provides a guide for implementation. Not likely to have 100% buy-in.

Benefits Analysis Sample Metrics to Collect Many of the typical metrics discussed in the Benefits Analysis Sample Metrics to Collect Many of the typical metrics discussed in the literature as benefits in EHR implementation (i. e. , reduced transcription cost) may not be relevant. n Provider count and FTE. n Support staff count and FTE. n Ratio of support staff to providers. n Number/FTEs of medical records staff. n Annual visit volume. n Gross charges/revenue. n Medical records cost. n Tests and re-tests. n Patient recalls. n Quality measures (percentage of managed diabetics). n Other costs or benefits. 785/90/82806(ppt) 8

Benefits Analysis Sample Benefits: From the Literature n Improved provider efficiency/revenue. » Reduction in Benefits Analysis Sample Benefits: From the Literature n Improved provider efficiency/revenue. » Reduction in time spent in chart documentation (60% reduction in time). » Increase in physician revenue (20% increase in revenue). » Increase in the number of patients seen per day (10– 15% increase in volume). » Reduction in time clinicians spent looking for charts (20– 80% reduction in time). » Reduced time to write a prescription. n Enhanced revenue cycle. » Reduced service-to-charge entry time (50% reduction in time). » Improved revenue due to improved coding (3– 15% of practice revenue). » Reduction in lost charges ($2, 000–$3, 000 additional revenue per year, per provider, for each 1% reduction in lost charges). 785/90/82806(ppt) 9

Benefits Analysis Sample Benefits: From the Literature (continued) n Reduced medical record staffing and Benefits Analysis Sample Benefits: From the Literature (continued) n Reduced medical record staffing and costs. » Reduction in number of chart pulls by 50– 80%. » Reduction in number of chart pulls for medication refills by 80– 100%. » Chart copying and courier costs reduced by 75%. » Reduced supply cost per chart by 33%. » Enhanced use of space and additional potential revenue (converted chart storage space to exam or procedure rooms). n Operational enhancements. » Decrease in the provider/support staff FTE ratio (10%). » Reduced transcription costs (13– 50%). » Reduced time spent by staff on referral coordination (15% savings). 785/90/82806(ppt) 10

Benefits Analysis Sample Benefits: From the Literature (continued) n Patient care enhancements. » Identification Benefits Analysis Sample Benefits: From the Literature (continued) n Patient care enhancements. » Identification and contact of patients who are overdue for tests and procedures resulted in increased revenue (cited organization identified $670, 000 for mammograms alone). » Reduced adverse drug events via warnings at the point of care. » Changed to more effective drug dosing. » Reduction in redundant lab tests (by 11– 69%). » Alerts on highly abnormal/panic lab result values, which reduced median time to respond. n Other. » Reduced malpractice premiums (5– 10% per year). 785/90/82806(ppt) 11

Benefits Analysis Integration With Practice Management System Some revenue assumptions are dependent on the Benefits Analysis Integration With Practice Management System Some revenue assumptions are dependent on the practice management system (PMS) or integration with the PMS. Patient Scheduling n The percentage of scheduled appointments that do not occur. Patient Registration n The number of claims with missing or incorrect patient demographic information. Charge Capture/ Coding n The number of encounter forms with missing or incorrect information. Charge Entry n n Charge entry lag. Total charges entered. Claims Processing n n The number of claims in edit status. Claim rejections. Payment Posting Account Follow-Up n n 785/90/82806(ppt) 12 Total charges, payments, and adjustments. Gross and net collection rates. Total A/R and days in A/R. Charges sent to collection agencies.

Cost Analysis Vendor-Specific Cost must be compared in an apples-to-apples manner. n Software. n Cost Analysis Vendor-Specific Cost must be compared in an apples-to-apples manner. n Software. n » Required (vendor and third party). » Levels of support and time to resolution. » Optional. n Maintenance. » Provision of upgrades. Hardware and operating system. » Performance guarantee. » Total system warrantee and scalability. n Implementation assistance. NOTE: It can be extremely difficult to obtain commitment and clarity regarding vendor services in order to perform an “apples-toapples” comparison. » Process. » Training. » Configuration. » Custom programming. » Testing. » Rollout and end-user training. 785/90/82806(ppt) 13

Cost Analysis Vendor-Independent Because EHRs can require significant process redesign, user training, addition of Cost Analysis Vendor-Independent Because EHRs can require significant process redesign, user training, addition of new staff, and infrastructure upgrades, calculating only system-related costs can be misleading. n Infrastructure upgrades. n Related devices or systems (PDAs, interface engines, etc. ). n Basic PC training. n Provider productivity. n Internal project and ongoing support staff. n Executive team time allocation. n Operations improvement project costs. n External assistance. n Transitional processes. n “Other vendor” side of interfaces. 785/90/82806(ppt) 14

Cost Analysis Reviewing Pricing Sophisticated vendors know how their competitors’ products are priced. New Cost Analysis Reviewing Pricing Sophisticated vendors know how their competitors’ products are priced. New entrants may not. n Discounts may be provided for being an early adopter, unique setting, or flagship client. n Most vendors will negotiate on software, services, and timing of payments. n n Pricing and terms concessions can best be obtained from publicly traded companies toward the end of the quarter (or year). Ratios can be applied to review the cost of individual items. » Software/total capital cost = 40– 60%. » Software/total 5 -year cost = 20– 35%. » Implementation/total capital cost = 30%. » Maintenance/total 5 -year cost = 15– 25% » Maintenance/software cost = 25% per year. In a recent large group project, the difference between EHR vendors was $250, 000 over 5 years on a $5 million deal. 785/90/82806(ppt) 15

Cost Analysis Example Capital Costs Vendor 1 Application Software Licensing $ Vendor 2 2, Cost Analysis Example Capital Costs Vendor 1 Application Software Licensing $ Vendor 2 2, 099, 522 $ 1, 007, 551 Interface Development 135, 000 20, 000 Vendor Services 398, 400 159, 310 1, 206, 362 1, 411, 757 $ 3, 839, 284 $ 2, 598, 618 $ 1, 889, 930 $ 1, 019, 073 Interfaces 111, 600 23, 852 System/OS and Hardware Costs 260, 091 286, 551 $ 2, 261, 621 $ 1, 329, 476 $ 6, 100, 905 $ 3, 928, 094 System/OS and Hardware Costs Capital Costs Subtotal 5 -Year Operating Expenses Application Software Operating Expenses Subtotal TOTAL 5 -YEAR COSTS 785/90/82806(ppt) 16

Cost Analysis Pay-As-You-Go Using your rollout approach, develop a multiyear cost model that is Cost Analysis Pay-As-You-Go Using your rollout approach, develop a multiyear cost model that is palatable to the organization. n n PPM Interface (patient demographics) PPM Interface (charges) View-Only Access (all providers) n Laboratory Results n E-Prescribing n n Encounter Documentation Rollout (select providers) Document Imaging Transcription Upload (if relevant) 785/90/82806(ppt) 17 n Laboratory Orders Interface n Health Maintenance n Disease Management n Reporting

Results Case Study The results of your analysis may or may not be favorable. Results Case Study The results of your analysis may or may not be favorable. Year 1 Cost Benefit Difference 785/90/82806(ppt) Year 2 Year 3 Year 4 $1, 000 $200, 000 150, 000 250, 000 350, 000 $(900, 000) $(50, 000) $ 50, 000 $150, 000 18

Results Case Study (continued) n Adjust system phase-in (decreased capital costs). n Consider an Results Case Study (continued) n Adjust system phase-in (decreased capital costs). n Consider an ASP-model. n Delve into interfaces (phase later or earlier). n Change some of the functional rollout. n Clarify expectations with end-users. 785/90/82806(ppt) 19

Results Potential Barriers A good ROI can be foiled by: n n n Failing Results Potential Barriers A good ROI can be foiled by: n n n Failing to link desired benefits to the implementation plan. Failing to give the vendor incentive to assist you in achieving your desired benefits. Aspects of the system that do not quite function the way you thought they did. 785/90/82806(ppt) 20

Conclusions An ROI should be a road map. n n Understand your implementation approach Conclusions An ROI should be a road map. n n Understand your implementation approach as you analyze vendor costs. Do not completely discount a potential benefit (or risk) because it is not FQHC-related; try to translate it. Do not try to turn benefits quantification into rocket science. Revisit the ROI occasionally through the implementation and make adjustments as you learn about the system and your organization. 785/90/82806(ppt) 21