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Demonstrating ROI in Health IT

Leaders must identify a real return on investment from their technology choices.

Not all health IT translates to an immediate ROI.

For example, the financial benefits of implementing electronic health records (EHRs) or population health management platforms may not be experienced for several years down the road. Even some revenue cycle applications do not immediately translate to hard-dollar cost savings until months later.

Leading in health IT means clearly demonstrating the ROI of the chosen technology, especially when confronting a major healthcare spending challenge, such as purchased services. Although purchased services comprises more than 35% of a healthcare organization's non-labor budget, few hospitals are able to accurately determine where those millions of dollars are going, let alone find savings opportunities.

The existing IT solutions to manage such spending, such as spreadsheets and generic reporting tools, are inadequate to provide timely, reliable and comprehensive analysis across the thousands of potential service vendors. To demonstrate knowledge and leadership, health information professionals need to identify technology for their hospitals that allows them to easily visualize spending across this enormous amount of data to find savings opportunities and a real ROI.

Data Analytics Revenue Cycle Identifying Hard-Dollar Savings

SEE ALSO: Building a Data Analytics Program


Until recently, IT solutions to help analyze and manage healthcare spending have been mostly focused on reducing unnecessary clinical services and excess supplies.

Medical, surgical and lab products, in particular, have dozens of available IT solutions available to track and manage costs, plus those prices are largely controlled by group purchasing organizations (GPOs) and major national distributors. Despite the millions of dollars of savings opportunities available in purchased services, only now are solutions emerging to confront this large segment of healthcare spending. Without this technology, savings projects for purchased services spending are typically outsourced, but some hospitals manage the process internally.

For example, a contracting specialist or director of sourcing strategy will realize that a service vendor's contract is about to expire. These professionals will then try to extract data from numerous financial sources across many facilities and then analyze it using spreadsheets or generic reporting software. The main challenge facing these busy professionals is that spreadsheets do not automatically update, so they have to transfer information from one or many sources into the document each month. Spreadsheets also are prone to user error, such as miscalculations or forgetting to drag formulas down, impacting reliability.

In addition, most generic reporting software does not categorize vendors for the hospital. This limitation requires contracting professionals to go through the labor-intensive process of researching and manually entering the numerous vendors in each category across all facilities and departments.

More commonly, the other method of identifying purchased services savings is through hiring a consultant to perform all of the previously described work, but for a hefty fee. An expensive consultant, or GPO, however, typically bases analysis on data that is several months to more than a year old. This results in a static spending performance report delivered after several months. In the elapsed time, purchased services vendor contracts may have expired or automatically renewed, forcing the hospital to wait through another contract term without timely information to evaluate the agreement's fairness.

Even considering the extra time and expense, consultants are typically only able to categorize 80 percent of an organization's purchased services vendors instead of the 95 percent that less expensive data analytics technology can categorize in days instead of months.

Not Just Data, But Actionable Intelligence

Leading IT platforms focused on purchased services are now delivering not only real-time data but also actionable intelligence that was previously unavailable with other tools or only partially obtainable through consultants.

In as few as five days, advanced analytic technology can upload and analyze all of an enterprise's spending data. Through categorization knowledge and algorithms, the technology can identify and correct for miscoding so a complete spending picture for every purchased services vendor is now viewable in real-time across more than 1,200 unique categories.

This insight allows hospitals to visualize spending trends and identify rogue vendors, which, when eliminated or renegotiated, can easily save at least five percent to 10% on those costs. Hospitals can also identify on- and off-contract spending, which off-contract spending is actually much more common than many contract professionals assume. They can use that previously difficult to find information to build savings projects and track performance to ensure vendors are complying with the terms of the contract.

Revenue Cycle Health Data Reurn on Investment ROI Just viewing spending data, however, is only part of the advantage that leading purchased services IT analytics delivers. The platform should include a robust client database, so hospitals can view continuously updated spending performance from hundreds of hospitals and health systems for timely and reliable benchmarking.

Comparing a hospital's spending against actual data from peer organizations, down to the price per pound, delivery, adjusted patient bed or whichever benchmark metric is important to the organization, truly offers negotiating leverage when vendor contracts are slated to renew.

Being able to view when contracts expire is also crucial information leading IT professionals should be able to deliver. Hospitals can use that information to extend selected agreements so all vendors across any given category have the same contract expiration timeframe. This compels vendors to compete for a greater share of that health system's business, which can only work to its favor.

Leading the Way

Simply creating an electronic version of a paper-based process does not translate to leading in IT. Attempting to categorize thousands of vendors across an enterprise in Excel is a labor-intensive, costly, months-long process.

Leading IT analytic tools transform the process, delivering automated, real-time visibility and insight where none existed before. Now, in a few clicks, hospitals on their own can identify and pursue potentially millions of dollars of savings opportunities supported by reliable evidence to drive their vendor management strategy and contract negotiations, resulting in a maximum return on their IT investment.

Chris Heckler is president and chief executive officer at Valify, an analytics and benchmarking solution for managing hospital-purchased services.

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