Return of Investment in Healthcare - ROI

Description:


A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

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Keep in mind that the calculation for return on investment can be modified to suit the situation -it all depends on what you include as returns and costs. The term in the broadest sense just attempts to measure the profitability of an investment and, as such, there is no one "right" calculation. This flexibility has a downside, as ROI calculations can be easily manipulated to suit the user's purposes, and the result can be expressed in many different ways. When using this metric, make sure you understand what inputs are being used.

In an effort to provide high quality care in a more cost-effective manner, health care providers have found it necessary to implement a series of decision support strategies designed to improve outcomes of care. While each of these strategies has measurable benefits, each comes along with additional costs. A return-on-investment methodology is used to assess the financial impact of service-related operating expenses compared to revenue gains from service delivery. However, unlike traditional return-on-investment models, in health care, benefits are frequently gained from cost avoidance rather than from revenue enhancement activities. This article describes a methodology for measuring the direct and indirect costs and qualitative and quantitative benefits of decision support activities.
A traditional ROI analysis weighs the financial impact of operating expenses with the revenue gains from service delivery. If projected revenue gains exceed costs, the investment is justified, and if funds are available, then capital is provided for the investment. In healthcare, benefits are usually found in cost avoidance rather than Revenue enhancement. Many of the early healthcare applications were easily justified on the basis of ROI because they performed office functions quickly and efficiently, helping an organization to become more efficient. Scheduling, billing and results reporting were easy sells to a board of director’s intent on quick approval. ROI analysis is not as easily calculated with clinical and decision-support applications, which while clearly adding Value to the patient encounter, don’t necessarily add revenue to the bottom line.

Applications:

There are many applications of IT that uses ROI, look at EMR's for example.

There are many professionals who believe return on investment (ROI) in healthcare technology is a figment of someone’s imagination. Others struggle daily to define to the value of potential information technology installations and upgrades. There is no easy answer. The pressure is significant for all aspects of the healthcare delivery system, from hospitals to private practices, to invest in electronic medical records (EMR). A growing body of evidence supports the conclusion that clinical applications improve quality, boosts patient safety, and reduces lengths of stay, increase efficiency and timeliness of care. These potential benefits are fueling the conversion from paper-based medicine to EMRs.

The price tag for these technologies is high and comes at a time when healthcare facilities and physician practices are struggling to keep financial bottom lines in the black. Additionally, IT investments must compete with many other business opportunities for a facility, such as expanding services or upgrading. Healthcare organizations spend less than 3 to 4 percent of their budgeted capital on IT, far less than other information intensive industries. Investment analyses might reveal all risk and little reward. Yet, clearly the rewards have been documented.

Web Resources:

http://www.ncbi.nlm.nih.gov
http://www.ncbi.nlm.nih.gov/sites/entrez?cmd=Retrieve&db=PubMed&list_uids=10884794&dopt=AbstractPlus
http://healthyamericans.org/docs/index.php?DocID=2

Citations/References:

http://www.investopedia.com/terms/r/returnoninvestment.asp

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