Electronic Health Records (Understanding Return On Investment Project) Research Paper Samples
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In the reality of national health organizations of the 21st century, one appreciates the complications and the problems involved in making unnecessary money-spending moves. The first decade of the 21st century has offered a length of trials for the American economy unperceived and phenomenal for all, except maybe the generation that lived through the 1930ies. Nevertheless, it became evident that money is a scarce resource and in terms of a company, the money value is of critical importance. Cash flows is of critical importance as well for managers and CFO’s at this puzzling post-2008 period across the country; adjustments to the cash flow and modifications to the balance sheets of an organization involve a strict level of reasoning, particularly if or when the monetary amount of the adjustment rises. This merciless approach comes in conflict with the compassion and kindness that needs to accompany decisions made in the health care industry. Passions become more intense when quality-of-care choices are made and the comfort of consumers (patients) is at stake. There comes a moment when corporations like healthcare organization have no choice but to endure the spending of their money. But at the same time it is crucial for such an organization to get the most out of their money’s worth. In fact, this process, when simplified comes down to this notion: any procurement of capital, or a capital expenditure, has to compare to a reasonable and gainful Return on Investment (ROI) for stakeholders –such as the state or the municipality in many cases- to consider it a worthwhile outflow for a company. While this is not a concept limited only to the healthcare industry, it is predominantly vital in keeping a healthcare organization afloat at first and operating at second in such a complex field. The intricate nature of the medical industry is exceptional, and provides a largely problematic environment to conduct business to and encourage change. The uncomplicated concept of ROI is demonstrated in a rather long, yet thorough, rationalization of capital expenditure process.
Parallel to the economic recession of the first decade of the century in the USA, the technical and scientific transformation is perhaps at its highest. It is indisputable that technology has converted the healthcare industry. Imaging has altered the differential diagnosis procedure, laboratory testing has advanced to an accelerating speed, insurance companies have i-phone applications, and customers are employing technology to educate themselves on managing their chronic illnesses. As a result, it should give the impression of being rhetoric then, the following question: if Health Information Technology (HIT) can advance this transformation through the application of Electronic Medical Records (EMR), then why are they not used by every medical organization in the USA, irrespective to the extent or complication of that organization? The retort is unfortunately quite simple: that kind of know-how and equipment is expensive and requires reasoning for the money spent.
The issues involved in the reasoning of money spent can be examined through a fictitious main care medical office in a residential neighborhood. This main care office has three full-time employees, a board-certified physician, a specialized physician’s assistant, six listed nurses, and eight medical deputies. The office sees roughly fifty patients a day, and is open throughout the day (three eight-hour shifts amounting to 24 hours per day). The key population that the practice aids is coming from the working-middle class. The mean age of the patients is fifty-three while the major third party financier is a private insurance company and at the same time, Medicare is also accepted. Typical examinations take place for ordinary illnesses like influenza or a bacterial infection as well as lasting medical conditions like diabetes or hypertension. Recently, the office saw an increase in incoming incidents, leading the medical office to offer a position to a fresh graduate of an Internal Medicine Residency program. The young physician is surprised to find that there is no Electronic Medical Records system, and no records of the patients as a result. The senior doctors dared her initial confusion by giving the young doctor her first trial: to convince them into obtaining EMR software.
First, a fiscally practicable, sincere argument would need to be formulated to demonstrate the commonsense need for the purchase of the EMR software for the medical center. But what makes EMR, a worthwhile outflow? A Return on Investment (ROI) is officially defined as “a calculation of the most concrete financial gains or benefits that can be expected from a project versus the costs for implementing the suggested program or solution.” . The first difficulty of this spending is the nature of the ROI that the acquisition of an EMR software would generate. If the expenditure in question happened to be a new MRI machine then insurance companies would compensate the medical center with a higher amount because of more practical and cost-effective results, the ROI would be thought of as a “hard” investment. This noticeable and measurable financial return would provide instant profit and swiftly cover the initial investment cost. Nevertheless, when arguing for the acquisition of EMR, after the initial investment of a specific amount of money -cash outflow- there is no instant profit -cash inflow-. This problem is more frequently referred to as a “soft” ROI, or acquisitions that offer a qualitative benefit rather than a quantitative one.
Typically, soft ROI’s require a more challenging reasoning. Research has shown that such subjective benefits of an EMR would be useful and especially valuable eventually for a healthcare institute in terms of increasing productivity, which can lead to a growth in overall efficiency and finally revenue improvement over time. According to physician, Ashish Jha, “Health information technology, especially electronic health records, has the potential to improve the efficiency and effectives of health care providers.” . Furthermore, the quality profits of Health Information Technology (HIT) are classified into standards. These criteria include: “electronic results review, computerized physician order entry (CPOE) including electronic prescribing, electronic health record (EHR), claims and eligibility checking, patient-doctor electronic communication, and provider-to-provider communication” . This tangible data will ideally reinforce the argument for EMR acquisition.
As soon as the product has confirmed as promising and within a reasonable price range, it may go through a detailed fiscal breakdown that can be completed using the Discounted Cash Flow (DCF) Method . The important mechanisms of the DCF method consist of a Net Present Value Analysis (NPV), a Profitability Index (PI) mesurement, and an Equivalent Annual Cost (EAC) estimation. These three indexes will play a great part in determining the “financial or economic feasibility of the product.” .
Initially, the NPV evaluation will be examined. Cleverly defines the NPV as “the difference between the initial amounts paid for the investment and the related future cash inflows after they have been adjusted (discounted) by the cost of the capital” . In simple words, the NPV is an operative tool when there is a range of payment options for a product or numerous products to be bought. For example, if the company that sells the EMR software offers an option to either buy the EMR (with a nominal price of $50,000) for an early investment of $40,000 with a 10% discount, the NPV would be estimated to be -$36,000. This was calculated as follows:
Rate x early investment (10% x $40,000) = $4.000 minus the early investment ( $4.000-$40,000) totaling our total, -$36,000. This can be linked to the different payment option offered by the seller, allowing for $10,000 payments over 5 years with the identical discount of 10%. This generates an NPV of approximately -$37,907 with the use of the same calculation. This NPV measurement showed the two options of financing alternatives presented by the seller and demonstrated that it was fiscally preferable to purchase the EMR with a larger initial investment.
Another fiscal technique to be used during the financial analysis portion of capital expenses justification is the Profitability Index (PI), which “attempts to compare rates of return.” . To compute the Profitability Index, the NPV is divided by the investment expenses. The Profitability Index is consequently calculated to be 0.95 (--$36,000/ -$37,907). In spite of likely limitations in a practical situation, the PI value of 0.95 would back the acquisition of this specific EMR software because it is a positive number.
Finally a fiscal method being used in this examination is the Equivalent
Annual cost, defined as “the expected average cost, considering both capital and operating costs, over the life of the project.” . This technique must take into account the following calculation: present value of the functioning costs plus the present value of the investment, divided by the present value of the income. This method needs a table that was not available and as a result was not taken into consideration, but is considered nonetheless for academic reasons.
With the above estimations, and in order to decide whether the acquisition of the EMR software can be thought of as an frugally practicable purchase, it is evident that the ROI index for this procurement would be established by numerous separate factors, including an upsurge in the number of patients, due to superior customer satisfaction (with an emphasis on time spent on queues, and faster response times for prescription replenishments) as well as a general net increase in cost-effectiveness per worker. From the time that this medical business employs three senior physicians and one junior physician the acquisition of the software would reimburse the office provided that all of the physicians exhibited a net profit of more than $12,000 per year. In order to determine if that is the case, we will examine the paradigm of Samuel Wang, which presented a net profit of $86,400 per provider over a five-year period succeeding the acquisition and implementation of an EMR . The money spending justified above have to be supervised to preserve its profit for the medical office. It is unquestionably just as vital to track and oversee the development of the software program’s performance, as it is to rationalize its acquisition. The newly hired doctor in the healthcare organization will lead a committee to track the effectiveness in the implementation of the software. It is advised that for the first three years of the implementation, the introduction of meetings to monitor the program’s effectiveness and meetings every six months for the next three years. This group will use inner aspects of the EMR that include user statistics, doctor error reports, and customer satisfaction reviews, to collect information and monitor its total success degree.
Through that system, communicating, monitoring and amassing data of patients with lasting disorders can point to wellness initiatives and the total dropping of healthcare costs for patients. For example, through clarifying aspects in the EMR purchased by the medical office, a report concluded that Diabetes Mellitus was the diagnosis with the peak occurrence among the patient population. Patients were being prescribed medicine 91% of the time for the illness, and insulin treatment was used in 46% among them. From this figures, the healthcare organization decided that its costs of operation could be reduced significantly if the figure of patients being prescribed with insulin therapy could be dropped. This can be realized by applying a free diabetes tutoring and lessons that deal with the reasons that cause the illness along with a nutritional provision class at the premises of the medical office, once a week for a short trial period. It was assumed that this class would increase health knowledge of that chronic situation. Diabetes education is aiming to the reduction of the insulin therapy needed through nutritional support and family member training.
The Diabetes nutritional support class is only one sample of how an EMR system can increase effectiveness and reduce functioning costs well after the initial investment has been paid. The net benefit per physician, as well as the options to utilize the features of the EMR and interpret them into cost-saving results for the medical office further promotes the initial conclusion, through the above clarified ROI-decision making procedure and fiscal analysis, that a money expenditure for an EMR is correct and economically practicable for this business. Even though this specific instant Return on Investment is a soft, qualitative one, the profit, as demonstrated above, will permit for more cash inflow in a multitude of facets and prove not only to be a justifiable spending, but an extremely fruitful as well.
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