Does Health IT Spending Generate ROI?

How do you calculate the return on investment (ROI) in health IT, and is it different from the way you do it in other industries?

That was the issue in a recent, thought-provoking discussion on the LinkedIn site of the Healthcare Information Management and Systems Society (HIMSS). The consensus was that although value is measured somewhat differently in healthcare than in other industries, it is possible to gauge the ROI of health IT in dollars and cents.

The discussion centered on a blog post by HIMSS executive VP Carla Smith, who cited HIMSS Analytics research showing that "the traditional definition of ROI as used in other industries isn't necessarily a good fit for the healthcare industry; successfully demonstrating ROI in healthcare involves more than simply looking at how much money is saved or earned."

In calculating ROI, HIMSS recommends, providers should consider these factors:

-- Efficiency savings.

-- Improved outcomes of care compared to pre-health IT implementation.

-- Additional revenue generated as the result of an IT implementation.

-- Non-financial gains such as, but not limited to, increased patient satisfaction with care encounters, decreased provider time at work, and higher levels of employee satisfaction.

-- Increased knowledge of providers about the patient population they serve.

[ Big data has value that's often not reflected in the books. Read more at Big Data Analytics: Where's The ROI? ]

Some discussion participants were skeptical about the claim that healthcare is different from other industries. Said one commenter, "This 'healthcare is different' keeps sounding like an excuse to me to not be more circumspect in how the money is being spent (wasted), and moreover, ALL the actual costs are being tracked."

Another participant pointed out that life and death are at stake not only in healthcare, but also in other fields such as the airline industry. "Calculating ROI on intangibles is every bit the challenge in other industries as it is in healthcare IT," he said. "Maybe there are some things in healthcare that are harder to quantify, but it can and should be done."

Also cited in the discussion was the example of Unity Health Care, a safety net provider in the Washington, D.C. area. In Unity's application for the HIMSS Davies Award for community health organizations --which it will receive at the upcoming HIMSS conference in New Orleans -- the federally qualified health center said that over a two-year period, its electronic health record implementation resulted in $12.2 million in additional revenue. Increased efficiency and provider productivity were responsible for the jump in revenue, the application said.

That income rise far outweighed the $5.5 million that Unity invested in the EHR. And the ROI also included $2.66 million in government EHR incentives -- much of it, no doubt, front-loaded through the Medicaid program -- and a nearly $2 million grant from the Health Resources and Services Administration (HRSA) that helped defray Unity's capital investment.

Some of Unity's increased efficiency came from centralized scheduling made possible by the EHR and its integrated practice management system. Overall, provider productivity has increased by 21%, Unity said.

Nevertheless, it took a while for Unity to see the light at the end of the financial tunnel. Its application stated: "The ROI for the project was -64.8% at the end of 2009. We broke even in 2011 and have an ROI of 106% in 2012."

Earlier studies of practices showed a financial ROI from EHRs over time. For example, a 2005 study of small practices found that most broke even on the cost of their systems within two and a half years. But much of the improvement in the bottom line came from staff reductions and higher coding levels rather than higher productivity.

Clinical, patient engagement, and consumer apps promise to re-energize healthcare. Also in the new, all-digital Mobile Power issue of InformationWeek Healthcare: Comparative effectiveness research taps the IT toolbox to compare treatments to determine which ones are most effective. (Free registration required.)