Pencil Sharpener
I challenged vendors and business partners to sharpen their pencils in a recent column for hfm magazine. I said the the return on investment to the hospitals and health systems via the solutions they deliver should be clear, simple to understand and of a magnitude worthy of urgent attention. Now I would like to offer more details behind this challenge hoping to shine a bright light on those investment opportunities that hospital executives should be embracing.
First, one must recognize that CFO’s rarely have the power to unilaterally make significant investments targeting operational improvement. These tools cannot be implemented in isolation. Many other facets of the organization are impacted and therefore must also embrace the initiative following the purchase decision. Therefore, any return-on-investment discussion must speak to the priorities and interests of all stakeholders in the decision. Most health system dashboards include Quality, Patient Experience, Financial Performance and Employee Engagement metrics. The best return on investment presentation will touch on most if not all of these areas of importance. I offer the following template as a potential guide those executives seeking to improve the strength of their value proposition.
I have developed a pro forma template with a hypothetical investment in new artificial intelligence software (as a service) that performs routine tasks around eligibility and pre-authorization of care.
The investment section quantifies the cost of implementing and maintaining this service over a three-year period. This could run out more years if applicable. This investment includes some set-up expense and then annual labor required to monitor and perform quality assurance activities on the tool.
The value section of the template has five sections for consideration.
Quality – While this can be used to address impact on the actual quality of care, if applicable would be a very powerful addition to the value proposition. Here the focus is on the quality of the current activities to be automated. There is a base assumption of the total number of transactions processed in a year, the current error rate and the time required to resolve those errors. This is real savings. The template allows for other expenses that may be incurred in correcting errors. Service recovery expenditures as an example if the error brings harm to the patient.
Patient Experience – While this often is not a hard dollar savings to the organization, reputation and brand loyalty are highly valued. Most hospital leaders talk about the importance of providing outstanding service, so this is an opportunity to bring home just how this solution will deliver on an outstanding patient experience. In the example the focus is on the telephone follow up that occurs with patients when insurance has not been secured for care the patient is seeking.
Cost Savings – this includes those expenses that are directly avoided through the investment in the proposed software. Since this is artificial intelligence replacing manual activity those person hours eliminated are captured.
Incremental Revenue - This could include new revenue through improvements to care processes that extend capacity, or facilitate better charge capture, improved coding, or in this case avoiding denial of payment.
Cash Acceleration – This is the value of converting receivables into cash at a faster rate. It can be a little misleading as the full value of money that would ordinarily be collected days or weeks later overstates the actual value of the acceleration. Perhaps it would be more accurate to use an average interest rate on investments over the reduction in time to collect. In any event, shorter cycle time on the collection process does reduce uncertainty in collections and is valued by finance leadership.
Well, this is my first shot at pulling this analysis together in a simple yet complete picture of the key variables in communicating return on investment. I look forward to refinements and practical application that sharpens decision making and elevates the financial performance of those organizations and executives using such a tool. I welcome your feedback.
Thank you.
