As 2014 nears an end and we approach the budgeting, planning, and RSNA I wanted to take a moment and visit a common topic associated with all of the above: The ROI.
Most leaders in healthcare, from the C-Suite Executives, to Directors of Radiology, or Service Line Leaders, they are all familiar with the “ROI.”
For those of you that may not know what I am referring to, ROI simply refers to the “return on investment.” Inside most hospitals or healthcare organizations there is a planning process that allocates dollars every year to purchase new capital equipment. Technology such as MRI’s, CT’s, Linear Accelerators, DaVinci Robot’s, Interventional Radiology Suites, Pyxis Machines, PACS, or EMR’s are all subject to the ROI.
In most organizations the leader or team that is generating the request to purchase or acquire a new piece of equipment that has significant costs (maybe anything over $5,000, $10,000, or maybe $40,000; varies depending on organization criteria) associated are most often asked for a business case.
The purpose of the business case is to capture the reasoning for initiating the project. In this case, the acquisition of medical equipment. When resources are to be consumed, such as money or effort, there should be a specific business need to support the use of those resources.
With any business case there are a few key items that need to be included such as the assumptions being made. As an example, a cancer center may want to move from a mobile provider of imaging services to purchasing their own equipment. The assumption is that it will increase the performance of the cancer center. However, the business case starts to see that competitively it increases market share, it improves patient access to timely imaging, decrease the amount of time to get a diagnosis or progress report on if treatment is working or if it needs to be changed, which impacts patient outcomes as well as associated costs to the organization.
The business case takes into consideration some assumptions, looks at the costs associated with the purchase, the benefits, the risks, the strategic opportunities, and the strategic costs. At the very end, you get a summary and a set of recommendations.
A normal component of the recommendations is the ROI (return on investment). ROI simply means how long is it going to take me to see the positive outcomes from making the initial investment. In the above scenario, it could be 18 months. So in essence, I am telling the committee that if they award me the dollars to purchase the new technology that I will be able to show them a positive outcome, usually in revenue, profits, and market share (number of patients) in 18 months.
Here comes the big question: HOW MANY TIMES IS THE ROI OF THE BUSINESS CASE REVISITED IN HEALTHCARE?
I can tell you from my own personal experience, not often.
I personally have worked for 7 healthcare systems in the US and only 1 has ever made it a routine part of their reviews to revisit the ROI and original business case.
In addition, I have had the privilege to collaborate, interview, and discuss this same topic with 100’s of organizations around the world, and I get the same response.
I hear things like, “We are too busy running a department” or “We do not have time” or “There is no formal process to revisit the initial business case” or “Once we have the equipment no one cares about the original business case or ROI, we just need to use it.”
I understand. Everyone in healthcare is busy.
Yet based on our population growth of those needing to use healthcare, the increase on advanced imaging will grow about 7% in the outpatient setting. If you take into other factors and considerations, there are other studies that estimate advanced imaging to grow as much as 10% in 5 years.
Mix in the fact that most hospital budgets to purchase new technology is staying the same as their 2013 allotments, or decreasing slightly. On the other end, the number of requests for new purchases is growing by almost 300%.
So when healthcare organizations are trying to spend less on purchasing new technology because they have less available to spend, then why is there not more focus on the original business case and ROI?
I know personally, I have always made it a priority to deliver on my original business case. I found that it increased my creditability with the leadership and internal teams responsible for allocating those initial dollars. It made things easier the next time I had to ask for an investment. It increased my SAY-DO ratio within the organization.
I always made sure to articulate the ROI story. Even if I missed.
The one thing I realized early on, is that the ROI story is NOT about the return on investment….
ROI is a story on the RETURN ON INTERESTS.
The interests of the hospital, the board of directors, the leadership team, the physicians, myself, and most importantly, the patients and the community.
I am hopeful healthcare will continue to focus on stories and their ROI-RETURN ON INTERESTS.
As always, you can feel free to contact me at: CANCERGEEK@GMAIL.COM or follow me on twitter @cancergeek