Cost benefit and economic approach related to health care services system - Research Paper Example

?Return on Investments Identify the strategies to improve or resolve health systems issues (per 27 groups) for a patient population by collecting literature on the solutions to the issues in the health systems. Health care systems have become a primary concern throughout the world. In 2002, mental disorder and non-communicable diseases accounted for 42%. In order to respond to this challenge, certain initiatives have been taken by World Health Organization. W.H.O has joined hands with certain healthcare institutes to deal with this challenge at global level. Globally, there are certain common problems which are faced by the health care organizations. In subsequent paragraph, a brief look has been given upon the overall issues which prevail in the health care units globally. Issues in Healthcare System The health care system is facing serious problems globally. People’s health care needs are not being met in an adequate manner. The reason is there are countless cases of illness and diseases each day. Fortunately, there are also numbers of solutions available to deal with these day to day problems. According to The Centre for Health Design, (2001), the most common problems which are faced by the overall health care sector are: Issues related to Patient Care Issues related to patient satisfaction Issues relating to accommodating innovation and change Issues related to operational efficiency Environmental Impact Responding to uncertainties. (The Centre for Health Design, 2001, p.4) In order to resolve these issues, a certain policy framework has been designed which can assist in solving such critical yet important issues. The policy framework designed to meet these problems is discussed in subsequent paragraphs. Policy Framework for Improving Healthcare System According to Bradley, Pallas, Bashyal, Curry and Berman (2010), a framework has been designed to ensure financial protection and adequate access to health care systems. It also strengthens the delivery systems in order to serve vulnerable people. Six factors determine whether the goals at organizational level are achieved or not in order to enhance the level of performance. They are: i. Quality ii. Efficiency iii. Utilization iv. Access v. Learning vi. Sustainability Quality Maintaining the required level of quality is the foremost requirement for healthcare systems. Improper quality can endanger the valuable life of patients. In order to maintain quality, it is essential to keep track of the quality in three major areas, they are: Clinical quality Patient experience Management quality There are several measures required to be taken care of for these areas. By evaluating the performance of these measures, it can be determined whether the quality is up to the mark or not. These measures include avoidance of medical errors, level of satisfaction of patient, availability of medical supplies, adherence to clinical parameters and medical records system. Efficiency Efficiency is defined as the way by which an organization utilizes its resources to meet the demands. Three measures which define the level of efficiency of a health care system include: Number of patients or patient volume Ratio of staff to service Ratio of cost to service The above mentioned measures can define the level of efficiency of a health care system. It can be determined by observing key indicators like health workers or nurses which are available for each bed or visits of outpatients or inpatients per day, per health worker or per bed. It should be borne in mind that it is not necessary to allot maximum number of nurses to each bed in order to meet the benchmark efficiency but in essence what it means is that the number of nurses available must not be less than the number of patients or number of beds. Utilization Utilization can be measured by: Patient volume in regards to capacity Patient volume with respect to the population of health characteristics. The key indicators which can measure the level of utilization are visits of outpatient per provider and percent of patient’s occupancy. Utilization means to make the most of the full capacity of health care unit which means that if the hospital or clinic has the capacity of treating 100 patients but the hospital or clinic has allowed to treat 50 patients than that specific organization is underutilizing its resources or in other words, there is possibility of treating more patients. This situation can work in against of patients’ healthcare requirement and hospital’s productivity as well. Same goes if the healthcare unit is doing opposite of it which means that it is over utilizing its resources which means that the hospital has the capacity of 100 patients and 150 patients are being treated then it would be unfair to the deprived patients because they’ll suffer from more problems. Access There are several domains of access which include: Information access Physical access Linguistic access Financial access Non-discriminatory service i.e. providing services to every patient regardless of their cultural background, race, gender, age, religion, class or ethnicity The key indicators which determine if the services of hospital are accessible or not are affordability of services, geographical location, hours of operation, availability of relevant linguistically and culturally appropriateness, absenteeism of staff, doctors or nurses and level of affordability for services. Accessibility is the most prominent issue which needs to be addressed in order to improve the overall quality of healthcare organization. A professional healthcare organization is approachable and accessible for every type of patient regardless of prevailing discrimination in society. Learning Learning is another important aspect to be addressed while improving the overall quality of healthcare unit. Learning can be gained by: Continuing education and training for the workforce of healthcare organization Processes for feedback and audit of data Innovation and adoption Practices for improving an environment of learning in a healthcare organization can be done by using balance scorecard for measuring the organizational performance. Using suggestion box for getting feedback from patients is another good idea. Other tactics include presence of systems through which nurses and other staff can inform about errors to the management of hospital Sustainability Sustainability refers to the survival of healthcare organization in long run. There are certain aspects which influence the sustainability of the organization. They include: Staff commitment Financial Support Political support Patient and community support Strategic planning Human resource supply More specifically, sustainability in a healthcare organization can be implemented by involving community leaders in the planning and monitoring of facilities. Vigorous connection with workforce is also required in order to do so. The most important area which can enhance the sustainability status is strategic planning. Process of strategic planning is required to promote the organizational fit with the external or environmental conditions. 2. Integrate the solutions and cost analysis by using return on investment approach.  The more important factor than determining strategies is to implement them. If strategies are formulated but they are not implemented in an appropriate manner then they are useless. Strategies are primarily formulated before doing any major investments. Therefore, the cost of implementing strategies must also be determined along with the formulation of strategies because any strategy which is not feasible to implement is redundant and do not possess any value. While formulizing strategies but having lack of appropriate course of action can subvert the entire planning process. Return on Investment Approach The most prominent criteria for analyzing whether the investment will fall in favour is to utilize the approach of Return on Investment. ROI not only helps in evaluating the efficiency of a single investment but it also helps in comparing the efficiencies of several viable options of investments. For calculating ROI, the following formula is used: ROI = (Gain/Return from Investments – Initial cost of Investments) Initial cost of Investment Calculation of ROI can be modified as per the requirement. It depends upon what is taken as cost and gains. There is no one single way of calculating returns from investments but the most commonly used method is the one which is mentioned above. In an effort of offering the best quality care in the most affordable and cost effective manner, health care providers observe that it is necessary to put into practice a series of strategies to enhance the outcome of health care. The strategies which are mentioned above definitely have some measurable advantages and benefits, each of these strategies also come along with additional cost. The return on investment approach is used to measure the financial impact of incurring service related expense compared to the gains that will be generated by the service delivery. However, in the field of heath care, the traditional approach of return on investment takes a different way because in the health care sector gains are not generated by revenue enhancement activities but only by cost avoidance. ROI assesses the financial impact in such a way that if projected revenue gains go above the costs, then the investment must be acquired. ROI in health care cannot be calculated easily by decision support and clinical applications, because at bottom line, adding value to the patient care do not necessarily improves the amount of gains. Return on Investment (ROI) of Electronic Medical Records Before incurring cost on any business, it must be determine that how well the estimated benefits stack up against the required cost of that project. This process is also known as determining the ROI or Return on Investment. In this paper, in the subsequent paragraphs, a comprehensive analysis has been so as to determine the ROI of Electronic Medical Records (EMR). The financial formula of calculating ROI has already been mentioned earlier however some other ways through which ROI can be calculated are mentioned below, which include: 1. NPV (Net Present Value Method) 2. IRR (Internal Rate of Return) 3. Payback Period Method Benefits of Using ROI for EMR ROI determines the level of return that a project is expected to generate. If ROI is negative or other alternative projects have higher ROI, then such investment should not be accepted which has relatively lower or negative ROI. For ambulatory EMR, ROI can benefits in following ways: Provide measurement of the estimated costs and estimated benefits. During the implementation of the investment procedural, the estimations can be set as benchmark and performance can be evaluated on the basis of that benchmark. Standardized methodology assists in comparing about other alternatives across organizations. Expenses to Consider for EMR The basic reason of calculating ROI for EMR is to determine the approximate amount of expenses for comparing with benefits or returns. The expected costs of EMR are most likely to be incurred on: Cost of software or license fees ASP costs or Hardware costs Expenses of interface Maintenance cost Installation costs Operating costs Benefits to Consider for EMR The benefits of the project must be determined in order to compare the costs or expenses. If benefits are higher than expenses, the project must be undertaken and vice versa. Measured benefits which can be availed from setting up EMR include: Increased level of revenue due to new capacity of patient’s visits because of improved physician’s productivity. Decreased costs of transcription Decrease in costs of staff related to medical record and billing Increased revenue due to recovered lost billings and improved coding Accounts receivable days will decrease Decrease expense of record storage Reduced level of physician’s malpractice that avail the opportunity of charging higher amount under the head of medical records. Costs of redundant or duplicate orders will decrease, for instance for capitated patients. Productivity of support staff and nurses will increase Cost of medical audits will decrease due to reporting capabilities of Electronic Medical Record. Savings can increase from the preventive measures of administration Cost will decrease which is associated to the adverse events by the use of drug-laboratory alerts, drug-allergy and drug-drug. Induced Cost (Loss of Productivity) Incremental Costs Loss of revenue of physicians Costs related to internal support staff Cost related to transitional staffing Intangible Benefits Apart from all the above mentioned tangible benefits, there are also some intangible benefits of EMR to consider. They include: Quality of patient care will improve through integrity and accessibility of charts. Systems alerts will help in adhering to the guidelines of clinical practices Systems flags will assist in HEDIS compliance and disease prevention System’s reporting tool will help in clinical reporting EMR’s drug database will assist in screening of drug interaction Reporting capabilities of management will improve Electronic access of patient’s information will help in improving the recruitment, retention and productivity of clinicians. By evaluating each cost and benefit, it can be observed that benefits of implementing EMR are much greater than its expenses therefore it is evident that ROI of Electronic Medical Records (EMR) is positive which means that this project must be undertaken. 5 Year Projection of Return On Investments of Electronic Medical Records Projected Cost Initial Cost Year 1 Year 2 Year 3 Year 4 Year 5 Total     Cost of software or license fees $10,000 - - - - -   ASP costs or Hardware costs:   Hardware= 3 Workstation x $1000 each $3,000 - - - - -   Server/ Network $2,000 - - - - -   Tablet PC (For Provider) $2,500 - - - - -   Expenses of interface $600 - - - - -   Maintenance cost:   Software $2,000 $2,000 $2,000 $2,000 $2,000 $2,000   Computer $1,200 $1,200 $1,200 $1,200 $1,200 $1,200   Installation costs (total 20 hours x $100 per hour) $2,000 - - - - -   Operating costs $500 - - - - -   Induced Cost (Loss of Productivity-20 hours) $5,000 - - - - -   Annual Gross Cost $28,800 $3,200 $3,200 $3,200 $3,200 $3,200 $44,800 Projected Benefits Initial Benefits Year 1 Year 2 Year 3 Year 4 Year 5 Total     Increased level of revenue - $5,000 $5,000 $5,000 $5,000 $5,000   Decreased costs of transcription - $2,000 $4,000 $4,000 $4,000 $4,000   Decrease in costs of staff of billing department - $15,000 $15,000 $15,000 $15,000 $15,000   Recovery of lost billings and improved coding - 10,000 $28,000 $28,000 $28,000 $28,000   Accounts receivable days will decrease - - - - - -   Decrease expense of record storage - $1,000 $1,000 $1,000 $1,000 $1,000   Reduced level of physician’s malpractice - $1,000 $1,800 $1,500 $1,200 $1,600   Costs of redundant or duplicate orders will decrease - $500 $500 $500 $500 $500   Productivity of support staff and nurses will increase - - - - - -   Cost of medical audits - $10,000 $10,000 $10,000 $10,000 $10,000   Savings from preventive measures of administration - $1,000 $1,000 $1,000 $1,000 $1,000   Cost related to the adverse events of drug-laboratory - $1,200 $1,000 $1,300 $900 $1,000   Gross Annual Benefits  - $46,700 $67,300 $67,300 $66,600 $67,100 $315,000 Return On Investment               Return on Investment = 6% Cost Benefit Analysis Cost Benefit Analysis, also known as CBA approach is essentially similar to the ROI approach. In ROI, the returns, benefits or gains of an investment are determined before putting the investment into practice. Same goes with Cost Benefit Analysis. In CBA, the benefits are evaluated before incurring cost on any strategic plan. CBA in health care sector refers to analysing the health care expenditures in regards to the possible medical gains that the initial cost might bring. This analysis assists when health care organizations are encountered by the limitation of resources or when they have to select one option out of the several available viable options. 4. Writing the strategic plan integrating cost analysis, return -on-investment analysis.  Application of Strategic Plan After briefly discussing both the methodologies of analyzing costs of health care sector, there comes the final step of making a strategic plan which incorporates not only strategies but the potential costs as well. The development of strategies provides a roadmap to the health care organization and is considerably important for the present economic conditions. Despite of such importance, strategic planning is often underutilized in the health care sector. The process of strategic planning is often considered as a ritualistic task but executives of large organizations invest a lot of resources in making an appropriate strategic plan. Apart from the apparent benefits of the strategic planning process, the process, if done adequately is very helpful in team building and creating eagerness for future action and change. The first step in strategic planning process is to sense the urgency. For health care sector, the leaders of health care providers need to make their subordinates understand that now is the time for radical changes. Some of the most prominent issues that leaders need to discuss include: Current situation compared to future outlook Managerial Issues Organizational Issue Issues related to Staff Past and present failures Future outlook/ vision In general, a deeply felt statement for the heath care organization is required which reflects a meaningful purpose of the existence of the health care organization for instance, the statement which reflects the tactical and strategic goals of Mayo Clinic is: “The needs of patient comes first” Costing of Strategic Plan of Health Sector Costing for health care sector is same for all types of organization irrespective of the fact that they are private, government or semi-government. The cost of facilities which are required for health care organization remains same for all. Costing of Health Sector is primarily based upon two areas, first is recurrent cost and second is capital costs. 1. Recurrent Cost Recurrent cost is referred to as costing of those elements which are repeatedly required for healthcare organization. They include: Drugs Vaccines Training and Personnel Hotel/ Bed X-ray and Laboratory Other operational costs include Utility Cost, office supplies, travel expense, maintenance costs, cost of information, communication, education and social marketing and supervision or cost of staff. 2. Capital Cost Capital cost is also referred to as the initial cost of investment. Capital costs include: Construction of Health care facilities Initial Training Logistics and Equipments Rehabilitation of Health Centre or General Hospitals ROI Analysis of Strategic Plan As the consumption of health care centre involves large number of stakeholders, the arrangements of financing of health care sector are very complex. Unlike other businesses, most of the health care centres usually do not earn through the revenues and therefore the services they provide often get hampered. By quantifying the financial inflows and outflows, it becomes evident that health care centre has more outflows than inflows therefore implementing the appropriate strategic plan of ROI is substantially important. The recurrent and capital cost projections are provided for a strategic plan. The biggest challenge is to gather adequate funds in order to meet those costs. Those organizations which do not need to make investments for infrastructure or capital, can easily meet their requirements because their income stream is higher than the cash outflows but those health care centres which need to invest substantially on infrastructure require a long term strategic plan through which they can cover all their expenses without hampering the quality of services. Return on Investment (ROI) is used for such organizations who wish to invest a substantial amount of money for future projects. These organizations need to determine the most suitable course of action where the investments need to be made. All the necessary costs are then allocated and the projected income streams or gains should also be calculated so as to determine whether the investment will lead to positive ROI or negative ROI. After ROI is determined, the most suitable and appropriate project should be undertaken. Organization needs to keep track of the expected and actual performance. It must be monitored if the investment is going as per the estimations or not. Strategic planning is enormously required for the sustainability of today’s health care centres. There are many businesses and corporations which are doing remarkable businesses but there is no single health care centre which is at the top of the list. The reason might be the lack of proper planning. No matter if the organization is NGO, private or semi private, good planning is required for every organization. Health care centres need to be very vigilant in adopting new technologies and providing better quality services. In this report, the prominent methodologies of cost analysis and return on investment are highlighted which are vital for every health care centre. Ignorance to these approaches can cause huge loss of time and money to health care centre. It might also lead to the loss of valuable lives of patients. Therefore, before finalizing any decision, relevant cost and return must also be kept in mind. Works Cited "More investment needed in health ICTs to improve healthcare delivery". (2012). Retrieved from http://epractice.eu/en/news/5334766 Bianco, Mabel. (n.d.).Cost Benefit and economic approach related to health care services system. Retrieved from http://www.un.org/womenwatch/daw/csw/cost.htm Focus on Cost-Effectiveness Analysis at AHRQ. (n.d.). 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Retrieved from http://www.hhs.gov/secretary/about/priorities/priorities.html Varkey, Prathibha and Bennet, Kevin E. (2010). Practical Techniques for Strategic Planning in Health Care Organizations. Retrieved from http://www.himss.org/content/files/Code%2039-Practical%20Techniques%20for%20Strategic%20Planning_ACPE_2010.pdf Read More