The Business Case for OR- Focused. Rules-Based Charging Software. An ROI White Paper

Transcription

1 The Business Case for OR- Focused Rules-Based Charging Software An ROI White Paper

2 A rules-based charging software application when used as part of a best-of-breed perioperative information system is immediate and demonstrable. An average hospital with 8,000 procedures per year and 12 ORs can experience productivity and cash flow improvements of $210,000 annually. This can result in a positive ROI in 8.6 months. Introduction -Hobson & Co. July, 2008 Hospital operating rooms are fast-paced, highly technical and complex environments in which a patient s life is dependent on clinicians making fast and accurate decisions. Traditionally, to generate OR bills following surgery, hospitals have used largely paper-based systems to capture the numerous charges for labor, supplies and devices that are all required in a typical procedure. Accurately charging for these items and applying the correct formulas and algorithms to produce an accurate bill, has been a labor intensive task performed by charge nurses in the OR and occurring, in part, after a procedure has been completed and the patient stabilized. Using new rules-based charging software that automatically generate the OR patient s bill as a by product of clinical documentation, hospitals can now reduce the time required by OR staff for billing documentation. This results in shorter billing times and an increased cash flow for the hospital. In addition, because charges are generated based on real time clinical documentation they are more accurate and complete. Executive Summary Operating Room charges incurred during a surgical procedure are many and complicated. Different rules by payer, acuity level, length of procedure, implants used, and many other variables must all be taken into account when creating a charge sheet and generating a bill. Due to these complexities, there is a need for OR-focused rules-based charging software. The challenges facing accurate surgical charging are: Reviewing charge sheets post-procedure is extremely complex and time consuming. Creating bills from charge sheets is complicated by the many variables involved. Billing backlogs reduce a hospital s accounts receivables and subsequently its cash flow. The value of OR-focused rules-based charging software is immediate and demonstrable. An average hospital with 8,000 procedures per year and 12 operating rooms can experience $393,000 in operational efficiency gains and optimized financial performance in the first three years of implementation using a perioperative solution like Surgical Information Systems (SIS). Methodology This study, commissioned by Surgical Information Systems (SIS), a leading provider of comprehensive perioperative solutions for healthcare organizations, was conducted in 2008 with hospital OR managers, physicians, other clinicians, and IT staff. The purpose of the study was to specifically identify areas of value these hospitals had derived from their perioperative information systems, quantifying these benefits whenever possible to establish a financial ROI. 2 Copyright 2008 Hobson & Company

3 Key Challenges Facing Charging for Procedures After interviewing Directors of Surgical Services, RNs, Physicians, and IT/IS Project Managers at a number of hospitals across the U.S., three key challenges were identified for the operating room charging process: Challenge 1: Reviewing charge sheets post-procedure is extremely complex and time consuming. Each charge sheet completed post-procedure by circulating nurse is reviewed by a charge review nurse. The charge review nurse spends considerable time ensuring that all the appropriate charges are accounted for and that no charges are missed. Frequently, the charge sheet lists items pulled from the preference card that were never used during the procedure. Items may also be included that are not chargeable given the payer rules or type of procedure. Reviewing this charge sheet is cumbersome process. Challenge 2: Creating bills from charge sheets is complicated by the many variables involved. Once the charge sheet is completed and reviewed, it is then sent to the billing department. The billing department then manually creates a bill. Like completing a charge sheet, the billing process is equally arduous. The many variables to be calculated for a bill include: acuity level, length of procedure, specific payer s rules, and implants. There was little consistency in our billing process: each hospital within our network was charging differently for the same procedure and acuity level. - Director, Surgical Services, Top US Hospital Challenge 3: Billing backlogs reduce a hospital s accounts receivables and subsequently its cash flow. Complex cost structures and markup formulas make generating bills a time consuming process. Often a backlog develops in getting the bills out, resulting in late revenue and delayed cash flow to the hospital. Many hospitals take up to days from the date of a procedure to complete a bill. Our internal finance goal was to complete a bill within 15 days of a procedure, but it was consistently taking 30 days. - Director, Surgical Services, Top US Hospital 3 Copyright 2008 Hobson & Company

4 Key Sources of Value The value of OR-focused rules-based charging software is immediate and demonstrable. Based on interviews with administrators and clinicians at a number of US hospitals, the value falls into two main categories: Increases Efficiencies Optimizes Financial Performance Each value area can be further broken down into a set of specific benefits. A sample of the benefits for each are summarized below and will be fully explained and supported in the following section. VALUE Increases Efficiencies SPECIFIC BENEFITS Reduces the time to review a charge sheet Reduces the time it takes the billing department to generate a bill. ANNUALIZED FINANCIAL BENEFITS FOR A SAMPLE HOSPITAL $65,000 annual productivity improvement $37,000 annual productivity improvement Optimizes Financial Performance Improves cash flow by reducing late charges $108,000 annual incremental revenue Total Annualized Savings: $210,000 FIGURE 1: VALUE AND SPECIFIC BENEFITS The following illustrates the potential value of OR-focused rules-based charging automation software for each value area based on an average hospital with the following inputs: Number of ORs = 12 Number of Procedures per year = 8,000 Average revenue per procedure = $5,000 4 Copyright 2008 Hobson & Company

5 Value Source 1: Increases efficiencies 1. Reduces time to review a charge sheet Interviewees from multiple hospitals indicated that reviewing a charge sheet in which only the actual items used are listed saved significant time for the charge review nurse. Using ORfocused rules-based charging software like SIS, charge information is captured as an automatic by-product of the clinical documentation. If there are charging errors or omissions, they are automatically indicated based on the pre-loaded procedure type and acuity algorithms, facilitating the review process for the charge review nurse. All implant information gets updated automatically to the charge sheet based on the procedure and wizards save time in completing documentation. - Director, Surgical Services, Major US Hospital For the average hospital which performs 8,000 procedures per year, charge review is reduced to just 5 minutes per procedure. For a charge review nurse, this can result in $65,000 annual efficiency gain. Impact for average hospital: $65,000 annual productivity improvement 2. Reduces the time it takes the billing department to generate a bill With OR-focused rules-based charging software, charges are submitted electronically to the billing department based on pre-defined rules. Charges are automatically calculated based on 14 variables including: procedure type, OR time increments, payer, implants, acuity and others, eliminating the manual charging process. Using a rules-based charging software, we were able to reallocate 3 FTEs in the Finance Department. - Director, Surgical Services, Major US Hospital For the average hospital which performs 8,000 procedures per year, bill generation time is cut in half for a billing department manager. This can result in $37,000 annual efficiency gains. Impact for average hospital: $37,000 annual productivity improvement 5 Copyright 2008 Hobson & Company

6 Value Source 2: Optimizes Financial Performance 1. Improves cash flow with reduced late charges The OR-focused software described above takes the charges from the OR and automatically generates bills. Billing managers are freed up from the time consuming process of sorting through all the variables that make up a bill and the backlog of unbilled procedures is reduced. Hospitals interviewed typically found that they could generate bills days faster, increasing accounts receivables, and adding to the hospital s bottom-line. For hospitals that already have a billing system in place, the rules-based charging software automatically integrates the OR charges and still saves significant time, usually 1-3 days faster. Bills were routinely sent out later than the internal goal due the complexity of generating them. - Director, Surgical Services, Major US Hospital For the average hospital which performs 8,000 procedures per year, with average revenue of $5,000 per procedure, a faster bill generation of 7 days, results in incremental revenue of $108,000. A 1-day faster bill generation results in incremental revenue of $15,000. Impact for average hospital: $108,000 annual incremental revenue 6 Copyright 2008 Hobson & Company

7 Overall Value For the average hospital, the 3 implementation benefits add up to an annual savings of $210,000. The hospital s three year investment of $144,200 generates a positive return in 8.6 months. The three year net present value (NPV) and return on investment (ROI) are strong at $393,000 and 411%, respectively. The key financial metrics for the average hospital were calculated by standard methods and are shown below. The NPV calculation assumes a 10% cost of capital. FINANCIAL METRIC Payback (months) 3-YEAR VALUE 8.6 months NPV $393,000 ROI 411% FIGURE 2: TABLUAR DISPLAY OF KEY FINANCIAL METRICS The chart below shows the extent to which each value driver contributes to the total value of OR-focused rules-based charging automation software. For the average hospital, increasing efficiencies and optimizing financial performance represent the majority of the value. Increases Efficiencies 48% 51% Optimizes Financial Performance FIGURE 3: PIE CHART DISPLAY OF VALUE DRIVERS Based on the benefits described in the previous section, the breakdown of revenue and productivity benefits is pictured below. Productivity Gains 49% Revenue Benefits 51% 0% 10% 20% 30% 40% 50% 60% 70% 80% FIGURE 4: BAR CHART DISPLAY OF REVENUE, PRODUCTIVITY AND COST BENEFITS 7 Copyright 2008 Hobson & Company

8 Opportunity for OR-focused Rules-Based Charging software To dimensionalize the opportunity for OR-focused rules-based charging software, the pre- and postimplementation productivity gains are outlined below. As shown in the previous section, productivity gains represent 49% of the value. PRE-IMPLEMENTATION POST- IMPLEMENTATION HOURS GAINED Charge Review Nurse $96,785 $32,393 1,333 Billing Dep t Managers $74,519 $37,260 1,000 Total $171,304 $69,653 2,333 FIGURE 5: TABULAR DISPLAY OF ANNUAL EFFICIENCY GAINS Conclusion With cost pressures continuing to escalate for hospitals, perioperative services which generate around 60% of an average hospital s revenue are more important than ever in assuring a hospital s sound economic health. Through the use of new automation like rules-based charging software, hospitals can not only reduce the billing time required by OR staff giving them more time to care for patients but they can generate OR bills more quickly and accurately improving cash flow.. 8 Copyright 2008 Hobson & Company

9 About SIS SIS provides software solutions that are uniquely designed to add value at every point of the perioperative process. Developed specifically for the complex surgical environments, all SIS solutions including anesthesia are architected on a single database and integrate easily with other hospital systems. SIS offers the only surgical scheduling system endorsed by the American Hospital Association (AHA), and a rules-based charging system that has been granted Peer Reviewed status by the Healthcare Financial Management Association (HFMA). For more information, please visit About Hobson & Company Hobson & Company helps early stage technology vendors and purchasers uncover, quantify and validate the key sources of value driving the adoption of new and emerging technologies. Our focus on robust validation has helped many technology purchasers more objectively evaluate the underlying business case of a new technology, while better understanding which vendors best deliver against the key value drivers. Our well researched, yet easy-to-use ROI and TCO tools have also helped many technology companies better position and justify their unique value proposition. For more information, please visit 9 Copyright 2008 Hobson & Company