How to Measure the ROI of Digital Healthcare Innovation

The rise of highly engaging digital experiences from e-commerce sites and the shift towards patients paying more out of pocket for care is fueling the digital transformation of healthcare.

According to Cognizant, today’s empowered patients expect to see increased value, quality, and service — as well as a better patient experience — from their care provider, similar to the experiences offered by the best online retailers.  

The shift in healthcare from a fee-for-service model to a value-based system, coupled with the rise of the empowered patient, presents the perfect opportunity for healthcare executives to invest in digital transformation.

Yet despite the stars aligning for the disruption of healthcare, the industry is about a decade behind retail and banking when it comes to digital transformation and customer engagement technologies. The results of a McKinsey survey reveal that only 30% of healthcare executives are prepared for digital transformation, compared to 51% of global CEOs surveyed by PwC.

One possible reason for the gap? Digital transformation is expensive. IDC predicts that by 2019, $2.1 trillion will be spent on digital transformation initiatives worldwide. These costs, along with difficulties defining and measuring value, often have organizations questioning the ROI of their digital initiatives.

In order to ensure long-term success in a value-based environment, it is imperative to invest in technologies that improve patient health outcomes, while decreasing operating costs.

Consider this your guide for measuring the ROI of your digital health investment.

Step 1: Establish the appropriate benchmarks

You can’t evaluate progress unless you have a standard of comparison.

As applied to healthcare, benchmarking is the process by which a company can measure its own progress by comparing itself to other relevant and leading organizations.

The benefits of benchmarking include:

• – Motivating your organization towards making improvements.
• – Helping stakeholders understand where their performance falls compared to the competition.
• – Providing you with a clearer understanding of your competition (and your patients).   

There are four types of benchmarking: internal, competitive, functional and generic.

Internal benchmarking involves comparing functions within an organization, while competitive benchmarking compares functions with direct competitors.

Functional and generic benchmarking compare similar business functions with those of organizations from different industries.

Because you are comparing your processes against those of similar organizations or industry standards, it is essential to align on appropriate benchmarks. These could include:

Comparing patient satisfaction scores between different clinics within your organization. You can also compare your scores with a leading competitor in your industry.

Functional benchmarking involves comparing similar business functions with those of different organizations and is useful for examining operational data. Examples include the average time it takes to collect payment or reconcile bad debt.  

Generic benchmarking is especially useful when trying to think outside of the box for improving an important business process. An example of a generic benchmark could be comparing patient check-in times to that of a hotel.    

Takeaway: While there are many ways to establish benchmarks for your organization, the most important caveat is to make sure you are making an “apples to apples” comparison.   

Step 2: Define costs

Digital strategy involves defining value and establishing the right metrics upfront.

Healthcare is constantly evolving in response to the rise of consumerism, healthcare reform legislation, and the shift towards a value-based business model. Factor in rising equipment costs, aging facilities and clinician shortages, and this means that the industry will only continue to become more complex. And healthcare executives, especially those in IT, are increasingly faced with the difficult task of clearly communicating IT’s value towards both the bottom line and clinical outcomes.

When determining the ROI of your digital health initiatives, both hard and soft costs and savings must be considered.

Hard costs are definitive dollar figures that are applied towards the implementation of a solution. Questions include:

• – How much will I be paying for this solution versus another?
• – How much money will I be saving by implementing this solution versus doing nothing at all?

Soft savings, on the other hand, are less tangible — but equally as important. These include lowered employee stress levels from task automation or better customer service and increased patient satisfaction. Although soft savings are more difficult to quantify, they will have a significant impact on your organization’s ROI.     

Bottom line: It’s essential to consider both hard costs and soft savings when determining the ROI of your digital health initiatives.

Step 3: Determine the potential benefits and attach the right KPIs to improvement areas

Examine your digital ROI from the perspectives of patients, providers, and communities by tying the right metrics to the right goals.

HIMSS assigns the value of health IT to three groups: patients, providers, and communities.

To determine the ROI of your investment across each of these groups, PwC recommends measuring across six strategic areas: customers, employees, operations, safety and soundness, infrastructure, and disruption and innovation. In addition, corresponding metrics or key performance indicators (KPIs) should be tied to each focus area.

Key performance indicators (KPIs) are metrics used to measure key business processes and strategic performance against benchmarks. They can help track improvements made over time and improve the speed and quality of decision making for healthcare providers. According to Infosys, each KPI should meet the SMART test: Specific, Measurable, Achievable, Result-oriented and Time-based.

Make no mistake: tying the right KPIs to the right goals is critical for proper measurement. But before accepting a KPI as a reliable metric, it must be validated against multiple sources of data and continuously examined to further define the specific business goal being measured.

Let’s now take a closer look at how we can measure the value of health IT across patients, providers, and communities.

Benefits to patients

According to a recent article by the Harvard Business Review and Medtronic, the transformation of healthcare should be rooted in delivering value to the patient while minimizing costs. This value can be represented by the following equation:

Value = Health outcomes that matter to patients / Costs of delivering the outcomes   

In other words, to maximize value, increase the outcomes that matter to patients and decrease the costs of delivering those outcomes. To encourage such focus, the Centers for Medicare and Medicaid (CMS) is incentivizing the hospitals that provide high-quality, low-cost care with bonuses. Hence, patient experience and quality of care are metrics to consider when determining ROI from the perspective of the patient.

In 2006, the U.S. Agency for Healthcare Research and Quality created the Hospital Consumer Assessment of Healthcare Provider and Systems Survey (HCAHPS), a standardized survey that measures patients’ perceptions of hospital care and allows for direct comparison of the patient experience in hospitals across the country.

A recent Deloitte study indicated that there is a high degree of association between patient experience and financial performance, even after controlling for other hospital characteristics that can drive performance. Hospitals with “excellent” HCAHPS ratings achieved on average 4.7% net margins compared to just 1.8% for hospitals with “low” ratings.

McKinsey research of multiple industries has shown that organizations that achieve high customer satisfaction scores have identified they are the most important drivers, continuously measure ongoing performance in those areas, uncover operational insights, and link those improvements with desired business outcomes.

When drilling down to the patient experience, providers must understand the end-to-end patient journey, from scheduling through follow-up care. It is important to note that merely influencing scores on the HCAHPS survey is not enough. Providers must act on those insights.

The second metric, quality of care, can be broken down into five key areas: safety, effectiveness, person-centric, equitability and efficiency.

Safety refers to how safe a treatment is for patients and includes minimizing risk and impact when things go wrong. Effectiveness describes achieving the best possible health outcomes. Person-centric care focuses on the degree to which the needs, rights, values and preferences of patients are addressed. Equitability ensures fair access to care for all patients. Efficiency describes the delivery and maintenance of the best quality of care.      

Benefits to providers

When examining ROI from a provider perspective, it is critical to look at lowering the costs of care delivery. Increasing operational efficiencies and optimizing financial resources go hand-in-hand when considering the denominator of the value equation.

According to Becker’s Hospital Review, business process KPIs can be broken down into two broad categories: inpatient flow and revenue cycle.

Consider the following metrics when narrowing inpatient flow: bed turnover, readmission rate, occupancy rate, average length of stay, average cost per discharge and patient satisfaction.

At a high level, these metrics are important because they speak to the provider’s quality of care and efficiency, and will uncover insights on how well a provider is performing against their benchmarks.

Some metrics to examine when addressing revenue cycle include: total cost to operate; accounts receivable days due to coding; total days outstanding in accounts receivable and accounts payable; cash to bad debt; claims denial rate and days of cash on hand.

Measuring ROI from the provider’s perspective comes down to driving efficiency and productivity, and should always include tangible financial components.  

Benefits to community

Last but not least, consider the ripple effect of the benefits to your community when investing in healthcare technologies. For example, the implementation of a telehealth platform could have a positive effect across your entire ecosystem.

Bottom line: The transformation of healthcare means value should be delivered by increasing patient outcomes while reducing costs. Each focus area can be refined to granular metrics and should be continuously evaluated and acted upon to make improvements against key benchmarks.

Step 4: Align cross-functionally to determine measurement

Measuring ROI is everybody’s business.

While the ROI equation is fairly simple, it can also be skewed in favor of who’s measuring it.  ROI can vary depending on which value or cost metric you choose to include (or not include) in your calculation. This is why executives must collaborate with different departments.

There is no set rule for what counts as value in your ROI calculation. For instance, clinicians may focus more on patient outcomes, while the finance department may care more about the bottom line. This is why it is crucial to include all departments when determining what value means to your organization — and how to measure it.

Final thoughts

The rise of consumerism in healthcare, coupled with the shift towards a value-based service model is fueling the digital transformation of the industry. Digital investments are expensive and quantifying ROI is paramount, especially in the trillion dollar healthcare sector.

In order to thrive, providers must focus on delivering outcomes that matter to patients while lowering costs. Defining the costs, benefits, and benchmarks, and attaching the right KPIs to them, is critical when quantifying the return on your digital investment.

The race to digital transformation is on and the most forward-thinking health executives will have to innovate in order to compete. While digital health investment can seem risky, the rewards are there if healthcare organizations take a conscientious approach to measuring ROI.