Section 1.9 Assess

Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE

This tool provides a description of various sources of funds that may be available for health information technology HIT if you are in an independent facility.

Time needed: 4 hoursSuggested other tools: NA

IntroductionMaking an investment in any form of health information technology (HIT) is challenging for every organization. This may be especially true for behavioral health facilities, which usually are very small and do not have sufficient psychiatrist and/or Medicare/Medicaid “bandwidth” to earn federal incentives for meaningful use (MU) of electronic health records (EHRs). However, behavioral health providers need to keep pace with the health care industry overall and some states are mandating or incentivizing all providers, including those in behavioral health, to adopt EHR and/or health information exchange (HIE) technology.

How to Use 1. Use the Financial Assessment to assess your financial preparedness for acquiring EHR and HIE

support. Some of the information gathered here may be useful for making a business case for acquiring a loan or preparing a grant application. Collecting baseline data also helps you establish goals, as well as conduct benefits realization studies later on to measure your return on investment (ROI).

2. Identify potential sources of funds to pursue.

3. Determine which form of EHR or HIE acquisition is best for your organization While you may initially think only one option is feasible for you, considering other options may reveal hidden costs and other valuable comparative information.

Financial AssessmentUse the following assessment to determine your financial position with respect to a major investment such as EHR and/or HIE. If you identify lack of preparedness, you may want to shore up those areas prior to making the investment.

Not Yet Prepared Moderately Prepared Highly Prepared1. Do you have a realistic estimate of upfront costs for the EHR or HIE you want to acquire?

□ No cost estimate yet □ Fairly broad range understood at this point only

□ Have a good understanding of range of prices from reliable sources

2. Do you have a realistic estimate of ongoing costs for the EHR or HIE you want to acquire?

□ No estimate yet □ Fairly broad understanding at this point only

□ Have a good understanding from reliable sources

Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 1

3. Does your organization have guidelines for ROI requirements for capital expenditures?

□ No ROI requirements; or no previous experience with capital investments

□ ROI requirements are fairly loose; or we hope to expense the investment

□ We have ROI requirements; or we have a good understanding of the type of ROI we would like to have

Payback period:

___ yrs

Internal rate of return required: ____ %

4. Have you defined how you would estimate ROI for the HIT or EHR you want?

□ No specific goals have been identified yet

□ We value ROI, but are unsure how to estimate benefits

□ We have a process to estimate benefits for ROI calculations

5. Is your staff to client ratio . . .

□ Poor in comparison to average for industry

□ Consistent with average for industry

□ Better than average for industry

6. Is your staff turnover ratio . . .

□ Poor in comparison to average for industry

□ Consistent with average for industry

□ Better than average for industry

7. Are wages paid to staff . . .

□ Lower than average for industry

□ Consistent with average for industry

□ Better than average for industry

8. Is your personnel expense as % of total revenue . . .

□ Poor in comparison to average for industry

□ Consistent with average for industry

□ Better than average for industry

9. Is your operating margin . . .

□ Poor in comparison to average for industry

□ Consistent with average for industry

□ Better than average for industry

10. Number of days to drop a bill . . .

□ High: ____ □ Moderate: ____ □ Low: ____

11. Days in A/R . . . □ High: ____ □ Moderate: ____ □ Low: ____

12. % lost charges . . . □ High: ____ □ Moderate: ____ □ Low: ____

13. % denials . . . □ High: ____ □ Moderate: ____ □ Low: ____

14. Do you currently have competing uses for the capital required for HIT?

□ Yes, and they are equally important

□ Yes, although HIT is a high priority

□ No, or not at this time that would detract from HIT acquisition

15. Do you currently have debt; what is your debt coverage ratio?

□ Yes; and debt coverage ratio is poor

□ Yes; but debt coverage ratio is manageable

□ No debt at this time

16. Credit history . . . □ Poor □ Fair □ Good

17. Do you have a line of credit?

□ No; or it is currently being used

□ Yes; and we may have to use it to supplement our HIT acquisition

□ Yes; although we would prefer not to use it

18. If you are a not-for- profit organization, have you ever applied for a grant?

□ No and we have no resources with which to apply or manage a grant

□ No; we have considered applying and/or have unsuccessfully applied; but it is something of

□ Yes; and we have been successful in getting grants

Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 1

interest to us

19. Do you have any incentives available to you?

□ None that we can capitalize on

□ We have incentives available, but they are not sufficient

□ We have participated in one or more incentive programs

20. Do you have a banking advisor you regularly use?

□ No □ We have an advisor but have not used this resource regularly

□ Yes

Sources of FundsThe following is a description of the various sources of funds that may be available for EHR or HIE. While not every source is applicable to every facility, the list may generate ideas not previously considered. As you approach your EHR and HIE projects, review the list, check off those you think are worth pursuing, and assign appropriate individuals to further explore each. Keep track of the funds that may be available, their timing, and their risk (i.e., likelihood of receiving the funds [high, medium, low]).

□ Cash flow from operations/use of reserves. Many organizations attempt to finance HIT through operational cash flow. This is becoming more difficult as more-sophisticated and more-expensive forms of HIT are being acquired. Some EHR and HIE projects may support a strong financial return on investment, but many forms are primarily focused on quality and client safety. This is not to say that a benefits analysis should not be performed for any HIT investment, but that the benefits may not be in the form of direct cash flow (see Section 2 Business Case: Total Cost of Ownership and Return on Investment for EHR and HIE).

Estimate of available funds: $____________________ Timing: ___________ Risk: _______

□ Tax advantages. An accountant can help identify tax advantages for providers who are for-profit.

Estimate of cash or value of other contributions: $__________ Timing: _______ Risk: _____

□ Group purchasing. Group purchasing may provide a discount on the price of hardware, software, or both. A behavioral health facility that is part of a corporate chain may be able to benefit from economies of scale through purchasing the same products for all facilities. Independent facilities may seek such group purchasing arrangements (especially for hardware) with a hospital or form a cooperative network—in some cases with other types of organizations, such as schools or local public health clinics. In addition, there may be an opportunity to piggyback onto group purchasing when participating in an HIE organization that can facilitate data sharing across the continuum of care. Even if there is no discount for a group of unrelated organizations, several organizations purchasing the same product in a given locale may benefit by sharing lessons learned, using local consultants, etc.

Estimate of cash or value of discounts: $____________ Timing: ________ Risk: ______

□ Vendor financing options. Many vendors offer an application service provider (ASP) or software as a service (SaaS)/cloud computing model that both finances and manages IT operations. Vendors also offer traditional financing options, which should be compared with your local bank or other sources.

Estimate of impact on cash flow: $____________ Timing: ________ Risk: ______

□ Remote hosting or outsourcing. This option is similar to the ASP/SaaS, but typically refers only to management of the data center (remote or local) and its hardware/ telecommunications, not the software. Although it can help reduce the cost of IT staffing and may make it more reliable with a

Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 1

strong service level agreement, organizations may find outsourcing more expensive than having staff support. Local markets and availability of employees can make a difference.

Estimate of impact on cash flow: $____________ Timing: ________ Risk: ______

□ Leasing. This option generally applies only to the hardware you acquire and that you manage yourself or include in an outsourcing arrangement.

Estimate of impact on cash flow: $____________ Timing: ________ Risk: ______

□ Debt and equity financing. Bank loans and lines of credit are frequently tapped to support HIT purchases. Some federal programs and state governments are providing no-cost or low-cost loans in certain communities to support HIT investment.

Estimate of amount available net of cost: $____________ Timing: ________ Risk: ______

□ Open source products. Consider evaluating HIT based on open source code. Although generally lower in price, open source software may not be readily available for the behavioral health market. In this case, the cost of development could exceed commercial products; and the results often are systems not interoperable with labs and other EHRs and HIEs.

Estimate of value: $____________ Timing: ________ Risk: ______

□ Grants. Not-for-profit organizations may have obtained grants to finance projects. This is becoming an increasingly important source of funds for HIT projects as federal and state governments are interested in supporting HIT investment. Be aware of the costs that may be associated with grants, including the writing of the grant and potential reports or research that must be completed to fulfill the grant.

Estimate of amount available net of cost: $____________ Timing: ________ Risk: ______

□ Philanthropy. Not-for-profit organizations may be surprised to find philanthropy is a feasible funding source. There are various forms of philanthropy:

• In-kind contributions may be feasible. For example, local fire/police departments have permitted a local health care organization to piggyback onto their backup generator for IT, or an employer in a remote location may be interested in donating staff time to help develop software. Behavioral health facilities have benefited from using IT student volunteers to assist with workflow and process analysis or hardware installation.

• Donations from individuals may be used for HIT. Organizations have come up with creative ways to solicit and express appreciation for donations, such as announcing the donation on their Web site or being recognized by the local chamber of commerce for “going green.”

Estimate of cash or value of other contributions: $__________ Timing: _______ Risk: _____

□ Local businesses, religious organizations, charities, and public service organizations. Such organizations have a vested interest in the cost and quality of health care, and are increasingly aware of the impact behavioral health care can have on the general health. They may be a source of funds, directly or indirectly through contracting incentives (businesses) or other forms of support (e.g., helping with philanthropic fund raising, equipment donation).

Estimate of cash or value of other contributions: $__________ Timing: _______ Risk: ____

HIT Acquisition Strategies

Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 1

There are three primary ways to acquire HIT products and services: straight licensure, ASP/SaaS, and community offerings. You may also use some of these to obtain the technology necessary to support HIE.

□ Straight licensure refers to the acquisition of software by paying upfront for use of the software and, often, for assistance with implementation, training, and go-live. A periodic maintenance or service fee is charged to keep the software current and to provide ongoing support. The initial investment is usually quite large, but the overall cost over five to 10 years may be equal to or less than the subscription fees required in an ASP or SaaS model.

□ Application service provider (ASP) or Software as a Service (SaaS) is a form of software acquisition where the up-front cost and ongoing maintenance/service fees are bundled together into a periodic payment. From a financing perspective, the difference between the ASP/SaaS and straight licensure models of acquiring HIT is the difference between tenant and owner. The ASP/SaaS model requires little or no down payment, usually demands less staffing, has lower hardware costs, and allows you to pay as you go. But, the ASP/SaaS model offers less control and customization capability and the long-term cost may end up being higher.

□ Community offering is another form of acquiring EHR (also called “enterprise offering”) that is being enabled by some EHR vendors. In such cases, typically a hospital or large clinic licenses the product and then supports other providers in the community. In this case, the large facility becomes the vendor for implementation and support. Many of the advantages of the ASP/SaaS model exist in this type of offering. One distinct difference is that data is co-mingled in a single Active Directory. While this serves as a means to share data about patients—a laudable goal—withdrawing your records later may be difficult if you no longer wish to be part of the community offering.

Although some use the terms ASP and SaaS interchangeably because they both are tenant models of acquisition, consumers should be aware of product-related differences between the two models. The following table summarizes these differences and compares both with straight licensure.

Factor Straight Licensure Application Service Provider (ASP)

SaaS (Cloud Computing)

Software architecture Traditional client/server Client/server with Web front end

Often Web Services Architecture

Product sophistication Full range from high to low

Moderate Low

Customization Most customizable for a price

Somewhat customizable

Varies. Economies of scale often preclude customization offerings even though customization is feasible

Delivery mechanism Local area network (locally maintained or hosted services)

Virtual Private Network or Internet Service Provider (ISP)

ISP

Availability (given local power redundancy)

Virtually 100% with redundant servers

Can be 100% with VPN and ISP; redundancy more difficult with ISP alone

Redundancy more difficult with ISP

Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 1

Security Depends on controls adopted by facility

Depends on controls in service agreement*

Depends on controls in service agreement*

Up front cost High Moderate - Low Low

Ongoing cost Moderate - Low High - Moderate Moderate – Low

Staff support High Moderate - Low Low* Some health care organizations are reluctant to have their data stored away from their organization, whether remotely or in the cloud. There are two primary concerns:

1. What happens if the system goes down? This actually is a matter more related to assuring full redundancy and failover—whether data is stored locally, remotely, or in the cloud. Redundancy in servers, power, and connectivity is essential.

2. How do we get our data if the vendor fails? Unfortunately, any vendor can fail, including one that provides a straight license. However, more often there is a merger or acquisition where there will be continued support and a more graceful transition to a new product. Contracts should ensure that the organization owns the data, and that data housed by the vendor will be returned if the company goes out of business. In addition, the contract should state that the software’s source code will be placed in an accessible escrow account if the company goes out of business.

One thing about the ASP/SaaS model that is often misunderstood is security. Vendors who offer these models often have more robust security than health care delivery organizations are willing to pay for on their own. However, the SaaS model that stores data in the cloud may move your data wherever virtual storage is available at the lowest price at any given point in time. It is advisable to negotiate a contract with any SaaS vendor that states data will be stored in the United States to avoid the need to deal with international laws.

Finally, service level agreements (SLA) are critical for any type of HIT acquisition, but especially with the ASP or SaaS. SLAs help ensure optimal connectivity and support.

Copyright © 2014 Stratis Health. Updated 03-06-14

Section 1 Assess—Financial Assessment, Financing Resources, and Acquisition Models for EHR and HIE - 1