Healthcare: Today’s challenges, IT investment, ROI and Optimization JULY 29, 2013

Challenges; IT investment, ROI and Optimization 2 JULY 29, 2013 Overview Today’s realities and current business state: Entitlement challenges and Federal spending IT spend current and projected Industry Trends: Operational and Technology Impact Emerging and Near Term technologies Healthcare Provider IT Marketplace and Impact of Last Four Years Calculating the ROI (and Value) Associated with Healthcare IT Investments Establishing a Monitored Optimization and Benefits Realization Program

Challenges; IT investment, ROI and Optimization 3 JULY 29, 2013 U.S. Still Has a Huge Entitlement Funding Problem Medicare, Medicaid, and Social Security are not self-funding and the main driver of deficits, responsible for more than 25% of all federal debt since Longer life expectancies, changing demographics and soaring costs make entitlements as we know them today unsustainable. Medicare’s annual cash shortfall in 2011 was $288 billion. Social Security had a cash flow deficit of $58 billion in Without reform, the typical 3rd grader will receive only about 75% of the benefits provided to today’s seniors. Entitlement costs are growing at an alarming rate.

Challenges; IT investment, ROI and Optimization 4 JULY 29, U.S. Proposed Federal Spending 25% of the US Federal Budget is devoted to Medicare & Health spending

Challenges; IT investment, ROI and Optimization 5 JULY 29, 2013 Challenges facing Medicare: Aging population in the US accustomed to full-service healthcare insurance National debt nearly 100% of US GDP Macroeconomic Reality – Federal Healthcare Tab is Huge, Growing Fast and Hard to Reduce

Challenges; IT investment, ROI and Optimization US Healthcare IT spend: JULY 29, 2013 Spend will focus on aging financial systems and away from EHR technology Projecting in excess of $3B from current $1.9B for Revenue Cycle technologies Telecommunications services projected to $14.4B in 2017 from $9.1B in 2012 Industry wide IT spend could exceed $70B

Challenges; IT investment, ROI and Optimization 7 JULY 29,2013 Industry Trends: Operational and Technology Impact

Challenges; IT investment, ROI and Optimization Trends/Impact 8 JULY 29, 2013 TrendOperational ImpactTechnology ImpactComments HC Reform and Affordable Care Act (ACA) ACO’s MC Shared Savings Program Health Insurance exchanges Increased Patient Volume Cheaper Premiums for uninsured Content Management, ecommerce, CRM and Patient Portals HIE, EHR, analytics Mobile health/BYOD 9 Pioneer ACO’s quit ICD 10 (October 2014) and ICD 11 (2015) Code format change Code volume 13k to 68k No simple mapping from 9 to 10 Costly and time consuming Allocate resources to support required system changes and testing ICD 10 – perceived as positive by physicians HIPAAMore strictly defined; greater risk for penalties Redefined data and access security infrastructure and monitoring

Challenges; IT investment, ROI and Optimization Trends/Impact 9 JULY 29, 2013 TrendOperational ImpactTechnology ImpactComments HITECHForced timeline of demonstration of MU to realize incentives Driving Automation (in general) Increases need for new and complicated policies and procedures (HIE) Increased spending and usage of EHR’s CPOE increasing Establish and participate in HIE Mixed results and opinions of downstream benefits of EHR’s M/A events AHA- Center for HC Economics and Policy Study- “…demonstrate that mergers and acquisitions are supporting the changing landscape of health in a positive way” AHIP – (America’s Health Insurance Plans) Greater negotiation strength limits competition; increasing prices RWJ foundation study – cost increase of 40% or more when merging hospitals are closely located Adoption of inherited technology and/or extended deployment of existing systems Re-evaluation of network and telecommunication architecture Mixed opinions on benefits; depends on the nature of M/A event

Challenges; IT investment, ROI and Optimization Trends/Impact 10 JULY 29, 2013 TrendOperational ImpactTechnology ImpactComments Cost Reduction in a Changing Reimbursement Environment Employers, Payers, Providers looking to reduce costs Employer - Direct contracts with provider organizations (Intel and Presbyterian health Services, Walmart, Lowes, Kroger) Payers- Higher deductible plans- shift cost to insured; ACA and uninsured Providers- further movement to extend treatment outside of hospital (e-visit, retail locations, Urgent Care), focusing more on outcomes/metrics More sophisticated claims processing and insurance management functionality Upgrades and/or replacement of older revenue cycle components Infrastructure investments to support “off campus” care delivery

Challenges; IT investment, ROI and Optimization Trends/Impact 11 JULY 29, 2013 TrendOperational ImpactTechnology ImpactComments Business and Clinical Intelligence and Analytics Current core systems/applications and processes need to support a more complicated and comprehensive data “picture” Real issue is merging the appropriate clinical and business data Requires a solid current state, optimized, standardized and efficient Core vendors are evolving and not yet deep with solutions for analytics and may look to third party Data everywhere: how to combine it to make sense and drive proactive decision making

Challenges; IT investment, ROI and Optimization Trends/Impact 12 JULY 29, 2013 TrendOperational ImpactTechnology ImpactComments Patient Expectations Changing Patients are more aware and involved in their care than ever before “Consumerism” must be embraced in healthcare - truly informed consumers Support for BYOD Mobile apps and access Adoption of social media Promoting consumerism is viewed as a key imperative for healthcare innovation Dawn of Biotechnology Integration with Care Provision DNA sequencing “Omics” cascade – Genome, Transcriptome, Proteome. Becoming part of a routine health record Specialized “Pharma” and therapies GINA Big Data- significant data storage enhancement Will likely require virtualized storage in SAN with data replication Prepare for Petabytes of data (quadrillion bytes)! Specialized Pharma costs offsetting generic savings

Challenges; IT investment, ROI and Optimization 13 JULY 29, 2013 Emerging and Near Term Technologies

Challenges; IT investment, ROI and Optimization Emerging and Near Term Technologies RFID Patient monitoring and safety Reduce theft Track medical devices Patient tracking Telemedicine Targets – chronic disease, geriatrics, rural medicine, outreach Cloud Making data more accessible yet still secure - public vs. private clouds Need to understand - what data is most important? What do we need to control and manage vs. allow access to? Less dependence on “in-house storage,” decrease costs Leverages the ubiquitous internet Challenges: data security, ownership 14 JULY 29, 2013

Challenges; IT investment, ROI and Optimization Emerging and Near Term Technologies (cont.) Social Networking (Facebook, Twitter,for example) Immediate access to over a billion users (current Facebook members/users - 1.1B) Can provide instant feedback on mission, programs, services, products Can generate market connection/ share with very little cost; consumer relates to the use of SM and makes a connection “You communicate the way I like to communicate” Mobile Devices in Medicine (BYOD) Prolific “App” mentality - as of April , 600 iPhone health applications are available* “Symptom Checkers” – personal apps with some medical credibility A recent IMS Health report forecast that 80% of the remote monitoring market will be mobile by 2016 Utilize existing technology and infrastructure for specific applications Extend technical expertise to manage and support Apple/Droid/BB/Windows mobile architectures * Mobile Health News 6/2012 – includes personal, provider, fitness 15 JULY 29, 2013

Challenges; IT investment, ROI and Optimization Emerging and Near Term Technologies (cont.) “Big Data” - Genomics/Proteomics Integrating external clinical and research data, episodic clinical data, genomics, proteomics, financial and outcomes data to treat patients Exponential data relationships driving clinical picture Managing petabytes of data (10 15 ) - quadrillion Medical Body Area Network (MBAN) Ultra small and ultra low power wireless wearable/implantable devices for specific clinical data monitoring (i.e., blood glucose levels, eye pressure, cardiac function) Personal Pill-Sized Soft Medical Robots for the Gastrointestinal Tract - researchers (University of Washington and University of California at Santa Cruz) are developing a pill-sized soft capsule robot that can be precisely controlled remotely to enable diagnostic and therapeutic functions in the digestive tract for clinical and potentially personal use FCC recently approved new band spectrum to support MBAN technologies 16 JULY 29, 2013

Challenges; IT investment, ROI and Optimization 17 JULY 29, 2013 Impact of the Last Four Years and the Healthcare Provider IT Marketplace

Challenges; IT investment, ROI and Optimization 18 JULY 29, 2013 HITECH Continues to Drive Automation ONC Data Brief No. 9 – March 2013 Hospital adoption of EHR systems has more than tripled since 2009 Hospital adoption of at least a basic EHR system more than tripled since 2009 from 12% to 44% Percent of hospitals possessing certified EHR technology increased by 13% between from 72% to 85%

Challenges; IT investment, ROI and Optimization 19 JULY 29, 2013 HITECH Update

Challenges; IT investment, ROI and Optimization EHR Adoption Projections 20 JULY 29, 2013

Challenges; IT investment, ROI and Optimization 21 JULY 29, 2013 Current Healthcare Market Overview– HIMSS Analytics Adoption Trends

Challenges; IT investment, ROI and Optimization 22 JULY 29, 2013 Stage 3 = 8% Decrease Stage 4 = 7% Increase Stage 5 = 9% Increase The percentage that has moved from lower to higher stages has not increased dramatically after 2009 Ex: In 2009, 13% were Stage 4 or higher In Q3 2012, 35% were Stage 4 or higher Surprising that this number is not significantly higher following HITECH Where’s the Dramatic Growth in Higher Stages?

Challenges; IT investment, ROI and Optimization 23 JULY 29, 2013 Software Vendor Consolidation HIT Vendor Market: Today: 7 major vendors and 250+ small-mid sized Several of these players are facing existential challenges Consolidation is inevitable Fortune 1,000 ERP Market: Early/Mid-1990s: 100+ vendors Today: SAP and PeopleSoft (Oracle), Lawson (Infor)

Challenges; IT investment, ROI and Optimization 24 JULY 29, 2013 Calculating the ROI (and Value) Associated with Healthcare IT Investments

Challenges; IT investment, ROI and Optimization ROI Is Difficult to Measure in Healthcare IT The ability to measure ROI becomes increasingly difficult as the complexity of the systems increases. 25 JULY 29, 2013 “Finding Value from IT Investments: Exploring the Elusive ROI in Healthcare”

Challenges; IT investment, ROI and Optimization 26 JULY 29, 2013 Smith, C. “ROI In Health IT Is More Than Just A Price Tag.” September 21, more-than-just-the-pricetag/ Efficiency savings Reduced paper costs Reduced cost of records transport, storage Reduced cost of dictation and transcription services Improved outcomes of care Increased patient safety More accurate diagnoses and successful treatments Additional revenue generated as a result of an IT implementation MU dollars Quicker and/or more thorough reimbursement from insurance, Medicare/Medicaid Non-financial gains Increased patient satisfaction with care encounters Decreased provider time at work Higher levels of employee satisfaction Increased provider knowledge Patient population data Evidence-based outcome analytics Classic economic models for ROI do not appropriately reflect the healthcare business HIMSS recommends a new model for ROI: Measuring Healthcare IT ROI: A New Model

Challenges; IT investment, ROI and Optimization HIMSS Health IT Value Suite- STEPS 27 JULY 29, 2013 Provides content and examples for evaluation of the value of your IT investment

Challenges; IT investment, ROI and Optimization 28 JULY 29, 2013 *Bell, K. & Thornton, L. “From Promise to Reality – Achieving the Value of an EHR.” Healthcare Financial Magazine. February The right model and categories of return will vary from one organization to the next ROI is there for most organizations over a year period Electronic records $2/record/year vs. $8/record/year for paper records!! Optimization will accelerate ROI to an acceptable payback period Based on the size of the health system and the scope of the implementation, benefits for a large hospital can range from $37 million to $59 million over a five-year period following an EHR implementation. In addition to the incentive payments earmarked in ARRA and includes benefits primarily from length-of-stay (LOS) reduction, readmission rate reduction, emergency department (ED) revenue reimbursement, ambulatory revenue reimbursement, and drug cost reduction.* Healthcare IT ROI – It’s There

Challenges; IT investment, ROI and Optimization 29 JULY 29, EHR benefit outcomes can vary depending on a number of factors, including organization size, complexity, scope of implementation, etc. As a result, the benefits can be wide-ranging, but include key areas such as: Improved decision-making capabilities Reduction in medical errors Improved medication safety via fewer adverse drug events Improved patient outcomes resulting in standardization of care Not All Rosy: Mixed opinions and evidence as to the overall benefits of EHR’s on clinical outcomes Where Are the Non- Financial Benefits?

Challenges; IT investment, ROI and Optimization Cash Flow and Revenue Benefits 30 JULY 29, 2013 Cash Flow Increases Benefit Example Reduced A/R days and cash acceleration Illinois academic health system reduced Accounts Receivable days to 35 in Medical Group’s 75 practices Improved coding accuracy Leading national health system gains 1.5-5% increase in charge capture Increased inpatient turnover / Reduced adverse drug events National health system gains increased capacity for new patients/procedures = $1.8-$2.2 million increased net revenue for facilities at capacity Top-Line Revenue Growth Benefit Example Increased revenue National managed care organization’s procedure volume increased 30% for colon cancer screenings, 11% for breast cancer screenings, 5% for cervical cancer screenings Increased revenue Multi-site hospital and ambulatory system saw 10% increase in mammograms, 5% increase in M.D. patient load Integrated registration- POS collections / Improved documentation National health system reduced denied claims brings ~ $6 million revenue increase

Challenges; IT investment, ROI and Optimization Cost Reduction and Avoidance Benefits 31 JULY 29, 2013 Cost Reductions Benefit Example Improved staff efficiency Hospital system serving Southeast gains $1 million in savings from reductions in medical records and coding staff Improved inventory management / Reduced waste Multi-hospital and clinic system in Iowa achieved 568% ROI first 18 months and $500,000 hard-dollar savings the first year Reduced supply costs Children’s hospital in Boston reaps $40,000 annual savings by eliminating paper, chart folders and supplies Cost Avoidance Benefit Example Avoidable readmissions prevention Missouri health system reports 35% reduction in readmission rates of home care patients Improved patient care / Chronic disease management New York hospital system reports 9% improvement in A1C levels across 22 locations = ~ $18,000 savings per point improvement per patient Reduction of document imaging staff National health system’s CPOE to reduce shared services document imaging staff by 16% = 0.5 FTEs per hospital by 2015

Challenges; IT investment, ROI and Optimization 32 JULY 29, 2013 Establishing a Monitored Optimization and Benefits Realization Program

Challenges; IT investment, ROI and Optimization 33 JULY 29, 2013 Successful Implementations Emphasis on clinical workflow process improvement care quality enhancement Emphasis on change management Emphasis on ROI elements of initiative Less Successful Implementations Heavy focus simply on MU criteria as project objectives Heavy focus on MU Stage 1 deadlines for attestation Didn’t plan for “Optimization” While every implementation is different, some patterns have emerged regarding what makes one successful or not Implementation Lessons Learned – What We’ve Seen

Challenges; IT investment, ROI and Optimization What is Optimization? The Merriam-Webster dictionary defines optimization as “an act, process, or methodology of making something as fully perfect, functional, or effective as possible.” In Healthcare Information Technology, Optimization has come to be known as the act of improving clinical information systems (as well as the environments in which they operate) in a manor that yields continual improvement well beyond a product implementation go-live! 34 JULY 29, 2013 Baseline Functionality Time Advanced Functionality Go-Live Event

Challenges; IT investment, ROI and Optimization 35 JULY 29, 2013 Fact: EHRs are the new normal in healthcare Baseline implementations act as a “springboard” from which organizations can meet future requirements Design with optimization in mind – “we get smarter as we utilize the technology” The work is not complete at go-live; it’s just begun! To make the most of your EHR, it is crucial to form a dedicated optimization team Spanning multiple departments of the organization Working with members from every level of the organization Proactive optimization is rooted in the principles of TQM, LEAN, CQI, etc. and will work to: Improve the overall effectiveness of healthcare workers Improve patient safety Address issues of cost Optimization Programs

Challenges; IT investment, ROI and Optimization 36 JULY 29, 2013 Identify benefit objectives, key metrics Set specific targets Institute processes, timeframes, accountability Institute tools for status, tracking, governance, structure Should be understood as a substantial undertaking with significant resource/operational investment Optimization efforts should be viewed broadly as an operational improvement effort, keeping ROI constantly in focus Monitored Optimization & Benefits Realization Program

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