Financial Assessment

Section 1.1 Adopt - Assess

Financial Assessment

Use this tool, in conjunction with other financial planning tools (1.2 HIT Goal Setting, 1.2 Business Case: Total Cost of Ownership and Return on

Investment and 1.1 Financing Resources) to help you evaluate your financial readiness for major health information technology (HIT) investments.

Completing this assessment will give your office an at-a-glance look at your financial situation in respect to acquiring HIT and EHR.

Instructions for Use

With all stakeholders in your office, consider specific, measurable, and realistic goals for acquiring HIT and EHR. These goals should reflect

what you hope to accomplish by using HIT and EHR after one year of use. Metrics used in describing the goals should enable you to

estimate direct and indirect financial benefits.

Prepare a draft of the Total Cost of Ownership and Return on Investment tool to get a rough estimate of IT and the associated costs of

implementing HIT and EHR in your office.

Consider your office’s performance on each of the key factors in the table below. Add specifics for each key factor. Some factors

relate specifically to your goals for HIT and EHR and others are more general.

For each factor, indicate if the trend is increasing or decreasing (↑↓)for your office.
Consider your overall financial position and the short-term and long-term impact of HIT and EHR. Use these considerations, as well as

external factors such as the federal meaningful use incentive program, state mandate for HIT and EHR, and new uses for data that may

improve your cash flow or contribute in other ways to healthcare value (cost and quality).

Key Factors / Specifics for Your Organization / Trend (↑↓) / Considerations
Costs

Current IT budget
Estimated one-time costs for new HIT
Estimated ongoing costs

What is your budget in relationship to comparable offices?
How much will the IT budget need to increase for new HIT?
Are all upfront cost estimates realistic for the size, type, and goals of the office?
Are ongoing costs to maintain system recognized?

Organization Goals

Productivity value
Cost savings
Cost avoidance
Profitability
Quality value

Have goals for EHR been clearly articulated?(1.2 HIT Goal Setting)
Has consensus been reached on the goals?
Have benefits metrics been identified and a plan developed to achieve results? Be sure to include benefits that contribute to overall value (cost and quality), as quality benefits can contribute to longer term financial benefits.
Does leadership support the goals and are they committed to seeing them accomplished?

Performance Ratios

Average daily patient visits
Staffing ratio
Turnover rate
Personnel expense as % total revenue

Do ratios support the ability to withstand a temporary dip in productivity during EHR implementation?
Do ratios support the ability to take advantage of productivity gains?
Does staffing ratio exceed what typical EHR license fees cover?
Does turnover rate support cost reduction goals?

Revenue Cycle

% of self-pay
% credit extended for
self-pay
% billed to Medicare
% billed to Medicaid
% billed to commercial insurers
Days to drop bill
Days in A/R
Collections policy
Bad debt
Additional sources of revenue

Do you have sufficient cash flow to comfortably support the investment?
Are you collecting money that could help pay for the EHR?
Do you have sufficient Medicare or Medicaid volume to take advantage of the federal meaningful use incentive program?
What is the financial impact of not adopting EHR by 2015?
Are there additional funding sources?

Margins

Net income
Operating margin
Capital

Is there sufficient net income to comfortably cover on-going costs and still provide the same level of income?
What competing uses are there for capital?
Is there sufficient capital to cover all upfront costs?

Debt

Debt coverage ratio
Credit history
Pro forma financials
Grant/loan capacity

Is a loan or line of credit feasible?
Is an application service provider (ASP) or software as a service (SaaS) model a consideration?
Have you explored various grants and loan programs?(1.1FinancingResources)

Compare your clinic against any benchmark data you have available. The following is benchmark data for overall HIT spending.

Assess your cost-to-value ratio, a subjective assessment, in which you plot where you believe each of your HIT and other major investments are on the grid below. Considering other major investments, such as building a new office, acquiring a major piece of equipment, etc. helps you understand your ability to implement change in a way that results in a positive return on investment.For example, if you have spent a lot for a product, but achieved low value, your plot would be at (1). If you spent a low or moderate amount of money and are achieving moderate or high value, your plot would be at (2).

Based on your cost-to-value ratio, identify strengths that you can build upon and weaknesses you need to address in order to achieve the best value for your spending. Consider these factors as you identify financing alternatives. For example, if you typically get high value for your spending, you may believe a loan is feasible because you can be more assured of being able to pay it back through HIT benefits. If your value has been low, you may need to determine the root cause to correct issues and probably would not want to risk acquiring a loan. In fact, you may want to put off the investment you are considering until you can define a better business case. Alternatively, if your value is moderately low on cost, but good on quality, a grant may be an appealing funding source.

Adapted from Stratis Health’s Doctor’s Office Quality – Information Technology Toolkit, © 2005, developed by Margret\A Consulting, LLC. and produced under contract with the Centers for Medicare & Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services.

For support using the toolkit

Stratis Health Health Information Technology Services

952-854-3306 

Section 1.1 Adopt – Assess – Financial Assessment - 1