Vendors' 3 Most Common ROI Mistakes - Part 3
My previous ROI mistakes articles have generated lots of buzz and one interesting example supporting Fallacy #1: “promising” financial benefit by adopting time-saving technology. As I pointed out, although a technology installation might trim a few minutes per task, capturing that time savings is often elusive. So if you cut five minutes per procedure and conduct 10 procedures a day, you have freed up 50 staff minutes. However, since you aren’t sending that employee home after seven hours and 10 minutes, you’re not really saving any hard cash.
After reading that blog, my friend and client Matt Ethington, founder of Chronic Care IQ, told me about the time he was with a former company when he went head-to-head with another vendor in an EHR bid. The other vendor stressed their quicker click time – a full ½ second per click. He used that ½-second savings to make the following economic argument:
½ second per click times
On average 40 clicks per visit times
On average 40 visits per day yields
About 13 minutes per day
He claimed this allows for:
1 extra patient visit per day which generates
On average $85 per visit times
150 days per year which yields
$12,750 per year
“So if you don’t go with us, you will lose $12,750 per physician per year.”
I would love to see how you capture and operationalize saving ½ second per click. This poor vendor’s logic violates Fallacy #1 – Assuming you can capture very small times savings. It may also violate Fallacy #2 – Assuming you are literally turning away patients because of internal capacity constraints.
But it may also violate the third fallacy: Assuming new patients are a financial plus for your organization. If they are covered by a fixed or capitated payment, or if they are uninsured, additional volume generates no new revenue.
And even some fee-for-service patients don’t cover the full costs of their care. Modern Healthcare reports that, nationally, Medicaid covers only about 61% of hard costs. Furthermore, many hospitals also lose money on Medicare patients. Granted, Medicare and Medicaid patients bring in some marginal revenue, but they often don’t cover the full cost.
So Fallacy #3 is that you could recognize incremental net income from new patients.
What It Takes to Avoid Fallacy #3
· The assumption – based on reasonable evidence – that most new patients are likely fully cover the cost of their care
· A conscious decision to move forward, based strictly on marginal revenue from patients in categories like Medicaid and Medicare that do not cover the full cost of care
I tell my clients to be very conservative in their ROI projections. Hospital executives have seen hundreds of crazy, inflated ROI numbers, and they don’t believe them. If you are very conservative with your numbers, one of two outcomes is likely. Either:
· You will make the sale if your conservative numbers are still compelling
· You will have earned their trust and possible future business because they see you as reliable and not pulling crazy numbers out of the air