Equipment Technology Acquisition

If you want to buy a new CT, you can simply calculate a five-year ROI by subtracting the total Capital plus Operating Costs (Investment) from the projected Net Collections over that period divided by your total Investment.

However, If you wanted to determine the opportunity cost of the same acquisition, you would look beyond the direct interventional use of the CT and consider the surgeries you might lose as a result of not having a CT onsite as well as emergency visits, etc.…, you begin to calculate a truer picture of the Cost Effectiveness of the CT acquisition to the organization rather than the direct quid pro quo, cost versus charges/reimbursement, of the CT.

With reimbursement for all healthcare organizations moving towards an outcomes-based methodology, longitudinal patient management strategies are no longer just good ideas, but rather essential processes. Many healthcare experts have advocated for decades that the only way to actually reduce healthcare utilization and costs at the individual level were to reduce disease. That is, the only way to spend less on healthcare is to use healthcare less.

In the developed world, wellness-based strategies that consider diet, exercise and mental wellbeing, lifestyle medicine, form the foundation for such concepts. And while no one believes these strategies are wrong, they continually suffer from adoption because they are preventive and perceived as difficult to measure. Certainly, it is easy to measure treatments for disease, but far more challenging to measure the value of not getting the disease in the first place. What would you spend if you knew you could do something that absolutely prevented heart disease or cancer?

The reality is that very good measures do exist and are used extensively in literally every other major industry, except healthcare. Why does healthcare always seem to lag behind other major industries when it comes to business analysis? That’s a question I can only ask. I can’t answer.

The simple fact is this, however; we can accurately measure the impact of disease prevention and wellness promotion on healthcare utilization and costs by employing proven modeling methods, such as Cost Effectiveness Analysis (CEA), to identify cost effective strategies to prevent major health incidents and better manage ongoing health status.

I have a passion for health and wellness, so while some might consider me a bit biased, I’m also a Healthcare/Neuro Economist, and that forces me to take a very unbiased perspective when it comes to data. Further, it is unfortunate that while healthcare budgets in highly reimbursed interventional areas grow by leaps and bounds, budgets directed towards keeping populations healthy, though miniscule in comparison, are continually challenged and cut.

And, let’s be honest, the old challenge of, what’s your ROI, is simply a false measure. ROI was never designed or intend to measure opportunity costs or to integrate opportunity with capital and other cost factors to create an effective equation. The problem is that every hospital administrator, department head and board member is used to being asked, “What the ROI.” It’s time for that to stop and to restate the question as, “What’s the value; what is the cost effectiveness.” Most, with the best intentions, probably believe they are asking the same question, but ROI and Cost Effectiveness are as different as night and day. Let me give you an example.

If you want to buy a new CT, you can simply calculate a five-year ROI by subtracting the total Capital plus Operating Costs (Investment) from the projected Net Collections over that period divided by your total Investment.

However, If you wanted to determine the opportunity cost of the same acquisition, you would look beyond the direct interventional use of the CT and consider the surgeries you might lose as a result of not having a CT onsite as well as emergency visits, etc.…, you begin to calculate a truer picture of the Cost Effectiveness of the CT acquisition to the organization rather than the direct quid pro quo, cost versus charges/reimbursement, of the CT.

So, while healthcare executives want to be able to defend any purchase or expenditure purely on its own merits, a broader argument can be made when a CT acquisition may on face value represent a negative ROI, but when analyzed more broadly, may in fact greatly expand the organization’s revenues through increases in various other services. Further, the inverse may be true when a CT purchase shows a clear positive return on direct use, but whose acquisition produces such negative circumstances organizationally as to negate the direct value of the acquisition. How could that happen? Consider the broader view that in a competitive hospital environment the range of available imaging services are considered elemental to third-party contracting. Your Hospital is evaluating the ROI on an additional CT versus initiating PET. Payors want the PET technology and may redirect patients both substantially and disproportionately to the another facility offering PET. So, while on face value, the CT should produce a positive ROI, deeper Cost Effectiveness Analysis may show a different story.

The same approach may be taken with regard Wellness and Health Promotion. As many shifts occur in the healthcare market, from direct payor reforms to consumer choices and perceptions, to various interactions at corporate (B2B) levels and other inputs, the implied value of Wellness and Health Promotions efforts can be measured with considerable accuracy at both programmatic and general levels.

If your objective is to provide the best decision-making for your organization and take a global view of your business, expanding your sights beyond ROI, and educating all those decision-makers around you to the value different measure of Cost Effectiveness, can make your organization more competitive and more profitable.