ROI V's CEA
Cost Effectiveness Analysis-It’s Role in Medical Equipment Purchases
When preparing to make capital investments, most companies conduct a return on investment (ROI) calculation to see if the investment will be economically beneficial. In healthcare, the situation becomes more complex because there are various clinical and nonclinical outcomes based on acquisition of new devices or technologies that ultimately affect the cost of healthcare delivery and overall economic efficacy beyond the direct measurement of investment versus returns. In such cases the straight ROI calculation is not an adequate representation of the true economic impact to the medical program or the organization.
In these instances, Cost-Effectiveness Analysis (CEA) is a much better and more robust method of determining the utility of a new purchase. An example would be the purchase of a new robotics instrument for the operating room of a hospital. At first glance there is the total cost (down payment and financing) and then the extra revenue generated by more surgeries. However, the situation is more complicated than it first appears. These robotic instruments can increase the efficiency of the surgery and thus decrease operating room time. They can also decrease the complications of surgery done by hand and its resultant additional costs. It can lead to decreased lengths of stay and better patient satisfaction/quality of life. Furthermore, it may increase demand for the hospital as it becomes a state of the art facility within its market. This can not only increase demand for surgical services, but other services as well since patients will migrate to a hospital that they perceive as state of the art – the Halo Effect. A classic ROI model does not have the capability to analyze all these factors. CEA on the other hand can take into account this Broad Data™ and more accurately assess the situation
Using decision tree modeling, CEA can take all of these aspects into consideration, quantify them, and organize them in such a way that one can figure out just how much of a difference the new robotic instrument can really make. Since it quantifies the results, a decision can be made as to how much the hospital is willing to pay for the instrument in order to make economic sense. In the new era of decreased reimbursements and quality-based payment models, it becomes critical to invest in technology that will really pay off in the long run. CEA is a giant step forward in being able to accurately measure and to achieve this goal.
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 other decision-makers, Cost Effectiveness Analysis can make your organization more competitive and more profitable.