Section 1.15 Assess

Section 1 Assess—Financial Assessment, Financing Resources, Acquisition Models - 1

Financial Assessment, Financing Resources, Acquisition Models

This tool describes various sources of funds that may be available for health information technology (HIT) if you are in an independent skilled nursing facility.

Time needed: 4 hours
Suggested prior tools: NA

Introduction

Making an investment in any form of HIT is challenging for every organization, but especially for independent skilled nursing facilities. This tool is especially useful if you are financing an electronic health record (EHR) or health information exchange (HIE) investment yourself. It will help you understand various sources of funds that may be available. If your facility is part of a larger corporate structure, HIT investments likely are handled at the corporate level. However, if you want to make the case for your local agency to adopt new technology, this tool may be helpful for you as well. Feel free to share the tool with your corporate leaders.

How to Use

  1. Use the Financial Assessment to evaluate your financial preparedness for acquiring EHR and HIE support. Some of the information gathered here may be useful for making a business case at the corporate level; or for acquiring a loan or preparing a grant application. Collecting baseline data also helps you establish goals, as well as conduct benefits realization studies later on to measure your return on investment (ROI).
  2. Identify potential sources of funds to pursue.
  3. Determine which form of EHR or HIE acquisition is best for your organization. While you may initially think only one option is feasible for you, considering other options may reveal hidden costs and other valuable comparative information.

Financial Assessment

Not Yet Prepared / Moderately Prepared / Highly Prepared
1. Do you have a realistic estimate of upfront costs for the EHR or HIE you want to acquire? / □ No cost estimate yet / □ Fairly broad range understood at this point only / □ Have a good understanding of range of prices from reliable sources
2. Do you have a realistic estimate of ongoing costs for the EHR or HIE you want to acquire? / □ No estimate yet / □ Fairly broad understanding at this point only / □ Have a good understanding from reliable sources
3. Does your organization have guidelines for ROI requirements for capital expenditures? / □ No ROI requirements; or no previous experience with capital investments / □ ROI requirements are fairly loose; or we hope to expense the investment / □ We have ROI requirements; or we have a good understanding of the type of ROI we would like to have
Payback period:
___ yrs
Internal rate of return required: ____ %
4. Have you defined how you would estimate ROI for the HIT or EHR you want? / □ No specific goals have been identified yet / □ We value ROI, but are unsure how to estimate benefits / □ We have a process to estimate benefits for ROI calculations
5. Is your staff to client ratio . . . / □ Poor in comparison to average for industry / □ Consistent with average for industry / □ Better than average for industry
6. Is your staff turnover ratio . . . / □ Poor in comparison to average for industry / □ Consistent with average for industry / □ Better than average for industry
7. Are wages paid to staff . . . / □ Lower than average for industry / □ Consistent with average for industry / □ Better than average for industry
8. Is your personnel expense as % of total revenue . . . / □ Poor in comparison to average for industry / □ Consistent with average for industry / □ Better than average for industry
9. Is your operating margin . . . / □ Poor in comparison to average for industry / □ Consistent with average for industry / □ Better than average for industry
10. Number of days to drop a bill . . . / □ High: ____ / □ Moderate: ____ / □ Low: ____
11. Days in A/R . . . / □ High: ____ / □ Moderate: ____ / □ Low: ____
12. % lost charges . . . / □ High: ____ / □ Moderate: ____ / □ Low: ____
13. % denials . . . / □ High: ____ / □ Moderate: ____ / □ Low: ____
14. Do you currently have competing uses for the capital required for HIT? / □ Yes, and they are equally important / □ Yes, although HIT is a high priority / □ No, or not at this time that would detract from HIT acquisition
15. Do you currently have debt; what is your debt coverage ratio? / □ Yes; and debt coverage ratio is poor / □ Yes; but debt coverage ratio is manageable / □ No debt at this time
16. Credit history . . . / □ Poor / □ Fair / □ Good
17. Do you have a line of credit? / □ No; or it is currently being used / □ Yes; and we may have to use it to supplement our HIT acquisition / □ Yes; although we would prefer not to use it
18. If you are a not-for- profit organization, have you ever applied for a grant? / □ No and we have no resources with which to apply or manage a grant / □ No; but it is something of interest to us / □ Yes; and we have been successful in getting grants
19. Do you have any incentives available to you? / □ No; or none that we are aware of / □ Incentives are available but they are not sufficient / □ We have participated in one or more incentive programs
20. Do you have a banking advisor you regularly use? / □ No / □ Yes, but we have not discussed with the advisor / □ Yes, we are discussing with the advisor

Sources of Funds

The following is a description of the various sources of funds that may be available for EHR or HIE if you are an independent skilled nursing facility. While not every source is applicable to every facility, the list may generate ideas not previously considered. As you approach your EHR and HIE projects, review the list, check off those you think are worth pursuing, and assign appropriate individuals to further explore each. Keep track of the funds that may be available, their timing, and their risk (i.e., likelihood of receiving the funds [high, medium, low]).

¨  Cash flow from operations/use of reserves. Many organizations attempt to finance HIT through operational cash flow. This is becoming more difficult as more-sophisticated and more-expensive forms of HIT are being acquired. Some EHR and HIE projects may support a strong financial return on investment, but many forms are primarily focused on quality and client safety. A benefits analysis should be performed for any HIT investment; be aware that the benefits may not be in the form of direct cash flow (see 2.XX Business Case: Total Cost of Ownership and Return on Investment for EHR and HIE).

Estimate of available funds: $______Timing: ______Risk: ______

¨  Tax advantages. An accountant can help identify tax advantages for providers who are for-profit.

Estimate of cash or value of other contributions: $______Timing: ______Risk: _____

¨  Group purchasing. Group purchasing may provide a discount on the price of either hardware, software, or both. A nursing home corporation will benefit from economies of scale through purchasing the same products for all of its facilities. Independent facilities may seek such group purchasing arrangements with a hospital and/or clinic or forming a cooperative network, in some cases even with other types of organizations, such as schools. In addition, there may be an opportunity to piggyback onto group purchasing when participating in an (HIE). A regional health information organization, for example, can facilitate data sharing across the continuum of care. Even if there is no discount for a group of unrelated organizations, several organizations purchasing the same product in a given locale may benefit by sharing lessons learned, using local consultants, etc.

Estimate of cash or value of discounts: $______Timing: ______Risk: ______

¨  Vendor financing options. Many vendors offer an application service provider (ASP) or software as a service (SaaS)/cloud computing model that both finances the software and manages of IT operations. Vendors also offer traditional financing options, which should be compared with your local bank or other sources.

Estimate of impact on cash flow: $______Timing: ______Risk: ______

¨  Remote hosting or outsourcing. This option is similar to the ASP, but typically refers only to management of the data center (remote or local) and its hardware/telecommunications, not the software. Although it can help reduce the cost of IT staffing and may make it more reliable with a strong service level agreement, organizations may also find outsourcing more expensive than having staff support. Local markets and availability of employees can make a difference.

Estimate of impact on cash flow: $______Timing: ______Risk: ______

¨  Leasing. This option generally applies only to the hardware you acquire and that you manage yourself, or include in an outsourcing arrangement.

Estimate of impact on cash flow: $______Timing: ______Risk: ______

¨  Debt and equity financing. Bank loans and lines of credit are frequently tapped to support HIT purchases. Federal and state governments are providing no-cost or low-cost loans in certain communities to support HIT investment.

Estimate of amount available net of cost: $______Timing: ______Risk: ______

¨  Open source products. Consider evaluating HIT based on open source code. Although generally lower in price, open source software may not be readily available for the home health market. If this is the cost of development could exceed commercial products, and open source software often is not interoperable with labs and other systems.

Estimate of value: $______Timing: ______Risk: ______

¨  Grants. Not-for-profit organizations may obtain grants to finance projects. This is becoming an increasingly important source of funds for HIT projects as federal and state governments are interested in supporting HIT investment. Be aware of the costs that may be associated with grants, including the writing of the grant and potential reports or research that must be completed to fulfill the grant.

Estimate of amount available net of cost: $______Timing: ______Risk: ______

¨  Philanthropy. Not-for-profit organizations may be surprised to find philanthropy is a feasible funding source. There are various forms of philanthropy:

·  In-kind contributions may be feasible. For example, local fire/police departments have permitted a local health care organization to piggyback onto their backup generator for IT; or an employer in a remote location may be interested in donating staff time to help develop software.

·  Donations from individuals may be used for HIT. Organizations have come up with creative ways to solicit and express appreciation for donations, such as announcing the donation on their website or being recognized by the local chamber of commerce for “going green.”

Estimate of cash or value of other contributions: $______Timing: ______Risk: _____

¨  Local businesses, religious organizations, charities, and public service organizations. Such organizations have a vested interest in the cost and quality of health care, and may also be a source of funds, directly or indirectly through contracting incentives (businesses) or other forms of support (e.g., helping with philanthropic fund raising, equipment donation).

Estimate of cash or value of other contributions: $______Timing: ______Risk: ____

HIT Acquisition Strategies

There are three primary ways to acquire EHR products and services: straight licensure, ASP/SaaS, and community offerings. You may also use some of these to obtain the technology to support HIE.

¨  Straight licensure refers to acquiring software by paying up front for use of the software and, often, for assistance with implementation, training, and go-live. A periodic maintenance or service fee is charged to keep the software current and to provide ongoing support. The initial investment is usually quite large, and most software vendors do not offer financing.

¨  Application service provider (ASP) or Software as a Service (SaaS) is a form of software acquisition where the up-front cost and ongoing maintenance/service fees are bundled together into a periodic payment. From a financing perspective, the difference between this model and straight licensure is the difference between tenant and owner. The ASP/SaaS model requires little or no down payment, usually demands less staffing, has lower hardware costs, and allows you to pay as you go. But, the ASP/SaaS model offers less control and customization capability and the long-term cost may end up being higher.

Although some use the terms ASP and SaaS interchangeably because they both are a tenant models of acquisition, consumers should be aware of product-related differences between the two models. The following table summarizes these differences and compares both with straight licensure.

Factor / Straight Licensure / Application Service Provider (ASP) / SaaS (Cloud Computing)
Software architecture / Traditional client/server / Client/server with Web front end / Often Web Services Architecture
Product sophistication / Full range from high to low / Moderate / Low
Customization / Most customizable for a price / Somewhat customizable / Varies. Economies of scale often preclude customization offerings even though customization is feasible
Delivery mechanism / Local area network (locally maintained or hosted services) / Virtual Private Network or Internet Service Provider / Internet Service Provider
Availability (given local power redundancy) / Virtually 100% with redundant servers / Can be 100% with VPN; redundancy more difficult with ISP / Redundancy more difficult with ISP
Security / Depends on controls adopted by agency / Depends on controls in service agreement* / Depends on controls in service agreement*
Up front cost / High / Moderate Low / Low
Ongoing cost / Moderate - Low / High - Moderate / Moderate - Low
Staff support / High / Moderate Low / Low

* Some health care organizations are reluctant to have their data stored away from their organization, whether remotely or in the cloud. There are two primary concerns: