Section 1.6 Assess

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

Financial Assessment, Financing Resources, and Acquisition Models

This tool provides a description of various sources of funds that may be available for health information technology (HIT).

Time needed: 4 hours
Suggested other tools: NA

Introduction

Making an investment in any form of health information technology (HIT) is challenging for every organization but especially for social service agencies, which are often small non-profits that rely heavily on limited state funding and volunteers. However, such organizations do need to keep pace with the health care industry and some states are mandating or incentivizing all organization that impact population health—including social service agencies—to adopt health information exchange (HIE) and potentially other HIT. (See http://www.health.state.mn.us/e-health/hitimp/ as an example of such a mandate in Minnesota.)

How to Use

1. Use the Financial Assessment to evaluate your financial preparedness for acquiring HIE and other HIT. Some of the information gathered here may be useful for making a business case for acquiring a loan or preparing a grant application, if any such grants are available in your community. Collecting baseline data also helps you establish goals, as well as conduct benefits realization studies after e-health acquisition to measure your return on investment (ROI).

2. Identify potential sources of funds to pursue.

3. Determine which form of HIE and HIT 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 or lesser benefits in what initially seems like the most financially feasible option.

Financial Assessment

Use the following assessment to determine your financial position with respect to a major investment in HIE or other HIT. If you identify lack of preparedness, you may want to shore up those areas prior to making the investment.

Not Yet Prepared / Moderately Prepared / Highly Prepared
1. Do you have a realistic estimate of upfront costs for participating in HIE or acquiring other HIT? / □ 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 HIE or HIT ? / □ 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 HIE or HIT? / □ 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 that potentially impacts the learning curve for HIT . . . / □ Poor in comparison to average for industry / □ Consistent with average for industry / □ Better than average for industry
6. Is your staff turnover ratio that potentially impacts the training cycle for HIT . . . / □ Poor in comparison to average for industry / □ Consistent with average for industry / □ Better than average for industry
7. Is your personnel expense as % of total revenue which may impact funds availability . . . / □ Poor in comparison to average for industry / □ Consistent with average for industry / □ Better than average for industry
8. Is your operating margin that may impact your ability to acquire a loan . . . / □ Poor in comparison to average for industry / □ Consistent with average for industry / □ Better than average for industry
9. Amount of bad debt which may impact your ability to acquire a loan is. . . / □ High: ____ / □ Moderate: ____ / □ Low: ____
10. 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
11. Is your credit history . . . / □ Poor / □ Fair / □ Good
12. 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 / □ Yes; although we would prefer not to use it for HIT
13. 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
14. Do you have any incentives available to you for acquiring HIT? / □ None that we can capitalize on / □ We are aware of some incentives, but have not had the opportunity to take advantage of them / □ We have participated in one or more incentive programs
15. Do you have a banking advisor you regularly use that can help you with HIT funding? / □ 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 HIE participation or HIT acquisition. While some of these sources are not very applicable to social service agencies, the list may generate ideas not previously considered. As you approach your HIE and HIT 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 difficult for more expensive forms of HIT, but very appropriate for others. Some HIE and HIT projects may support a strong financial return on investment, but others are primarily focused on opportunities for improved outcomes. (Be aware that some expected productivity improvements will only materialize if time saved is carefully monitored and applied to specific new tasks or services.)

Estimate of available funds: $______Timing: ______Risk: ______

□  Tax advantages. An accountant can help identify tax advantages for those 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 hardware, software, or both. A social service agency may seek such group purchasing arrangements (especially for hardware) with a hospital or by forming a buying cooperative, in some cases even with other types of organizations, such as schools or local public health clinics. In addition, there may be an opportunity to piggyback onto group purchasing when participating in an HIE organization (HIO) that facilitates 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 IT operations. Vendors also offer financing options, which may be at a higher cost than your local bank; check with your bank or other sources before accepting a vendor offering.

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

□  Remote hosting or outsourcing. This option is similar to the ASP/SaaS, 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 or contract services. 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 social services market. In addition, open source often requires a consultant to help implement in a unique environment—sometimes resulting in greater cost than if the organization purchased a commercial product.

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 as part of fulfilling the grant.

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

□  Philanthropy. Not-for-profit organizations find philanthropy is a feasible funding source. There are various forms of philanthropy:

·  In-kind contributions may be feasible. For example, an employer may be interested in donating staff time to help develop software. IT student volunteers or interns may assist with workflow and process analysis or hardware installation. 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 Web site or being recognized by the local chamber of commerce for “going green.”

·  Some providers may be willing to share expertise, provide limited staff support, or even make donations to help social service agencies with technology that would facilitate exchange of information. This is especially true of providers who are participating in health reform payment initiatives involving shared savings and performance-based reimbursements.

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 are increasing their awareness of the impact social services can have on the health of a population. They may 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). Local police, fire, schools, and other public service departments are also known sometimes to support local providers by permitting them to piggyback onto back-up generators or network services.

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

HIT Acquisition Strategies

There are two primary ways to acquire HIT products and services: straight licensure and ASP/SaaS. You may also use some of these to obtain the technology needed to support HIE. Participation in an HIE organization (HIO) is discussed separately in Section 3.4 Participation in Data Sharing Agreements.

¨  Straight licensure refers to acquiring software by paying up front for use of the software and, usually, 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 large, but the overall cost over five or 10 years may be equal to or less than the subscription fees required in an ASP or SaaS model (see below).

¨  Application service provider (ASP) or Software as a Service (SaaS)/Cloud Computing 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 ASP/SaaS 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 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
(Servers maintained in-house or locally at a hosting service) / Client/server with Web front end
(Servers maintained by HIT vendor) / Often Web Services Architecture
(Servers maintained by HIT vendor, often virtualized)
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 even though customization is feasible
Delivery mechanism / Local area network (locally maintained or hosted services) / Virtual Private Network or Internet Service Provider (ISP) / ISP
Availability (given local power redundancy) / Virtually 100% with redundant servers / Can be 100% with VPN and ISP; redundancy more difficult with ISP alone / Redundancy more difficult with ISP
Security / Depends on controls adopted by facility / 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: