IBM Smarter Planet Healthcare FINAL 041911

8/3/2019 IBM Smarter Planet Healthcare FINAL 041911

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Prepared for IBM

May 2010

The Total Economic Impact OfSmarter Planet Solutions ForHealthcareSingle-Company Analysis

Project Directors: Jon Erickson and Balal Ahmed


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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

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TABLE OF CONTENTS

Executive Summary ............................................................................................................................... 3Purpose .............................................................................................................................................. 4Methodology ....................................................................................................................................... 4Approach ............................................................................................................................................ 4Key Findings ...................................................................................................................................... 5Disclosures ......................................................................................................................................... 6

Smarter Planet Solutions For Healthcare: Overview ............................................................................ 7Analysis ................................................................................................................................................... 9

Interview Highlights ............................................................................................................................ 9TEI Framework ................................................................................................................................ 10Costs ................................................................................................................................................ 10Benefits............................................................................................................................................. 11Risk ................................................................................................................................................... 19TEI Framework: Summary............................................................................................................... 20

Appendix A: Expanding the view of value for a Smarter Planet ......................................................... 22Appendix B: Total Economic Impact Overview ............................................................................... 23

Benefits............................................................................................................................................. 23Costs ................................................................................................................................................ 23Risk ................................................................................................................................................... 23Flexibility ........................................................................................................................................... 23

Appendix C: Glossary ........................................................................................................................... 24 2010, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based onbest available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics,Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All othertrademarks are the property of their respective companies. For additional information, go to www.forrester.com.


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Executive SummaryIn October 2009, IBM commissioned Forrester Consulting to examine the total economic impactorganizations can realize by deploying Smarter Planet solutions as part of their overall technology

strategy. Smarter Planet solutions improve the way organizations, governments, and municipalitiesinteract, engage, and respond to a changing world. These solutions are created to work inheterogeneous IT environments and with a wide range of sectors such as healthcare, public sector,environment, and law enforcement.

This study illustrates the impact of adopting Smarter Planet solutions to create an integrated HeathInformation Exchange (HIE), improving the way a regional health network communicates patientinformation between hospitals, physicians, patients, and payees. For this analysis, Forresterexamined the impact of deploying an HIE within a US-based regional healthcare network withinWestern North Carolina. The WNC Health Network, Inc (WNCHN) comprises 16 founding healthcare providers as well as 23 affiliate members across North and South Carolina as well as SouthernVirginia. IBM supported the initial implementation and delivery through IBM Global BusinessServices and IBM e-Business Hosting in the creation of the HIE for WNCHN, called WNC Data

Link.

As part of this analysis, Forrester leveraged its Total Economic Impact Methodology and IBMsexpanded view of value for a Smarter Planet, which is used as a basis for assessing the full impactof Smarter Planet solutions. For a complete description of the expanded value approach and theTEI methodology, see appendices A and B.

In conducting in-depth interviews with the organization, Forrester found that the use of SmarterPlanet solutions allows the HIE to realize benefits within the four types of impact outlined in theexpanded value approach. These included:

Operational impact. Key financial impacts as noted by the health network includedimproved efficiency in retrieving and accessing patient information, reduced cost of care by

avoiding duplication of patient records, and improved quality of care by having recordsavailable in a timely manner, as well as improved flexibility of how and when records can beaccessed.

Brand impact. Key brand impacts included the ability to leverage the lessons learned fromthe regional HIE to a wider state and national community as well as raising the profile of thehealth network as a leader by adopting innovative ways of sharing patient information.

Strategic impact. Key strategic impacts included the ability to improve collaborationbetween multiple constituents: patients, hospitals, physicians, payers, and employers.Specific collaboration initiatives included the ability of these multiple groups to worktogether to reduce the overall cost and improve quality of care.

Societal impact. Key societal impacts included the ability to drive additional benefits thatwould benefit the community and region as a whole. These included improved quality ofcare by reducing wait times for emergency room admissions and identifying potential abuseof prescription medications by patients, as well as sharing any incident trending informationbetween hospitals.

In assessing the benefits associated with the HIE, the health network sought to balance the positivemeasurable operational impact with the current and potential strategic, societal, and brand impacts


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on different stakeholders within the wider community. This report will illustrate how the HIE affectsdifferent groups both financially and non-financially.

Purpose

The purpose of this study is to provide readers with a framework to evaluate the potential impact ofusing Smarter Planet solutions as part of an overall strategy in undertaking the creation of a HealthInformation Exchange. Forresters aim is to clearly show all calculations and assumptions used inthe analysis. Readers should use this study to better understand and communicate a business casefor investing in HIEs.

MethodologyIBM selected Forrester for this project because of its industry expertise in Smart Computingsolutions and Forresters Total Economic Impact (TEI) methodology. TEI not only measures costsand cost reduction (areas that are typically accounted for within IT) but also weighs the enablingvalue of a technology in increasing the effectiveness of overall business processes.

For this study, Forrester employed four fundamental elements of TEI in modeling the financial andoperational impact of Smarter Planet solutions for healthcare within a regional healthcare network:

1. Costs and cost reduction.

2. Benefits to the entire organization.

3. Flexibility.

4. Risk.

Forrester applied this methodology within the context of IBMs Expanded ROI System for Smarter

Planet to determine a financial ROI using available data and to identify benefits and suggestmetrics to measure the additional impact created by the HIE. The four types of impact identified byIBMs Expanded ROI System are:

1. Operational.

2. Brand.

3. Strategic.

4. Societal.

ApproachForrester used a five-step approach for this study.

1. Forrester gathered data from existing Forrester research relative to Smarter Planetsolutions and healthcare IT offerings.

2. Forrester conducted a series of in-depth interviews with a regional healthcare networkcurrently using Smarter Planet solutions.


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3. Forrester constructed a return on investment model representative of the interviews. Thismodel can be found in the TEI Framework section below.

4. Forrester created a composite organization based on the interviews and populated theframework using data from the interviews.

Key FindingsForresters study yielded three key findings:

Impact. Based on interviews with current and former stakeholders of the HIE projects forthe regional health network, Forrester constructed a framework highlighting the financialand non-financial impacts to multiple groups across the region. This included operational,brand, societal, and strategic benefits and costs from the adoption of the HIE.

Benefits. Specific benefits from the adoption of the HIE included both quantified andqualitative benefits. Qualitative benefits included those that were mentioned by theinterviewed organization but either had not been realized or did not have a tangibleassociated measurement available.

o Operational/financial:

Estimated three-year ROI risk adjusted: 123%.

40% efficiency savings from faster record access.

20% reduction in the costs to share and transfer patient records.

15% reduction in duplication of preoperative lab tests.

5% reduction in medical errors from faster access to accurate and up-to-date patient information.

o Brand

Accelerate the creation of additional regional HIEs based on existinglessons learned.

Create an incentive for increased regional broadband usage.

Drive best practice and thought leadership in the medical industry.

o Strategic:

Improving overall chronic disease management.

Ability to attach and update images such as X-rays that can be accessedacross the network.

Enhance collaboration within network in event of a widespread epidemic.


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Provide data for research to medical and academic institutes.

Provide more efficient integration with payers in processing medical/legalclaims/payments.

Provide more efficient integration with employers in managing employeesickness.

o Societal

Identify potential misuse of prescription drugs.

Improve quality of care within emergency room visits.

Manage health inequalities across the region.

Costs. Initial costs of investing in the HIE incorporated a combination of capital andoperational cost drivers. These included the costs of hardware, ongoing administrationcosts, and hosting fees, as well as costs of initial implementation and training. Funding forinitial development of the HIE was from a combination of governmental and non-profitgrants.

Table 1 illustrates the risk-adjusted cash flow, based on data and characteristics obtained duringthe interview process. Forrester risk-adjusts these values to take into account the potentialuncertainty that exists in estimating the costs and benefits of a technology investment. The risk-adjusted value is meant to provide a conservative estimation, incorporating any potential risk factorsthat may later impact the original cost and benefit estimates. For a more in-depth explanation of riskand risk adjustments used in this study, please see the Risk section

Table 1: Summary Three Year Financial Impact Risk Adjusted

Summary FinancialResults

Risk-Adjusted

ROI 123%

Total costs (PV) 3,309,091

Total benefits (PV) 7,380,422

Total (NPV) 4,071,331

Source: Forrester Research, Inc.

DisclosuresThe reader should be aware of the following:

The study is commissioned by IBM and delivered by the Forrester Consulting group.


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IBM reviewed and provided feedback to Forrester, but Forrester maintained editorial controlover the study and its findings and did not accept changes to the study that contradictedForresters findings or obscured the meaning of the study.

The customer names for the interviews were provided by IBM.

Forrester makes no assumptions as to the potential ROI that other organizations willreceive. Forrester strongly advises that the readers should use their own estimates withinthe framework provided in the report to determine the appropriateness of an investment inIBM Smarter Planet solutions for healthcare.

This study is not meant to be used as a competitive product analysis.

Smarter Planet Solutions For Healthcare: OverviewAccording to IBM

1

Rising costs, limited access, high error rates, lack of coverage, poor response to chronic disease,and the lengthy development cycle for new medicines could almost all be improved if one could linkdiagnosis to drug discovery to healthcare providers to insurers to employers to patients andcommunities. Today, these components, processes, and participants that make up the vasthealthcare system aren't connected. Duplication and handoffs are rampant. Deep wells of lifesavinginformation are inaccessible.

, the problems with our healthcare system are well known, well documented, andendlessly debated. What's not so apparent is that many of them arise because our healthcare

system isn't, in fact, a system.

A smarter healthcare system starts with better connections, better data, and faster and moredetailed analysis. It means integrating our data and centering it on the patient, so each person"owns" his or her information and has access to a networked team of collaborative care. It meansmoving away from paper records, in order to reduce medical errors and improve efficiencies. And itmeans applying advanced analytics to vast amounts of data, to improve outcomes.

Smarter healthcare is interconnected, so doctors, patients, and insurers can all share informationseamlessly and efficiently. Sainte-Justine, a research hospital in Quebec, is automating thegathering, managing, and updating of critical research data, which is often spread across differentdepartments. Then it is applying analytics to speed childhood cancer research and improve patientcare while drastically lowering the cost of data acquisition and enhancing data quality. ServicioExtremeo de Salud, a public healthcare service in Spain, has built a regionally integrated systemthat lets patients go to many health centers within the region, knowing a doctor there can have thepatients' complete, up-to-date records for faster and more accurate treatment.

Smarter healthcare is intelligent, applying advanced analytics to improve research, diagnosis, andtreatment. Geisinger Health Systems is integrating clinical, financial, operational, claims, genomicand other information into an integrated environment of medical intelligence that helps doctorsdeliver more personalized care. This enables them to make smarter decisions and deliver higher-quality care, all because they can easily turn information into actionable knowledge. And IBM ishelping some of the world's top universities develop a global network of medical data, giving doctorsdiagnostic resources that were once unimaginable. These repositories currently hold millions ofdigital images.

1 http://www.ibm.com/smarterplanet/us/en/healthcare_solutions/visions/index.html


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Smarter healthcare systems like these hold promise beyond their particular communities, patients,and diseases. The smart ideas from one can be replicated across an increasingly efficient,interconnected, and intelligent system. This should result in lower costs, better-quality care andhealthier people and communities. In other words, we'll have a true healthcare system, with thefocus where it belongs on the patient


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AnalysisAs stated in the Executive Summary, Forrester took a multistep approach to evaluate the impactthat implementing Smarter Planet solutions for healthcare can have on an organization:

Interviews with IBM product management, marketing, and sales personnel.

In-depth interviews of current and former stakeholders within a US-based regionalhealthcare network comprising 16 hospitals.

Construction of a common financial framework for the implementation of Smarter Planetsolutions for healthcare.

Construction of a composite organization based in part on characteristics of the interviewedorganization.

Interview HighlightsThe interviews uncovered a number of characteristics about this organization and its strategy to cutcosts and create new market opportunity leveraging the creation of a HIE:

For several years, the 16 hospitals within the WNC Health Network, Inc have exploredoptions to securely and efficiently exchange electronic patient medical information amongthe regions healthcare providers. The hospitals obtained $2.5 million in federal funds and$1 million in additional foundation funding to develop the foundation for the exchange.

In its creation, WNC Data Link had two primary goals. In the short term, the goal was toallow for secure exchange of patient information across each of the regional hospitals. Inthe long term, the goal of the exchange is to provide a longitudinal electronic medicalrecord that can be accessed and updated in real time by any authorized provider within thenetwork.

As part of the flexibility required by the solution, the network mandated two keyrequirements for the project. First, no one provider within the network would store or controlthe information. All information is distributed across each one of the member institutions.Second, the health network wanted to create open standards, allowing for multiple ways toaccess and interface with the data.

Prior to the investment in WNC Data Link, there was no way to efficiently and effectivelyprovide immediate access to patient records among each of the 16 healthcare institutions.As a result, the process of understanding patient medical history was ad-hoc andundefined, resulting in delays in manually having to collect and transmit medical recordsbetween hospitals, unnecessary duplicate tests resulting from updates to dated medicalinformation, as well as potentially serious errors in patient information.

WNC Data Link allows authorized physicians and clinicians to view a patients electronicrecords across all participating hospital systems. Upon request, the system searches all ofthe hospitals information systems for a patients records and collates them in astandardized format in real time.

The health network noted both financial and non-financial benefits resulting from theinvestment in Smarter Healthcare solutions. Financially, WNC Data Link allowed forreduction in costs associated with improved speed to access patient records, reduced lab


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costs for pre-surgical procedures, and reduced costs in sharing patient information. Inaddition, non-financial benefits included improving the overall quality of patient care andoverall patient satisfaction.

WNC Health Network, Inc also saw the investment in WNC Data Link as a platform toenable subsequent initiatives and investments. These included integration in a state-based

health information exchange, allowing more healthcare providers to access and updatepatient data in real time.

TEI Framework

Introduction

From the information provided in the in-depth interviews, Forrester has constructed an impactframework for those organizations considering implementation of Smarter Planet Solutions forhealthcare. The objective of the framework is to use available data to illustrate the financialmeasures, including cost, benefit, and risk factors that affect the investment decision, and to identifybenefits and suggest metrics to measure additional impact created.

TEI Framework Assumptions

Table 2 lists the discount rate used in the present value (PV) and net present value (NPV)calculations and the time horizon used for the financial modeling.

Table 2: General Assumptions

Ref. General assumptions Value

Discount rate 10%

Length of analysis Three years


Organizations typically use discount rates between 8% and 16% based on their currentenvironments. Readers are urged to consult with their finance departments to determine the mostappropriate discount rate to use within their own organizations.

CostsCosts to create the initial phase of the WNC Data Link, linking individual patient data across the 16regional hospitals, included the cost of planning, testing, hosting, and implementing the HIE. For theinitial phase of the project, the actual costs incurred by the individual hospitals were minimal as aresult of federal and non-profit grant funding.

Costs around initial funding for the interviewed organization include cost of software, hardware,maintenance, implementation, and ongoing administration. The actual cost of the solution will varydepending on the size of the development staff as well as the level of data integration undertakenby the organization. Based on the discussions with the interviewed customer, the cost of platformhardware is incorporated into the cost of implementation.

Table 3: Total Investment Costs

Ref. Description Calculation Value


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A1 Total initial funding 3,500,000


BenefitsThe second component of this analysis looks at the potential operational, brand, strategic, andsocietal impact created by the investment in HIE. Estimates were obtained from public sources aswell as interviews with current and former stakeholders of the health network.

Operational Impact

Efficiency Of Accessing Patient Records

In terms of financial benefits, one area where the health network saw potential tangible financialvalue is improving the speed to access patient records. Prior to the investment, different healthcareproviders would spend a significant amount of time reviewing and updating patient records.Healthcare providers would have to access and update records through a manual process that

could take on average 15 minutes per patient record. By allowing electronic transfer of records,healthcare providers can access patient records in less time as compared to a manual request forrecords.

To construct this benefit across all of the 16 hospitals, the model assumes benefit accrues primarilyto the physicians participating in the HIE project. These providers are both on hospital staff as wellas directly affiliated with member hospitals. Of the total 1,200 providers within the network, themodel assumes roughly 440 providers are using the Data Link network. These providers areprimarily emergency department staff within each of the hospitals. Hospitals within the networkcurrently receive close to 17,000 annual patient visits per hospital. Of those patients, roughly 15%of patients require physician analysis of patient records. Prior to the investment in the HIE, it tookphysicians on average 15 minutes to access and review the patient's records. With the investmentin HIE the time to access and review patient records is slightly reduced by 10 minutes to on average

5 minutes. At a cost of roughly $61 per hour the total estimated position cost savings per hospitalequates to $25,552 with the estimated position cost savings across hospitals to be $408,833.

Table 4: Efficiency Of Accessing Patient Records

Ref Description Calculation Value

A0 Number of hospitals in health network 16

A1Total number of physicians in healthnetwork

1,200

A2 Number of physicians using data link 440

A3 Annual patient visits per hospital2

16,790

A4% of patients who require physiciananalysis of patient records

15%

A5Average time it takes to go through 50pages of notes in minutes

15

2 www.hss-inc.com/documents/EnewsMarch-09.pdf


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A6Average time it takes to go through 50pages of notes in minutes with HIE

5

A7 Cost per hour $60.87

A8Estimated physician cost saving perhospital (A3*A4)*((A7/60)*(A5-A6))

$25,552

A9Estimated physician cost saving for allhospitals in health network A8*A0

$408,833


Reduction Of Duplicate Lab Tests For Presurgical Procedures

In addition to improving the access to patient records, the organization also saw benefits around thereduction of duplicate lab tests for presurgical procedures. Anecdotally, prior to the investment inthe HIE, the network saw cases where healthcare providers were performing duplicate tests as aresult of not having the most recent patient record. Consequently, payers and patients were

potentially billed for tests that were not needed.

The benefit is calculated assuming a certain percentage of preoperative lab testing can be avoidedthrough having real-time and accurate patient record data. The model assumes an average savingsof roughly 120,000 operations conducted within a regional network. Of those operations, the modelassumes roughly 5% of the preoperative lab testing can be avoided by having accurate and up-to-date lab data around the patient's medical history. Assuming the cost for a lab test is on average$165, the total savings for payers and patients within the regional network equates to $987,491annually. Breaking it down by a per-hospital savings, the savings resulting from each of thehospitals is $61,718.

Table 5: Reduction Of Duplicate Lab Tests For Presurgical Procedures


B0 Number of hospitals in health network 16

B1Annual US operations performed inhospitals

3

27,000,000

B2 % of state population 2.99%

B3Estimated number of operationsconducted in North Carolina

807,947

B4% of hospitals in state that are in thehealth network

15%

B5

Estimated number of operationconducted in the health networkhospitals

119,696

B6 Average lab bill for preoperative testing4

$165

3 http://www.allbusiness.com/personal-finance/health-care/377829-1.html

4 http://www.allbusiness.com/personal-finance/health-care/377829-1.html


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B7% of preoperative lab testing that can beavoided through EMR/HIE

5%

B8Estimated savings for hospitals in healthnetwork

(B5*B6)*(B7) $987,491

B9

Estimated average savings per hospital

in health network B8/B0 $61,718


Reduction In Costs To Share Patient Records

Another operational cost savings noted by the healthcare network as a result of improving electronicrecord access is reduction in costs associated with sending patient records between hospitals.While in some cases the patient needs to be treated at multiple hospitals, the patient will carry themedical records with them, in other cases patient records need to be faxed or couriered in cases ofemergency room visits. Creating a network where patients records can be automatically accessedreduces the costs associated with faxing or having a courier transmit records between hospitals.

To calculate this benefit, the model assumes a certain percentage of patient records are eithertransmitted between hospitals by fax or courier. Assuming the number of annual patient visitsequates to 268,640, the model assumes roughly 30% or 80,592 patient records need to be sharedacross a network annually. This equates to an estimated savings across the network of $451,315with savings per hospital equating to $28,207.

Table 6: Reduction In Costs To Share Patient Records


C0 Number of hospitals in health network 16

C1 Annual patient visits across health network 268,640

C2 Patient records that need to be shared across the health network 80,592

C3 Average number of pages per patient record 25

C480% of patient records that need to be shared across healthnetwork are faxed

$128,947

C5 Average courier cost $20

C6 20% of patient records that need to be shared across healthnetwork are couriered

$322,368

C7 Estimated savings for hospitals in health network C4+C6 $451,315

C8 Estimated average savings per hospital in health network C7/C0 $28,207


Improving Quality Of Patient Care


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In addition, the key short- and long-term benefit for multiple constituents who are participating in thehealthcare network is the ability of accurate and timely data to improve patient care quality througha reduction of potential medical errors. Medical errors affect a variety of constituents costinghealthcare providers and patients significant direct and indirect costs.

To calculate this benefit, the model assumes a certain percentage of medical errors that could beavoided as a result of having accurate and timely access to medical information. Based on nationaldata associated with US medication error costs, the model calculates the estimated savings forhospitals within the health network to be roughly $872,782 per year with an average annual savingsof $54,549 per hospital.

Table 7: Reduced Error Cost


D0 Number of hospitals in health network 16

D1Annual USmedication error costs (cost fortreatment)5 $35,000,000,000

D2 % of state population in the US 3%

D3 Annual medication error costs (cost fortreatment) for all hospitals in North Carolina

$1,047,338,503

D4Annual medication error costs (cost fortreatment) for all hospitals in health network

$155,161,260

D5Medical errors that can be avoided inhospitals

6 25%

D6 Percent of medical errors from incorrectrecords 15%

D7 Estimated reduction in record errors 15%

D8 Estimated savings for hospitals in healthnetwork

D4*D5*D6*D7$872,782

D9Estimated average savings per hospital inhealth network

D8/D0$54,549


In addition to the direct cost savings from reducing patient record errors, there is a secondarybenefit related to reducing medical malpractice costs. The cost of malpractice has steadily risenacross the United States, and part of that rise is due to the growth in medical record errors. Throughthe use of the HIE, the health network can improve real-time updates of patient records and reducethe likelihood of duplicate or outdated information.

5 http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=11623

6 http://www.nap.edu/nap-cgi/report.cgi?record_id=11623&type=pdfxsum


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To calculate this benefit, the model examines how, on average, medical malpractice costs could bereduced through the HIE. Assuming the average number of preventable drug-related injuries acrossthe US equates to 69 per hospital, the total number of drug-related injuries across the 16 hospitalswithin the network equates to 1,111. In addition, the model assumes that 30% or 333 of all casesare attributable to patient data inaccuracies. With the presence of the HIE, the model conservativelyestimates that the reduction in medical malpractice cases from data inaccuracies can be reducedby 10%. With the average US malpractice settlement amount estimated to be $14,441, the totalestimated reduction in medical malpractice costs equates to $481,450 or $30,091 per hospital.

Table 8: Reduced Malpractice Costs


E1National US preventable drug-related injuries inhospitals

7400,000

E2 Total number of all U.S. registered hospitals8

5,759

E3Average preventable drug-related injuries perhospital

69

E4 Number of hospitals in health network 16

E5Total preventable drug-related injuries in healthnetwork hospitals

1,111

E6Total preventable drug-related injuries in healthnetwork hospitals related to patient data

333

E7 Estimated reduction from HIE 10%

E8 Average US malpractice settlement amount9

$14,441

E9Estimated cost avoidance in drug-relatedmalpractice for hospitals in health network E6*E7*E8 $481,450

E10Estimated cost avoidance in drug-relatedmalpractice per hospital in health network E10/E4 $30,091


Total Operational Impact

Table 9 illustrates the total three-year benefits as a result of the migration to the IBM Smarter Planetsolutions for healthcare platform. The total PV benefits equate to roughly $7.4 million. Forresterreduced total benefits by 20% in year 1 to take into account implementation time. Starting in year 2,

both of these benefits are fully captured at 100% of their value.

Table 9: Total Benefits

7http://en.wikipedia.org/wiki/Medical_malpractice

8 http://answers.google.com/answers/threadview?id=728195

9 http://www.citizen.org/documents/malpracticeanalysis_final.pdf


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Year 1 Year 2 Year 3 Total PV

Speed to access patientrecords 327,067 408,833 408,833 1,144,733 942,374

Reduce Lab tests for pre

surgical procedures 789,992 987,491 987,491 2,764,974 2,276,199

Number of times hospitalsshare patient information (Fax,Couriers) 361,052 451,315 451,315 1,263,683 1,040,297

Improving patient care qualitydue to reduction of patientmedical errors 698,226 872,782 872,782 2,443,790 2,011,792

Malpractice reduction due toaccessing correct patient data 385,160 481,450 481,450 1,348,061 1,109,759

Total benefits

2,561,497 3,201,871 3,201,871 8,965,240 7,380,422


Additional Impact

As mentioned within the Executive Summary, this analysis highlights both the operational impactfrom an investment in the HIE as well as additional strategic, societal, and brand impact thatconstitutes a holistic business case for the organization. The purpose of examining these additionalareas is to provide the reader with an understanding of the additional goals from the investment,

possible metrics to identify in understanding potential improvement, the mechanism to measure theimprovement, as well as the key stakeholders who will be affected as a result of the benefit beingrealized.

Brand Impact

Specific brand benefits affected by the investment in the HIE included the ability to leverage thelearnings of the success of the HIE to other regional health networks.

Table 10 illustrates the additional brand impact from the investment in the HIE for the regionalnetwork

Table 10: Summary Potential Brand Impact - HIE

Goal Metric Qualifying conditions Measurableoutcomes

Stakeholders

Accelerate thecreation ofadditionalregional HIEsbased onexisting lessons

-Number of additional HIEscreated regionally over agiven year

Create a mechanism toshare lessons learnedwith other interestedregional networks

Number ofadditionalHIEs created

Citizens,hospitals, stategovernment


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learned

Create anincentive forincreased

regionalbroadbandusage

- Physicians accessing andupdating patient data fromtheir homes

- Patients accessing specificareas of their EMR toperform processes such asappointments, e-prescription from theirhomes

-Tracking physicianlocation to broadbanddensity. Monitoring

patient record activity-Tracking patientlocation to broadbanddensity. Monitoringpatient record activity

Growth ofbroadband inrural areas

Citizens, stategovernment

Driving bestpractice, thoughtleadership in themedical industry

-Having a greater say in theinfluencing US medicalpolicies-Frequency of interactionswith other US regions inknowledge transfer

Track politician activityaround HIE

Number ofreferencesthat cite HIE

Hospitals, USgovernment


Societal

The organization also noted several societal benefits that are affected by the investment in the HIE.Improving access and timeliness to patient information has a direct impact on the overall quality ofpatient care over time. Improving patient care by reducing errors allows for a healthier populationthrough a reduction in patient visits.

Table 11 illustrates the societal impact from the investment in the HIE for the regional network.

Table 11: Summary Potential Societal Impact - HIE

Goal Metric Qualifying Conditions Measurable Outcomes Stakeholders

Identifyingpotential misuseof prescriptiondrugs

-Number of admissionsresulting from misuse ofprescription drugs-Average cost to providecare to admitted patient-Average lawenforcement cost toidentify and stop abuse

-Ensure medicalhistory can bereferenced againstdiagnosis-Create a mechanismto flag potential signsof abuse

Reduction in cost ofpatient care

Reduced lawenforcement/investigationcosts

Hospitals,LocalGovernment,Patients

Improving qualityof care withinemergency room

visits

-Length of averagehospital stay by diagnosis-Number of subsequent

visits to ER for recurringcondition

Ensure appropriatecontrols are in place toaggregate and mask

patient records

Reduction of subsequentER visits

LocalGovernment,Patients


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Managing healthinequalitiesacross the region

-Analyzing patient visits,length of stay, reason foradmission across region-Mapping patient analysisto regional localities-Analyzing mapping datato discover

patterns/trends-Measuring frequency ofengagement withhospitals sharinginsight/creating actionplans if necessary toaddress healthinequalities in region

-Track patient datafrom individualhospitals to createaggregated regionalview-Track abnormal healthactivity in region

Reduction in patientadministration costs

Reduction in per patientspend

Physicians,LocalGovernment


Strategic Impact

For the investment in the HIE, the organization saw the potential for transforming the way differenthealthcare providers shared patient information between different constituents. For the initialphases of the HIE, the amount of patient information was limited to individual hospitals. However,as adoption of the HIE increased, additional constituents could receive benefit of the healthexchange. These included individual physician practices and pharmacy exchanges, as well asindividual patients accessing their own health records. This innovative approach would allow theorganization to drive additional collaboration between groups with the growth of adoption.

Table 12 illustrates the additional strategic impact from the investment in the HIE for the regionalnetwork.

Table 12: Summary Potential Strategic Impact - HIE

Goal Metric Qualifying conditions Measurableoutcome

Stakehol

Improvingoverall chronicdiseasemanagement

- Length of time between hospitalvisits for chronic patients-Cost to treat and service chronicpatients

-Aggregate and analyzeexisting trends for chronicpatients-Track the current time andsuccess metrics for chronicpatient care

Reduced Cost,Reduced waittime

Hospitals, GovernmePatients

Ability to

attaching andupdate imagessuch as X-raysthat can beaccessed acrossthe network

- Frequency of images attached and

updated on individual patient recordson health network- Frequency of image access byphysicians on patient records acrossthe health network

-Analyze imaging process toensure new/updated images

are associated to a patientEMR-Collect activity statistics tosee how much imaging isbeing pulled down byphysicians

Reduced time toaccess

completemedical file Physicians

Patients


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Enhancecollaborationwithin network inevent of awidespreadepidemic

-Number of times hospital sharesdata (medicine supply, staffexpertise)-Length of time to control/cureepidemic in region

Ensure all hospitals haveagreement in working in acollaborative way in such anepidemic scenario

Reducedincidentsresponse time

Hospitals, GovernmePatients

Providing datafor research tomedical andacademicinstitutes

Frequency of request for patient datafrom drug firms and academicinstitutes Ensure appropriate controls

are in place to aggregate andmask patient records

Increase inresearch directlytied tocommunity data

Hospitals, GovernmePatients,Academia,Pharma

Providing moreefficientintegration withpayers inprocessingmedical/legalclaims/payments

-Number of insurance companiesaccessing patient data acrossnetwork-Frequency of activity from insurancecompanies accessing patient dataacross network

Create enough of an incentivebased system to changeexisting processes

Reduced patientpremiums

Hospitals,Payees,Patients

Provide moreefficientintegration withemployers inmanagingemployeesickness

-Number of employers accessingpatient data across network-Frequency of activity fromemployers accessing patient dataacross network

Create enough of an incentivebased system to changeexisting processes

Reducedemployer cost

EmployersPatients


RiskForrester defines two types of investment risks associated with this analysis: implementation andimpact risk. Implementation risk is the risk that a proposed technology investment may deviatefrom original resource requirements needed to implement and integrate the investment, resulting inhigher costs than anticipated. Impact risk refers to the risk that the business or technology needsof the organization may not be met by the technology investment, resulting in lower overall totalbenefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefitestimates. Quantitatively capturing investment risk by directly adjusting the financial estimatesresults in more meaningful and accurate estimates and a more accurate projection of the ROI.

The following implementation risks are identified as part of this analysis:

Installation and testing could demand more time than originally anticipated.

Acquisition costs could be higher than originally anticipated for hardware and software.

The following impact risks are identified as part of the analysis:

The amount of development savings may be lower than originally anticipated due to thetime it takes to train and move to an integrated environment.

Timeliness of having to provide specific functionality to meet business requirements exists.


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Steps For Measuring Investment RiskRisk factors are used in TEI to widen the possible outcomes of the costs and benefits (and resultingsavings) associated with a project. TEI applies a probability density function known as triangulardistribution to the values entered. At a minimum, three values are calculated to estimate theunderlying range around each cost and benefit estimate. The expected value the mean of thedistribution is used as the risk-adjusted cost or benefit number. The risk-adjusted costs and

benefits are then summed to yield a complete risk-adjusted summary and ROI. In this study,Forrester discovered that engaging with IBM was a relatively low-risk endeavor, as expressed bythe interviewed organizations, and applied a risk factor of 100% to the costs and 98% to thebenefits to arrive at a risk-adjusted number.

TEI Framework: SummaryConsidering the financial framework constructed above, the results of the Costs, Benefits,Flexibility, and Risk sections using the representative numbers can be used to determine ROI, NPV,and payback period.

Table 13 below shows the risk-adjusted values, applying the risk-adjustment method indicated inthe Risks section.

Table 13 : Cash Flow Summary Risk-Adjusted

Initial Year 1 Year 2 Year 3 Total NPV

Investment Cost 1,400,000 2,100,000 3,500,000 3,309,091

Benefit

Speed to access patientrecords 327,067 408,833 408,833 1,144,733 942,374

Reduce Lab tests for presurgical procedures 789,992 987,491 987,491 2,764,974 2,276,199

Number of times hospitalshare patient information

(Fax Couriers) 361,052 451,315 451,315 1,263,683 1,040,297

Improving patient carequality due to reduction of

patient medical errors 698,226 872,782 872,782 2,443,790 2,011,792

Malpractice reductiondue to accessing correct

patient data 385,160 481,450 481,450 1,348,061 1,109,759

Net Cash Flow (1,400,000) 461,497 3,201,871 3,201,871 5,465,240 4,071,331


In addition to operational impact, network also noted societal, brand, and innovative impacts todifferent related stakeholders. In terms of brand impact, the health network is able to share and


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leverage the lessons learned in building the HIE to influence how future exchanges might bedesigned. Sociality, the HIE has created a platform for the network to track and monitor potentialdrug-misuse within the community while at the same time improving the quality of care delivered topatients across the network. Lastly, the HIE has created a platform to realize additional long termstrategic benefits including improved collaboration between providers, employers and payees.

It is important to note that values used throughout the TEI framework are based on in-depthinterviews with a single organization. Forrester makes no assumptions as to the potential return thatother organizations will receive within their own environment. Forrester strongly advises thatreaders use their own estimates within the framework provided in this study to determine theexpected financial impact of implementing IBM Smarter Planet solutions for healthcare.


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Appendix A: Expanding the view of value for aSmarter Planet

Our world is becoming smarter. By smarter, we mean that intelligence is being infused into thesystems and processes that make the world workinto things no one would recognize ascomputers: cars, appliances, roadways, power grids, even natural systems such as agriculture andwaterways. Trillions of digital devices, connected through the Internet, are producing a vast oceanof data. And all this informationfrom the flow of markets to the pulse of societiescan be turnedinto knowledge because we now have the computational power and advanced analytics to makesense of it. With this knowledge we can reduce costs, cut waste, and improve the efficiency,productivity and quality of everything from companies to cities.

Working with multiple clients in multiple industries, and based on Smarter Planet clientengagements across the globe, IBM has expanded its approach to assessing the value createdthrough these engagements, to consider benefits beyond the operational value that is included in atypical ROI.

This approach combines traditional financial ROI measurements still the core of any investmentbusiness case with an added focus on brand, strategic, and societal value.

The approach takes into account four types of value:

Operational value: improving existing operations or creating new operational capabilities.Operational value can accrue not only to an organization but to its constituents orcustomers and related organizations, such as industry partners, government agencies,non-profits, or universities. Operational value is measured by operational metrics and bytheir direct business impact in terms of revenue, cost, or asset utilization.

Brand value: strengthening overall brand, reputation, and influence. Brand value is createdby, for example, demonstrating thought leadership or improving customer experience,resulting in the ability to influence a marketplace or public agenda, attract talent andinvestment, or charge a brand premium.

Strategic value: positioning the organization for future success and competitive advantage.Investments generate strategic value by preparing organizations for changing markets andcompetition, helping develop sustainable competitive advantage, preserving strategicoptions, aiding in building ecosystems or developing new platforms, or helping to forgeindustry standards. Strategic value is driven by innovation, cross-stakeholder andinterdisciplinary collaboration.

Societal value: the creation of social, cultural or environmental benefits. Investments

generate societal value by reducing environmental impact or improving social outcomes inareas like public safety, health, and education. These investments extend value beyondthe enterprise or organization, into the wider world in which the organization operates.


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Appendix B: Total Economic Impact OverviewTotal Economic Impact (TEI) is a methodology developed by Forrester Research that enhances acompanys technology decision-making processes and assists vendors in communicating the valueproposition of their products and services to clients. The TEI methodology helps companiesdemonstrate, justify, and realize the tangible value of IT initiatives to both senior management and

other key business stakeholders.

The TEI methodology consists of four components to evaluate investment value: benefits, costs,risks, and flexibility. For the purpose of this analysis, the impact of flexibility was not quantified.

BenefitsBenefits represent the value delivered to the user organization IT and/or business units by theproposed product or project. Often product or project justification exercises focus just on IT cost andcost reduction, leaving little room to analyze the effect of the technology on the entire organization.The TEI methodology and the resulting financial model place equal weight on the measure ofbenefits and the measure of costs, allowing for a full examination of the effect of the technology onthe entire organization. Calculation of benefit estimates involves a clear dialogue with the userorganization to understand the specific value that is created. In addition, Forrester also requires thatthere be a clear line of accountability established between the measurement and justification ofbenefit estimates after the project has been completed. This ensures that benefit estimates tie backdirectly to the bottom line.

CostsCosts represent the investment necessary to capture the value, or benefits, of the proposed project.IT or the business units may incur costs in the forms of fully burdened labor, subcontractors, ormaterials. Costs consider all the investments and expenses necessary to deliver the proposedvalue. In addition, the cost category within TEI captures any incremental costs over the existingenvironment for ongoing costs associated with the solution. All costs must be tied to the benefitsthat are created.

RiskRisk measures the uncertainty of benefit and cost estimates contained within the investment.Uncertainty is measured in two ways: the likelihood that the cost and benefit estimates will meet theoriginal projections and the likelihood that the estimates will be measured and tracked over time.TEI applies a probability density function known as triangular distribution to the values entered. Ata minimum, three values are calculated to estimate the underlying range around each cost andbenefit.

FlexibilityWithin the TEI methodology, direct benefits represent one part of the investment value. While directbenefits can typically be the primary way to justify a project, Forrester believes that organizationsshould be able to measure the strategic value of an investment. Flexibility represents the value thatcan be obtained for some future additional investment building on top of the initial investmentalready made. For instance, an investment in an enterprisewide upgrade of an office productivitysuite can potentially increase standardization (to increase efficiency) and reduce licensing costs.However, an embedded collaboration feature may translate to greater worker productivity ifactivated. The collaboration can only be used with additional investment in training at some futurepoint in time. However, having the ability to capture that benefit has a present value that can beestimated. The flexibility component of TEI captures that value.


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Appendix C: Glossary

Discount rate: The interest rate used in cash flow analysis to take into account the time value ofmoney. Although the Federal Reserve Bank sets a discount rate, companies often set a discountrate based on their business and investment environment. Forrester assumes a yearly discount rateof 10% for this analysis. Organizations typically use discount rates between 8% and 16% based ontheir current environment. Readers are urged to consult their organization to determine the mostappropriate discount rate to use in their own environment.

Net present value (NPV): The present or current value of (discounted) future net cash flows givenan interest rate (the discount rate). A positive project NPV normally indicates that the investmentshould be made, unless other projects have higher NPVs.

Present value (PV): The present or current value of (discounted) cost and benefit estimates givenat an interest rate (the discount rate). The PV of costs and benefits feed into the total NPV of cashflows.

Payback period: The breakeven point for an investment. It is the point in time at which net benefits

(benefits minus costs) equal initial investment or cost.

Return on investment (ROI): A measure of a projects expected return in percentage terms. ROI iscalculated by dividing net benefits (benefits minus costs) by costs.

A Note On Cash Flow Tables

The following is a note on the cash flow tables used in this study (see the Example Table below).The initial investment column contains costs incurred at time 0 or at the beginning of Year 1.Those costs are not discounted. All other cash flows in Years 1 through 3 are discounted using thediscount rate shown in Table 2 at the end of the year. PV calculations are calculated for each totalcost and benefit estimate. NPV calculations are not calculated until the summary tables and are thesum of the initial investment and the discounted cash flows in each year.

Example Table

Ref. Category Calculation Initial cost Year 1 Year 2 Year 3 Total


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