Prepared for IBM May 2010

The Total Economic Impact Of Smarter Planet Solutions For Healthcare

Single-Company Analysis
Project Directors: Jon Erickson and Balal Ahmed

The Total Economic Impact Of Smarter Planet Solutions - Healthcare

TABLE OF CONTENTS
Executive Summary ............................................................................................................................... 3 Purpose .............................................................................................................................................. 4 Methodology....................................................................................................................................... 4 Approach ............................................................................................................................................ 4 Key Findings ...................................................................................................................................... 5 Disclosures ......................................................................................................................................... 6 Smarter Planet Solutions For Healthcare: Overview ............................................................................ 7 Analysis................................................................................................................................................... 9 Interview Highlights ............................................................................................................................ 9 TEI Framework ................................................................................................................................ 10 Costs ................................................................................................................................................ 10 Benefits............................................................................................................................................. 11 Risk ................................................................................................................................................... 19 TEI Framework: Summary............................................................................................................... 20 Appendix A: Expanding the view of value for a Smarter Planet ......................................................... 22 Appendix B: Total Economic Impact Overview ............................................................................... 23 Benefits............................................................................................................................................. 23 Costs ................................................................................................................................................ 23 Risk ................................................................................................................................................... 23 Flexibility ........................................................................................................................................... 23 Appendix C: Glossary........................................................................................................................... 24

2010, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best 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 other trademarks are the property of their respective companies. For additional information, go to www.forrester.com.

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Executive Summary
In October 2009, IBM commissioned Forrester Consulting to examine the total economic impact organizations can realize by deploying Smarter Planet solutions as part of their overall technology strategy. Smarter Planet solutions improve the way organizations, governments, and municipalities interact, engage, and respond to a changing world. These solutions are created to work in heterogeneous 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 Heath Information Exchange (HIE), improving the way a regional health network communicates patient information between hospitals, physicians, patients, and payees. For this analysis, Forrester examined the impact of deploying an HIE within a US-based regional healthcare network within Western North Carolina. The WNC Health Network, Inc (WNCHN) comprises 16 founding health care providers as well as 23 affiliate members across North and South Carolina as well as Southern Virginia. IBM supported the initial implementation and delivery through IBM Global Business Services 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 IBMs expanded view of value for a Smarter Planet, which is used as a basis for assessing the full impact of Smarter Planet solutions. For a complete description of the expanded value approach and the TEI methodology, see appendices A and B. In conducting in-depth interviews with the organization, Forrester found that the use of Smarter Planet solutions allows the HIE to realize benefits within the four types of impact outlined in the expanded value approach. These included: Operational impact. Key financial impacts as noted by the health network included improved efficiency in retrieving and accessing patient information, reduced cost of care by avoiding duplication of patient records, and improved quality of care by having records available in a timely manner, as well as improved flexibility of how and when records can be accessed. Brand impact. Key brand impacts included the ability to leverage the lessons learned from the regional HIE to a wider state and national community as well as raising the profile of the health network as a leader by adopting innovative ways of sharing patient information. Strategic impact. Key strategic impacts included the ability to improve collaboration between multiple constituents: patients, hospitals, physicians, payers, and employers. Specific collaboration initiatives included the ability of these multiple groups to work together to reduce the overall cost and improve quality of care. Societal impact. Key societal impacts included the ability to drive additional benefits that would benefit the community and region as a whole. These included improved quality of care by reducing wait times for emergency room admissions and identifying potential abuse of prescription medications by patients, as well as sharing any incident trending information between hospitals.

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

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

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

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

Methodology
IBM selected Forrester for this project because of its industry expertise in Smart Computing solutions and Forresters Total Economic Impact (TEI) methodology. TEI not only measures costs and cost reduction (areas that are typically accounted for within IT) but also weighs the enabling value 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 and operational 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 suggest metrics to measure the additional impact created by the HIE. The four types of impact identified by IBMs Expanded ROI System are: 1. Operational. 2. Brand. 3. Strategic. 4. Societal.

Approach
Forrester used a five-step approach for this study. 1. Forrester gathered data from existing Forrester research relative to Smarter Planet solutions and healthcare IT offerings. 2. Forrester conducted a series of in-depth interviews with a regional healthcare network currently using Smarter Planet solutions.

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

3. Forrester constructed a return on investment model representative of the interviews. This model can be found in the TEI Framework section below. 4. Forrester created a composite organization based on the interviews and populated the framework using data from the interviews.

Key Findings
Forresters study yielded three key findings: Impact. Based on interviews with current and former stakeholders of the HIE projects for the regional health network, Forrester constructed a framework highlighting the financial and 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 and qualitative benefits. Qualitative benefits included those that were mentioned by the interviewed organization but either had not been realized or did not have a tangible associated 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-todate patient information.

Brand Accelerate the creation of additional regional HIEs based on existing lessons learned. Create an incentive for increased regional broadband usage. Drive best practice and thought leadership in the medical industry.

Strategic: Improving overall chronic disease management. Ability to attach and update images such as X-rays that can be accessed across the network. Enhance collaboration within network in event of a widespread epidemic.

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Provide data for research to medical and academic institutes. Provide more efficient integration with payers in processing medical/legal claims/payments. Provide more efficient integration with employers in managing employee sickness.

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 and operational cost drivers. These included the costs of hardware, ongoing administration costs, and hosting fees, as well as costs of initial implementation and training. Funding for initial development of the HIE was from a combination of governmental and non-profit grants.

Table 1 illustrates the risk-adjusted cash flow, based on data and characteristics obtained during the interview process. Forrester risk-adjusts these values to take into account the potential uncertainty that exists in estimating the costs and benefits of a technology investment. The riskadjusted value is meant to provide a conservative estimation, incorporating any potential risk factors that may later impact the original cost and benefit estimates. For a more in-depth explanation of risk and risk adjustments used in this study, please see the Risk section Table 1: Summary Three Year Financial Impact Risk Adjusted Summary Financial Results
ROI Total costs (PV) Total benefits (PV) Total (NPV)

RiskAdjusted
123% 3,309,091 7,380,422 4,071,331

Source: Forrester Research, Inc.

Disclosures
The reader should be aware of the following: The study is commissioned by IBM and delivered by the Forrester Consulting group.

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

IBM reviewed and provided feedback to Forrester, but Forrester maintained editorial control over the study and its findings and did not accept changes to the study that contradicted Forresters 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 will receive. Forrester strongly advises that the readers should use their own estimates within the framework provided in the report to determine the appropriateness of an investment in IBM Smarter Planet solutions for healthcare. This study is not meant to be used as a competitive product analysis.

Smarter Planet Solutions For Healthcare: Overview

According to IBM , the problems with our healthcare system are well known, well documented, and endlessly debated. What's not so apparent is that many of them arise because our healthcare system isn't, in fact, a system. 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 link diagnosis to drug discovery to healthcare providers to insurers to employers to patients and communities. Today, these components, processes, and participants that make up the vast healthcare system aren't connected. Duplication and handoffs are rampant. Deep wells of lifesaving information are inaccessible. A smarter healthcare system starts with better connections, better data, and faster and more detailed 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 means moving away from paper records, in order to reduce medical errors and improve efficiencies. And it means applying advanced analytics to vast amounts of data, to improve outcomes. Smarter healthcare is interconnected, so doctors, patients, and insurers can all share information seamlessly and efficiently. Sainte-Justine, a research hospital in Quebec, is automating the gathering, managing, and updating of critical research data, which is often spread across different departments. Then it is applying analytics to speed childhood cancer research and improve patient care while drastically lowering the cost of data acquisition and enhancing data quality. Servicio Extremeo de Salud, a public healthcare service in Spain, has built a regionally integrated system that lets patients go to many health centers within the region, knowing a doctor there can have the patients' complete, up-to-date records for faster and more accurate treatment. Smarter healthcare is intelligent, applying advanced analytics to improve research, diagnosis, and treatment. Geisinger Health Systems is integrating clinical, financial, operational, claims, genomic and other information into an integrated environment of medical intelligence that helps doctors deliver more personalized care. This enables them to make smarter decisions and deliver higherquality care, all because they can easily turn information into actionable knowledge. And IBM is helping some of the world's top universities develop a global network of medical data, giving doctors diagnostic resources that were once unimaginable. These repositories currently hold millions of digital images.
1

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

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare 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 and healthier people and communities. In other words, we'll have a true healthcare system, with the focus where it belongs on the patient

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Analysis
As stated in the Executive Summary, Forrester took a multistep approach to evaluate the impact that 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 regional healthcare network comprising 16 hospitals. Construction of a common financial framework for the implementation of Smarter Planet solutions for healthcare. Construction of a composite organization based in part on characteristics of the interviewed organization.

Interview Highlights
The interviews uncovered a number of characteristics about this organization and its strategy to cut costs and create new market opportunity leveraging the creation of a HIE: For several years, the 16 hospitals within the WNC Health Network, Inc have explored options to securely and efficiently exchange electronic patient medical information among the 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 to allow for secure exchange of patient information across each of the regional hospitals. In the long term, the goal of the exchange is to provide a longitudinal electronic medical record that can be accessed and updated in real time by any authorized provider within the network. As part of the flexibility required by the solution, the network mandated two key requirements for the project. First, no one provider within the network would store or control the 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 to access and interface with the data. Prior to the investment in WNC Data Link, there was no way to efficiently and effectively provide 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 and undefined, resulting in delays in manually having to collect and transmit medical records between hospitals, unnecessary duplicate tests resulting from updates to dated medical information, as well as potentially serious errors in patient information. WNC Data Link allows authorized physicians and clinicians to view a patients electronic records across all participating hospital systems. Upon request, the system searches all of the hospitals information systems for a patients records and collates them in a standardized format in real time. The health network noted both financial and non-financial benefits resulting from the investment in Smarter Healthcare solutions. Financially, WNC Data Link allowed for reduction in costs associated with improved speed to access patient records, reduced lab

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare costs for pre-surgical procedures, and reduced costs in sharing patient information. In addition, non-financial benefits included improving the overall quality of patient care and overall patient satisfaction. WNC Health Network, Inc also saw the investment in WNC Data Link as a platform to enable subsequent initiatives and investments. These included integration in a state-based health information exchange, allowing more healthcare providers to access and update patient data in real time.

TEI Framework
Introduction
From the information provided in the in-depth interviews, Forrester has constructed an impact framework for those organizations considering implementation of Smarter Planet Solutions for healthcare. The objective of the framework is to use available data to illustrate the financial measures, including cost, benefit, and risk factors that affect the investment decision, and to identify benefits 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
Discount rate Length of analysis Source: Forrester Research, Inc. 10% Three years

Value

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

Costs
Costs to create the initial phase of the WNC Data Link, linking individual patient data across the 16 regional hospitals, included the cost of planning, testing, hosting, and implementing the HIE. For the initial phase of the project, the actual costs incurred by the individual hospitals were minimal as a result 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 vary depending on the size of the development staff as well as the level of data integration undertaken by the organization. Based on the discussions with the interviewed customer, the cost of platform hardware is incorporated into the cost of implementation. Table 3: Total Investment Costs Ref. Description Calculation Value

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

A1

Total initial funding

3,500,000

Source: Forrester Research, Inc.

Benefits
The second component of this analysis looks at the potential operational, brand, strategic, and societal impact created by the investment in HIE. Estimates were obtained from public sources as well 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 financial value is improving the speed to access patient records. Prior to the investment, different healthcare providers 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 for records. To construct this benefit across all of the 16 hospitals, the model assumes benefit accrues primarily to the physicians participating in the HIE project. These providers are both on hospital staff as well as directly affiliated with member hospitals. Of the total 1,200 providers within the network, the model assumes roughly 440 providers are using the Data Link network. These providers are primarily emergency department staff within each of the hospitals. Hospitals within the network currently 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 took physicians on average 15 minutes to access and review the patient's records. With the investment in 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 hospital equates to $25,552 with the estimated position cost savings across hospitals to be $408,833. Table 4: Efficiency Of Accessing Patient Records
Ref A0 A1 A2 A3 Description Number of hospitals in health network Total number of physicians in health network Number of physicians using data link Annual patient visits per hospital
2

Calculation

Value 16 1,200

440 16,790 15% 15

A4 A5

% of patients who require physician analysis of patient records Average time it takes to go through 50 pages of notes in minutes

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

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

A6 A7

Average time it takes to go through 50 pages of notes in minutes with HIE Cost per hour Estimated physician cost saving per hospital Estimated physician cost saving for all hospitals in health network

$60.87 $25,552 (A3*A4)*((A7/60)*(A5-A6)) $408,833 A8*A0

A8

A9

Source: Forrester Research, Inc.

Reduction Of Duplicate Lab Tests For Presurgical Procedures

In addition to improving the access to patient records, the organization also saw benefits around the reduction of duplicate lab tests for presurgical procedures. Anecdotally, prior to the investment in the HIE, the network saw cases where healthcare providers were performing duplicate tests as a result 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 avoided through having real-time and accurate patient record data. The model assumes an average savings of roughly 120,000 operations conducted within a regional network. Of those operations, the model assumes roughly 5% of the preoperative lab testing can be avoided by having accurate and up-todate 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 $987,491 annually. Breaking it down by a per-hospital savings, the savings resulting from each of the hospitals is $61,718. Table 5: Reduction Of Duplicate Lab Tests For Presurgical Procedures
Ref B0 B1 B2 Description Number of hospitals in health network Annual US operations performed in 3 hospitals % of state population Estimated number of operations conducted in North Carolina % of hospitals in state that are in the health network Estimated number of operation conducted in the health network hospitals Average lab bill for preoperative testing
4

Calculation

Value 16 27,000,000 2.99% 807,947

B3 B4

15%

119,696 $165

B5 B6

3 4

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

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

B7

% of preoperative lab testing that can be avoided through EMR/HIE Estimated savings for hospitals in health network Estimated average savings per hospital in health network (B5*B6)*(B7)

5%

B8

$987,491

B9

B8/B0

$61,718

Source: Forrester Research, Inc.

Reduction In Costs To Share Patient Records

Another operational cost savings noted by the healthcare network as a result of improving electronic record 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 the medical records with them, in other cases patient records need to be faxed or couriered in cases of emergency room visits. Creating a network where patients records can be automatically accessed reduces 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 either transmitted between hospitals by fax or courier. Assuming the number of annual patient visits equates to 268,640, the model assumes roughly 30% or 80,592 patient records need to be shared across a network annually. This equates to an estimated savings across the network of $451,315 with savings per hospital equating to $28,207. Table 6: Reduction In Costs To Share Patient Records
Ref C0 C1 C2 C3 Description Number of hospitals in health network Annual patient visits across health network Patient records that need to be shared across the health network Average number of pages per patient record 80% of patient records that need to be shared across health network are faxed Average courier cost 20% of patient records that need to be shared across health network are couriered Estimated savings for hospitals in health network Estimated average savings per hospital in health network C4+C6 C7/C0 Calculation Value 16 268,640 80,592 25 $128,947

C4 C5 C6

$20 $322,368

C7 C8

$451,315 $28,207

Source: Forrester Research, Inc.

Improving Quality Of Patient Care

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare In addition, the key short- and long-term benefit for multiple constituents who are participating in the healthcare network is the ability of accurate and timely data to improve patient care quality through a reduction of potential medical errors. Medical errors affect a variety of constituents costing healthcare providers and patients significant direct and indirect costs.

To calculate this benefit, the model assumes a certain percentage of medical errors that could be avoided as a result of having accurate and timely access to medical information. Based on national data associated with US medication error costs, the model calculates the estimated savings for hospitals within the health network to be roughly $872,782 per year with an average annual savings of $54,549 per hospital. Table 7: Reduced Error Cost
Ref D0 Description Number of hospitals in health network Annual US medication error costs (cost for 5 treatment) % of state population in the US Annual medication error costs (cost for treatment) for all hospitals in North Carolina Annual medication error costs (cost for treatment) for all hospitals in health network Medical errors that can be avoided in 6 hospitals Percent of medical errors from incorrect records Estimated reduction in record errors Estimated savings for hospitals in health network Estimated average savings per hospital in health network D4*D5*D6*D7 Calculation 16 Value

D1 D2 D3

$35,000,000,000 3% $1,047,338,503

$155,161,260

D4

D5

25%

D6 D7 D8

15% 15%

$872,782

D9

D8/D0

$54,549

Source: Forrester Research, Inc.

In addition to the direct cost savings from reducing patient record errors, there is a secondary benefit related to reducing medical malpractice costs. The cost of malpractice has steadily risen across the United States, and part of that rise is due to the growth in medical record errors. Through the use of the HIE, the health network can improve real-time updates of patient records and reduce the likelihood of duplicate or outdated information.
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http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=11623 http://www.nap.edu/nap-cgi/report.cgi?record_id=11623&type=pdfxsum

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare To calculate this benefit, the model examines how, on average, medical malpractice costs could be reduced through the HIE. Assuming the average number of preventable drug-related injuries across the US equates to 69 per hospital, the total number of drug-related injuries across the 16 hospitals within the network equates to 1,111. In addition, the model assumes that 30% or 333 of all cases are attributable to patient data inaccuracies. With the presence of the HIE, the model conservatively estimates that the reduction in medical malpractice cases from data inaccuracies can be reduced by 10%. With the average US malpractice settlement amount estimated to be $14,441, the total estimated reduction in medical malpractice costs equates to $481,450 or $30,091 per hospital. Table 8: Reduced Malpractice Costs
Ref Description National US preventable drug-related injuries in 7 hospitals Total number of all U.S. registered hospitals
8

Calculation

Value

E1 E2

400,000 5,759 69

E3 E4

Average preventable drug-related injuries per hospital Number of hospitals in health network Total preventable drug-related injuries in health network hospitals Total preventable drug-related injuries in health network hospitals related to patient data Estimated reduction from HIE Average US malpractice settlement amount Estimated cost avoidance in drug-related malpractice for hospitals in health network Estimated cost avoidance in drug-related malpractice per hospital in health network
9

16 1,111

E5

333

E6 E7 E8

10% $14,441

E9

E6*E7*E8

$481,450

E10

E10/E4

$30,091

Source: Forrester Research, Inc.

Total Operational Impact

Table 9 illustrates the total three-year benefits as a result of the migration to the IBM Smarter Planet solutions for healthcare platform. The total PV benefits equate to roughly $7.4 million. Forrester reduced 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

7 8 9

http://en.wikipedia.org/wiki/Medical_malpractice http://answers.google.com/answers/threadview?id=728195 http://www.citizen.org/documents/malpracticeanalysis_final.pdf

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Year 1 Speed to access patient records Reduce Lab tests for pre surgical procedures Number of times hospitals share patient information (Fax, Couriers) Improving patient care quality due to reduction of patient medical errors Malpractice reduction due to accessing correct patient data Total benefits 2,561,497 Source: Forrester Research, Inc.

Year 2

Year 3

Total

PV

327,067

408,833

408,833

1,144,733

942,374

789,992

987,491

987,491

2,764,974

2,276,199

361,052

451,315

451,315

1,263,683

1,040,297

698,226

872,782

872,782

2,443,790

2,011,792

385,160

481,450

481,450

1,348,061

1,109,759

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 impact from an investment in the HIE as well as additional strategic, societal, and brand impact that constitutes a holistic business case for the organization. The purpose of examining these additional areas 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 the improvement, as well as the key stakeholders who will be affected as a result of the benefit being realized.

Brand Impact
Specific brand benefits affected by the investment in the HIE included the ability to leverage the learnings 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 regional network Table 10: Summary Potential Brand Impact - HIE
Goal Metric Qualifying conditions Measurable outcomes Number of additional HIEs created Stakeholders

Accelerate the creation of additional regional HIEs based on existing lessons

-Number of additional HIEs created regionally over a given year

Create a mechanism to share lessons learned with other interested regional networks

Citizens, hospitals, state government

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learned

Create an incentive for increased regional broadband usage

- Physicians accessing and updating patient data from their homes - Patients accessing specific areas of their EMR to perform processes such as appointments, eprescription from their homes -Having a greater say in the influencing US medical policies -Frequency of interactions with other US regions in knowledge transfer

-Tracking physician location to broadband density. Monitoring patient record activity -Tracking patient location to broadband density. Monitoring patient record activity

Growth of broadband in rural areas

Citizens, state government

Driving best practice, thought leadership in the medical industry

Track politician activity around HIE

Number of references that cite HIE

Hospitals, US government

Source: Forrester Research, Inc.

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 of patient care over time. Improving patient care by reducing errors allows for a healthier population through 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 Identifying potential misuse of prescription drugs Metric -Number of admissions resulting from misuse of prescription drugs -Average cost to provide care to admitted patient -Average law enforcement cost to identify and stop abuse -Length of average hospital stay by diagnosis -Number of subsequent visits to ER for recurring condition Qualifying Conditions -Ensure medical history can be referenced against diagnosis -Create a mechanism to flag potential signs of abuse Ensure appropriate controls are in place to aggregate and mask patient records Measurable Outcomes Reduction in cost of patient care Reduced law enforcement/investigation costs Stakeholders Hospitals, Local Government, Patients

Improving quality of care within emergency room visits

Reduction of subsequent ER visits

Local Government, Patients

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Managing health inequalities across the region

-Analyzing patient visits, length of stay, reason for admission across region -Mapping patient analysis to regional localities -Analyzing mapping data to discover patterns/trends -Measuring frequency of engagement with hospitals sharing insight/creating action plans if necessary to address health inequalities in region

-Track patient data from individual hospitals to create aggregated regional view -Track abnormal health activity in region

Reduction in patient administration costs Reduction in per patient spend

Physicians, Local Government

Source: Forrester Research, Inc.

Strategic Impact
For the investment in the HIE, the organization saw the potential for transforming the way different healthcare providers shared patient information between different constituents. For the initial phases 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 health exchange. These included individual physician practices and pharmacy exchanges, as well as individual patients accessing their own health records. This innovative approach would allow the organization 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 regional network. Table 12: Summary Potential Strategic Impact - HIE
Goal Metric Qualifying conditions Measurable outcome Reduced Cost, Reduced wait time Stakeholders

Improving overall chronic disease management

- Length of time between hospital visits for chronic patients -Cost to treat and service chronic patients

-Aggregate and analyze existing trends for chronic patients -Track the current time and success metrics for chronic patient care -Analyze imaging process to ensure new/updated images are associated to a patient EMR -Collect activity statistics to see how much imaging is being pulled down by physicians

Hospitals, Local Government, Patients

Ability to attaching and update images such as X-rays that can be accessed across the network

- Frequency of images attached and updated on individual patient records on health network - Frequency of image access by physicians on patient records across the health network

Reduced time to access complete medical file

Physicians, Patients

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Enhance collaboration within network in event of a widespread epidemic Providing data for research to medical and academic institutes Providing more efficient integration with payers in processing medical/legal claims/payments Provide more efficient integration with employers in managing employee sickness

-Number of times hospital shares data (medicine supply, staff expertise) -Length of time to control/cure epidemic in region Frequency of request for patient data from drug firms and academic institutes

Ensure all hospitals have agreement in working in a collaborative way in such an epidemic scenario

Reduced incidents response time

Hospitals, Local Government, Patients

Ensure appropriate controls are in place to aggregate and mask patient records

Increase in research directly tied to community data

Hospitals, Local Government, Patients, Academia, Pharma

-Number of insurance companies accessing patient data across network -Frequency of activity from insurance companies accessing patient data across network

Reduced patient premiums Create enough of an incentive based system to change existing processes Hospitals, Payees, Patients

-Number of employers accessing patient data across network -Frequency of activity from employers accessing patient data across network

Reduced employer cost Create enough of an incentive based system to change existing processes Employers, Patients

Source: Forrester Research, Inc.

Risk
Forrester defines two types of investment risks associated with this analysis: implementation and impact risk. Implementation risk is the risk that a proposed technology investment may deviate from original resource requirements needed to implement and integrate the investment, resulting in higher costs than anticipated. Impact risk refers to the risk that the business or technology needs of the organization may not be met by the technology investment, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates. Quantitatively capturing investment risk by directly adjusting the financial estimates results 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 the time 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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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Steps For Measuring Investment Risk

Risk factors are used in TEI to widen the possible outcomes of the costs and benefits (and resulting savings) associated with a project. TEI applies a probability density function known as triangular distribution to the values entered. At a minimum, three values are calculated to estimate the underlying range around each cost and benefit estimate. The expected value the mean of the distribution 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 by the interviewed organizations, and applied a risk factor of 100% to the costs and 98% to the benefits to arrive at a risk-adjusted number.

TEI Framework: Summary

Considering 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 in the Risks section. Table 13 : Cash Flow Summary Risk-Adjusted
Initial Year 1 Year 2 Year 3 Total NPV

Investment Cost Benefit Speed to access patient records

1,400,000

2,100,000

3,500,000

3,309,091

327,067

408,833

408,833

1,144,733

942,374

Reduce Lab tests for pre surgical procedures Number of times hospital share patient information (Fax Couriers)

789,992

987,491

987,491

2,764,974

2,276,199

361,052

451,315

451,315

1,263,683

1,040,297

Improving patient care quality due to reduction of patient medical errors

698,226

872,782

872,782

2,443,790

2,011,792

Malpractice reduction due 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

Source: Forrester Research, Inc.

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

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare leverage the lessons learned in building the HIE to influence how future exchanges might be designed. Sociality, the HIE has created a platform for the network to track and monitor potential drug-misuse within the community while at the same time improving the quality of care delivered to patients across the network. Lastly, the HIE has created a platform to realize additional long term strategic 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-depth interviews with a single organization. Forrester makes no assumptions as to the potential return that other organizations will receive within their own environment. Forrester strongly advises that readers use their own estimates within the framework provided in this study to determine the expected financial impact of implementing IBM Smarter Planet solutions for healthcare.

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Appendix A: Expanding the view of value for a Smarter Planet

Our world is becoming smarter. By smarter, we mean that intelligence is being infused into the systems and processes that make the world workinto things no one would recognize as computers: cars, appliances, roadways, power grids, even natural systems such as agriculture and waterways. Trillions of digital devices, connected through the Internet, are producing a vast ocean of data. And all this informationfrom the flow of markets to the pulse of societiescan be turned into knowledge because we now have the computational power and advanced analytics to make sense 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 client engagements across the globe, IBM has expanded its approach to assessing the value created through these engagements, to consider benefits beyond the operational value that is included in a typical ROI. This approach combines traditional financial ROI measurements still the core of any investment business 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 or customers and related organizations, such as industry partners, government agencies, non-profits, or universities. Operational value is measured by operational metrics and by their direct business impact in terms of revenue, cost, or asset utilization. Brand value: strengthening overall brand, reputation, and influence. Brand value is created by, for example, demonstrating thought leadership or improving customer experience, resulting in the ability to influence a marketplace or public agenda, attract talent and investment, 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 and competition, helping develop sustainable competitive advantage, preserving strategic options, aiding in building ecosystems or developing new platforms, or helping to forge industry standards. Strategic value is driven by innovation, cross-stakeholder and interdisciplinary collaboration. Societal value: the creation of social, cultural or environmental benefits. Investments generate societal value by reducing environmental impact or improving social outcomes in areas like public safety, health, and education. These investments extend value beyond the enterprise or organization, into the wider world in which the organization operates.

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Appendix B: Total Economic Impact Overview

Total Economic Impact (TEI) is a methodology developed by Forrester Research that enhances a companys technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, 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.

Benefits
Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often product or project justification exercises focus just on IT cost and cost 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 of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line.

Costs
Costs 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, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created.

Risk
Risk 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 the original 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. At a minimum, three values are calculated to estimate the underlying range around each cost and benefit.

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

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The Total Economic Impact Of Smarter Planet Solutions - Healthcare

Appendix C: Glossary
Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their organization to determine the most appropriate discount rate to use in their own environment. Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs. Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total NPV of cash flows. 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 is calculated 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 the discount rate shown in Table 2 at the end of the year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations are not calculated until the summary tables and are the sum 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

Source: Forrester Research, Inc.

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