My course is Finance for Healthcare.
Master of Health Administration
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Activity: – Understanding Return on Investment
Background: – The Board of Trustees at Harris Memorial Hospital and Harris Community Foundation have engaged the Certified Public Accounting Firm of Pennypacker and Vandelay, LLC to provide a series of educational presentations to the Board for purposes of assisting them in performing a Return On Investment (ROI) analysis of a capital purchase of Electronic Health Records. The managing partner of the accounting firm has asked you as a Health Service Manager with the firm to manage the engagement.
About the Engagement:
The final paper/project challenges participants in the course (Health Service Manager with Pennypacker and Vandelay) to design an educational/financial strategy for presentation to the Harris Memorial Hospital and Harris Community Foundation Board of Trustees addressing the components of a ROI analysis. The project is to be worked on in phases throughout the semester in the form of short paper presentations. The final paper (Phase 6) is set at 2,000 words, approximately 8 pages of content. Each presentation will consist of an introduction to the Board and an overview of the selected topic and will be supported by three citations/references in APA format based on the outline below:
Phase 3 Assignment:
This week’s assignment is the third component of our ROI project. The focus of this week’s short paper writing will be to consider the justification of the capital expenditure. Three key aspects should be considered: (1) Amount and type of expenditure (2) Attainment of key decision criteria (3) Detailed financial analysis.
Using pro-forma data taken from our outside reading “A Cost Benefit Analysis- Bardon, C. G., Wang, S. J., Middleton, B., Prosser, L. A., Spurr, C. D., Carchidi, P. J., et al. (2003). The American Journal of Medicine , 114.)” prepare a net present value analysis by calculating a hurdle rate, profitability index, for you capital project. Do not consider capital cost reimbursement from third-party payers in your calculation.
Finally, consider in your writing how you would factor risk such as technology change, Physician acceptance, competition from other Health Care Organization’s, accuracy of market data and volume projections associated with the capital project (see attached hurdle rate determination worksheet below) in your discount rate.
Net Present Value Discount Rate (Hurdle Rate) Determination Worksheet
The following analysis can be used to determine the NPV Discount Rate (Hurdle Rate) Determination.
- Risk Free Rate 6%
(free cash flows-cash flows that are available to stakeholders(e.g., equity and debt holders) after consideration for taxes, capital expenditures, and working capital needs).
- Adjustment for Risk
- Intrinsic risk of a specific business (little or no risk) 0–4%
- Changing technology
- Physician implications
- Changing reimbursement
- Hospital management expertise
- Competition considerations
- Position on continuum of life cycle (low to moderate risk) 0–3%
- Recent development, new to area
- Established and accepted service; success predicated on
Garnering other’s market share
- Unique risks to the program/service (moderate to higher risk) 0-4%
- Accuracy of market data and volume projections
- Risk of failure to meet targeted volume
- Sensitivity of pro forms to deviation from forecast assumptions
- Projection and/or pay back method
- Projects with unacceptable risks (higher risk) 0-20%
- Range of Discount Rates for use in determining the Net Present
Value of Future Cash Flows _______
Please read my Phase 1 and 2.
My work – Understanding Return on Investment (ROI) – Phase 1
Hello, ladies and gentlemen. My name is (………….). I work as a Health Administration Services Manager with the well-known accounting firm, Pennypacker and Vandelay, Welcome to the first phase of my six presentations. The topic I will be presenting on is Return on Investment (ROI). This will involve an overview and how it impacts Electronic Health Records at Harris Memorial Hospital and the Harris Community Foundation. Shall we get started?
ROI is a metric that organizations use to measure their financial gain, return or loss form an investment. ROI applies by comparing the amount of money the company invests and the amount of money it gains/saves from the program. Value added Investment and Return on invest are now clearly applied by many companies. ROI is measured by monetary metrics while you VOI is measurement of a multitude of metrics.
The DuPont innovation of ROI calculations acts as one of the most significant turning points in modern accounting and management. DuPont integrated financial accounting, capital accounting, and cost accounting as early as the 1920’s. For instance, DuPont measured its assets at their gross book value as opposed to net book value which became the identity of DuPont. The basic ROI formula is: Net Profit / Total Investment * 100 = ROI. What makes DuPont ROI calculations effective is that it focuses on net return rather than net profits. This applies in instances where one wants to measure how the division manager uses the property of the company to generate profits.
The Role of ROI on Electronic Health Records (EHR)
As we all know Electronic Health Records (EHR) use both ROI and VOI metrics. Return on investment and value on investment involves measurement of outcomes. Measurement of investment is an important metric in measuring of VOI and ROI. The benefit of EHR programs is usually measurable in a tangible way. Return on investment is a metric which is used in measurement of financial gain in EHR programs. The metric checks return or loss from investment.
There is a comparison on the amount of money that is invested in a program and the amount of money gained. VOI on the other hand is a measure of gains in a different way than ROI. Value on investments addresses tangible and intangible benefits that come from wellness programs. The specific issues analyzed by the metric include the health impact on the overall health of employees and the level of job satisfaction among employees
ROI and VOI have both advantages and disadvantages depending on the application. The main advantage of using value on investment is that it analyzes both tangible and intangible gains unlike ROI which just focuses on returns on investment. ROI is on the other hand more specific than value on investment metrics. Another advantage of VOI is that it takes a shorter period of time.
Hard analysis involves measurements that are easy to quantify and have a great possibility of leading to success. In the case of Harris Memorial Hospital and the Harris Community Foundation., a training analysis will lead to identification of gaps that need to be addressed. The training strategy in this case involves provision of job aids, coaching of employees, and leadership training to ensure that there is effective succession planning.
Soft analysis in the other hand incorporates measurements that are not easy to quantify with immediate financial goals. There are potential challenges that the managers and owners of the business in this case could face while addressing organizational performance. The challenges in this case include communication problems, inadequate tools, lack of funds and even issues such as organizational conflict. Detecting organizational gaps in small businesses is important in making them focus on capitalizing on strengths and addressing weaknesses. The potential return on investment (ROI) that will be gained from the strategy developed in this case is an essential justification.
Despite ROI being used widely, I feel that the ROI system has certain limitations in it. One is that it causes incongruities between divisional objectives and company goals, which result in motivating division managers to take uneconomic actions. Despite this ROI system is versatile enough to be used to evaluate the efficiency.
Does anyone have a question?
Thank you for participating in my Phase 1 presentation and I will see you again in my Phase 2 presentation.
Miller, S. (2015). Metrics beyond ROI can capture wellness outcomes. Retrieved from https://www.shrm.org/hrdisciplines/benefits/Articl…
Schaefer, J. (2016, June 9). The Real ROI for Employee Wellness Programs. Retrieved from Corporate Wellness Magazine.com: http://www.corporatewellnessmagazine.com/column/th…
Swanson, R. (2009).Analysis for Improving Performance: Tools for Diagnosing Organizations and Documenting Workplace Expertise . New York: ReadHowYouWant
My work – Understanding Return on Investment (ROI) – Phase 2
Hello everyone here today! Good morning to all stakeholders of the Happy Hospital. I am happy for sacrificing your time to be part of this presentation. My name is (……………), the accounting firm Health Service Manager at Pennypacker and Vandelay. LLC. On today’s presentation, I am going to present the Phase two discussion. However, before I give an outline of Phase 2, allow me to give a brief summary of my Phase 1 presentation which was about Return on Investment and its significance to Electronic Health Records. Any organization should have a plan that will evaluate its profits or gains because that is the primary objective of any business enterprise (Phillips, 2012). However, profit alone does not measure the firmness of an organization but rather its progress. A business which lacks a plan to evaluate its profit runs a risk of becoming bankrupt. In reference to this context, the Return on Investment is significant to an organization because it helps in establishing the profit acquired from the investment. I also described the two types of ROI analysis which are soft and Hard returns. These analysis works in collaboration although their impact profit/cash flow gains in the organization are different.
Having demonstrated an overview of the phase presentation summary, I would now wish to continue with the Phase 2 presentation. Is there anyone with any question about Phase 1 that need to be addressed before I turn to Phase 2?
Phase II on ROI emphasizes majorly on the recommended stages that would guide to create documentation for the rationalization of a soft return (examples of soft cost are risk avoidance, client goodwill, patient safety, process improvement, and regulatory compliance and support costs) and metric collection whose major objective is to estimate the financial benefits which would be accrued from the organization.
HER systems are significant to hospitals and healthcare organizations. It helps in the relaying information and provision of valuable data to the stakeholders and other hospital workers (Baxter, et al, 2014). It also facilitates better decision-making processes because it provides evidence-based data that guides in decision making. EHR is also significant in evaluating the soft return through documentation gathering with the help of a metric. In addition to this, strengthening the ROI is the most significant factor and it can be established through training and implementation to prevent any financial losses. Soft costs items tend to be transformative and are critical to the mission and vision of healthcare facilities like risk avoidance, client goodwill, patient safety, process improvement, regulatory compliance, and support costs.
Documenting soft returns is vital and involves identification of what needs to be improved, creating a method of calculating benefits, and establishing the budget for the whole process. The net benefits must also be examined. For instance, an individual might examine the soft returns from the proposed project through establishing an aspect which may require improvement and that would be an opportunity. For instance, a healthcare organization might establish that there is an opportunity to protect patients’ records with an increased number of passwords and limit access to patient information in accordance with the organization’s objectives. The managers would then create a formula for calculating the benefits. In the case above, the organization will compare the costs it used to implement the project and then compare it with the money it could have used if there was a breach. For example, the cost of implanting an advanced password is about $5,000. In the case of a $10,000 breach, it could cost the organization up to $7 million. The benefits of this implementation are therefore evident and include better healthcare, no breaches, and minimal medical errors. There is also a need for IT involvement to create strict codes that would allow specific personalities to access sensitive information. IT is essential because it creates efficiency, increases quality delivery; ensure customer satisfaction, and general effectiveness (Baxter, et al, 2014).
Financial Benefits and Capital Acquisition
There are various benefits that come with EHR implementation. For instance, reports from physicians across the country indicate that there has been an improved quality life and minimal errors. However, the cost of implementing this program is expensive but it is worth the investment. A capital acquisition is a capital which is used to purchase additional items/assets. A business uses this capital to acquire items like software, inventory, equipment, and other businesses (Frost, Sonfield, Zolna, & Finer, 2014). The major objective of this purchase is to increase profitability. EHR is expensive but it enables quality in service delivery. Acquisition capital can be acquired through help from lenders and external investors who may be interested in partner with the organization.
Project Management Office (PMO)
HER implementation requires more resources and time to be effective. However, it is effective and worth because of its benefits. In this regard, various projects create a Project Management Officer (PMO). A PMO is used to help acquire capita acquisition to help improve quality services, enhance customer satisfaction, and create managerial effectiveness (Phillips, 2012). The office of PMO in an organization works to determine and maintain standards for project management in the business. The PMO is therefore critical in enhancing organizational effectiveness.
Lastly, I would welcome anyone with a question regarding Phase II. Otherwise, thank you for your time and would like to see you soon for the Phase III presentation.
Phillips, J. J. (2012). Return on investment in training and performance improvement programs. Routledge.
Frost, J. J., Sonfield, A., Zolna, M. R., & Finer, L. B. (2014). Return on investment: a fuller assessment of the benefits and cost savings of the US publicly funded family planning program. The Milbank Quarterly, 92(4), 696-749.
Baxter, S., Sanderson, K., Venn, A. J., Blizzard, C. L., & Palmer, A. J. (2014). The relationship between return on investment and quality of study methodology in workplace health promotion programs. American Journal of Health Promotion, 28(6), 347-363.
*** Please look at How I start in Phase 1 and 2 you have to start like it. Also, ask them in final and Question.
3 different references