Bob Bauer, CFO, (left) and Rich Reif, CEO, Doylestown Hospital, Doylestown, Pa.

From the vantage point of the hospital-based radiology department, a picture archiving and communications system (PACS) is an informatics investment that makes a great deal of sense. The final say in such a budgetary consideration, however, belongs to the hospital’s senior administrators: first, the chief financial officer and, ultimately, the chief executive officer. Seldom are these top officials as immediately confident as the radiology department that PACS merits funding. There are reasons for this hesitancy, and Decisions in Axis Imaging News sought to gain an appreciation of them by asking the CEO and CFO of a growing community hospital to describe how they go about deciding whether to green light or deep-six proposals for PACS and other informatics investments.

Rich Reif is president and CEO of Doylestown Hospital in Doylestown, Penn. Bob Bauer is that institution’s vice president for finance and CFO. Their enterprise is a 187-bed (soon to be 210-bed) community hospital located 25 miles north of Philadelphia, serving a primary market-area population of about 125,000.

According to Reif, the hospital’s share of the market is increasing, thanks in part to the growth of Doylestown and the city’s environs, but also to expanded and more conveniently delivered clinical services, many of which are offered at off-campus sites that include a 200-bed skilled nursing facility with a 300-unit retirement apartment complex, a 107-unit assisted living facility, an outpatient center (complete with medical office building), and a medically oriented health-and-fitness club.

Doylestown Hospital was started in 1923 by a women’s group known as the Village Improvement Association, which itself was founded in 1895 for the twin purposes of promoting community beautification and public health (the hospital remains under the ownership of the organization to this day). Currently, the enterprise is staffed by more than 400 physicians, 22 of them radiologists. The radiologists are based at the hospital but belong to a private practice group.

IMAGING ECONOMICS: What are the criteria you use in judging any proposed informatics investment?

BAUER: We consider first and foremost the impact the investment would have on patient care delivery. In particular, the investment must improve the efficiency of care delivery. For example, we’re going to look to see whether it will reduce the steps required of a clinician in performing specific tasks and, in so doing, contribute to faster throughput or turnaround time. Similarly, we consider whether the investment will purge costs from the delivery of care. Also, we evaluate-although this is hard to quantify, obviously-whether the investment will improve quality of care, typically through a reduction of errors in care delivery. That’s hard to quantify because how do you estimate the economic impact of an error avoided? Or how do you capture the time delays that occur when you do not have information available quickly? These carry with them real costs, and we know they’re there; it’s just that accounting techniques don’t recognize them.

IMAGING ECONOMICS: Why have you made the impact on patient care your main criteria for passing judgment on informatics spending proposals?

REIF: Informatics is a derivative of the word information. Information is the very basis of medicine itself. In turn, the entire point of medicine is patient care. Therefore, an investment in informatics must correlate directly and dramatically to patient care.

IMAGING ECONOMICS: Do you apply the same kind of criteria when judging the merits of a proposed investment in, say, a new building?

BAUER: To an extent, yes. But weighing whether to allocate capital for a construction project is usually a much more straightforward endeavor, because the project itself fits existing accounting models much more easily.

IMAGING ECONOMICS: Let’s plug PACS into the equation. How do you evaluate that as an investment?

REIF: At its core, PACS is nothing more than a way to store and distribute images. That is useful, of course. But before we agree that this is a worthwhile investment, we want to be able to understand the extent to which PACS will make information available faster and in a more complete manner so that a doctor in whatever location he or she happens to be can make a clinical decision sooner and with greater confidence.

IMAGING ECONOMICS: Assume your radiology team comes to you with a proposal for an investment in PACS. What do you want to see included within that proposal? In other words, what must it contain if the radiology department is to have any hope of you saying yes to the request?

REIF: I want to see above all a discussion of how this investment is going to both improve and accelerate patient care. Then, I want discussion and analyses of the direct and indirect costs of the acquisition, not only a breakdown of how much we’re going to pay for the equipment as either a lease arrangement, an outright purchase, or a financed purchase, but also the costs of incidentals, which would include infrastructure, maintenance, additional personnel, training, and contingencies. After that, I want to see discussion of the expected return on investment.

IMAGING ECONOMICS: That sounds reasonably straightforward.

REIF: It is, but that’s not the end of it. One of the challenges I then face is having to decide whether this is an investment that must be made immediately or that can be held off for a while. That is necessary because, obviously, there are going to be other projects from other departments competing for the same scarce investment resources-and they can’t all be funded. Still, we try to fund as many as we can, but the only way that can be accomplished is by prioritizing the requests. The most important ones receive top priority and immediate funding. Those of lesser importance end up waiting until later in the year, or possibly some future year. In deciding how to prioritize these competing requests, I rely on key medical staff leaders-the department chairmen themselves-to arrive at a consensus about their relative importance to the hospital as a whole.

IMAGING ECONOMICS: What kind of return-on-investment is acceptable for PACS?

BAUER: That’s a tough one to answer because so much of the ROI is going to arise from quality improvements. These are difficult to measure and assign a dollar value. Certainly, there are going to be some hard savings that are easily calculated, such as [those that] will result from being able to eliminate the cost of film processing and of maintaining a film filing and storage operation. But, in my estimation, those hard savings are the smaller part of the economic return from PACS. The larger part is the timeliness of communication of information from the radiologist to the referring physician, and the resulting gains in quality of care.

REIF: Bob is right about that. One of the difficulties in judging a proposed informatics investment is calculating the ROI when you try to factor in intangibles like the impact an improvement in quality of care will have on your costs and on your revenues. You end up having to look at that in a rather subjective way, which means that part of the judging process involves relying on gut hunch, intuition.

IMAGING ECONOMICS: At Doylestown Hospital, does your informatics investment to date include a PACS?

REIF: Yes. However, we’re only in the initial stages of implementing it. We expect to have PACS fully installed and operational by late 2003 or early 2004.

IMAGING ECONOMICS: What other informatics investments have you made?

BAUER: We have a hospital information system, which serves as our core clinical, financial, and administrative system with several ancillary systems supporting the Emergency Department, Visiting Nurse, Practice Management, etc. We have also invested in interfaces connecting these systems to the hospital’s core information system.

IMAGING ECONOMICS: Do you also have a radiology information system that ties into your HIS?

BAUER: Yes. Our HIS has a comprehensive radiology module that is totally integrated to results reporting functionally through its patient-care inquiry module. All the radiology reports are available enterprise-wide through this module. Our HIS also provides us with some rudimentary elements of an electronic medical record system, in that we can use it to have a select few images available with each patient’s on-screen chart information.

REIF: Our most recent informatics investment is a voice-recognition system that has allowed us to end our dependence on transcriptionists. We were having a real problem finding good transcriptionists and, as a result, we were experiencing longer and longer turnaround times in getting physician-dictated reports produced. The radiologists use this system to generate their reports. The system is tied into the HIS, so the radiology reports are available to referring physicians in their offices or at their homes.

IMAGING ECONOMICS: When did you first decide to begin investing in informatics?

REIF: The core HIS system was brought aboard over a decade ago as a replacement to an HIS that we had in place for most of the 1980s. Since then, we have enhanced the system with upgrades and interfaces. The voice-recognition system was added last summer.

IMAGING ECONOMICS: What did you envision your informatics investments being able to accomplish in terms of improving the financial integrity of the hospital?

REIF: Let me answer that from the standpoint of voice recognition. There were two things we saw voice recognition doing for us, financially. One, we envisioned it eliminating the cost burden associated with the recruitment and retention of skilled transcriptionists. Two, we envisioned it improving our customer satisfaction by reducing the turnaround time on the production of transcribed notes and reports.

IMAGING ECONOMICS: How was turnaround time a financial concern?

REIF: Report production time was extending beyond what we felt was clinically appropriate. Instead of measuring turnaround in hours, we were starting to measure it in days. That carried in and of itself a financial implication. But we also realized that the quicker we could get medical information into the hands of the physician, the better the overall care would be. And if care was better, patients would likely get well faster, meaning shorter length of stay and, hopefully, a reduced requirement for costly interventions. We believe that the combined cost of the test-be it x-ray or laboratory, or cardiology-and the cost of the informatics that support its distribution are far less expensive than the downstream costs of making medical decisions without the benefit of timely information

BAUER: The cost of not making the information available drives resource consumption that is dramatic. So, if a test does not get done because no one knew it had been ordered or if the results are not known for a long time, then you have the potential for delaying discharge of the patient. When there is a delay in discharge, the hospital faces not only the cost associated with keeping the patient an extra day without reimbursement, but also the cost associated with a missed opportunity, that is, having a bed unavailable for a new patient because it is still occupied by the patient yet to be discharged.

IMAGING ECONOMICS: Did your vision for informatics include the ability to allocate resources-that is, to be able to have a clearer understanding of where and when to put people and material into play throughout the enterprise?

REIF: Not really. We recognize that is a capability informatics affords. But it wasn’t really a factor in any of our decisions to invest in informatics. Our primary interest was improving the quality of clinical care and improving customer service by being able to provide information faster and more conveniently.

IMAGING ECONOMICS: In what ways has informatics exceeded your expectations?

REIF: Again looking at voice recognition, the turnaround time in producing reports has been dramatic. Our goal was to be able to make those reports available to referring physicians in no more than 24 hours. In practice, we find we are making those reports available in less than 3 hours after the radiologist has dictated his findings.

IMAGING ECONOMICS: In what ways has informatics failed to meet your expectations?

BAUER: Connecting disparate systems and having them be able to fluently communicate with one another has proven disappointingly complicated, time-consuming, and expensive. In this day and age, you’d hope that connectivity and standardization would be a lot farther along than it is.

REIF: I agree. The promise of what can be achieved as a result of true connectivity is great indeed. But it remains just that-a promise-because we have not been able to execute it.

IMAGING ECONOMICS: How does the inability to easily interface the disparate systems manifest itself as a problem for your operations?

BAUER: It slows down the deployment of technology, for one. There are systems out there we would like to acquire and install but won’t because we know the problems of achieving connectivity are going to be so time-consuming and, as a result, expensive-especially if it becomes necessary to bring in outside consultants to supplement what the inside MIS people can accomplish. So, instead of putting in a half-dozen new systems during the course of a given year as we would like, we might be able to do only one or two.

IMAGING ECONOMICS: In what ways did you envision informatics helping you with your competitive positioning in the market?

REIF: I don’t think in terms of Doylestown Hospital being in a competition with other hospitals, so informatics, for us anyway, is not seen as something to help us gain a competitive edge, per se. The way we look at it is that informatics enables us to be the best we can be, and the rest takes care of itself.

IMAGING ECONOMICS: What percentage of your 2001 capital investment budget went to informatics?

BAUER: On average, we allocate between 20% and 25% of the capital budget to informatics. We expect this percentage to increase over the next 3 to 5 years due to the role technology plays in realizing our strategic initiatives.

IMAGING ECONOMICS: Given the stage you are at in your implementation of PACS, you’ll undoubtedly be making additional investments in that technology over the span of the coming year or two. But when you get beyond that and you look 3 to 5 years further out, is it your sense that your informatics investments will increase further?

BAUER: I’m not sure it will increase as a percentage of the hospital’s total spending, which will indeed be increasing as a result of the hospital’s growth. But in terms of absolute dollars, yes, we will be spending more on informatics investments each year for the next 5. Part of that will be for infrastructure to ensure we have plenty of bandwidth to accommodate the kinds of data volumes we anticipate as we make more images available through our evolving EMR.

REIF: We’ll be spending more for informatics because we have determined that the technology is essential to our ability to fulfill our core mission, and that’s to deliver the best possible care we can.

Rich Smith is a contributing writer for Decisions in Axis Imaging News.