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Financing and Investment of Healthcare IT

Financing and Investment of Healthcare IT

Building a business case

The focus of this issue of eMessenger is Financing and Investment of Healthcare IT. Our first contributor is Tom Jones, Director of UK-based consultancy TanJent, who explains that eHealth finance needs to be based on an excellent business case, and that investment decisions should be separated from financial decisions.

Modern eHealth investments offer opportunities to improve healthcare, so have to compete for finance with investments with similar aims, such as new drugs, surgical techniques and medical equipment. Financing eHealth must reflect this competitive context to achieve a sustainable model. This requires eHealth finance to be based on an excellent business case.

Factors to take into consideration in the business case include the estimated economic ICT and change costs; the estimated benefits for quality, access and cost-effectiveness over time; and the net benefit over time. In addition, risks need to be considered; as does the impact on annual income and expenditure of the investing entity.

Putting all the factors in place

This core foundation sets the relationships between each component of eHealth investment, including:

• ICT hardware
• Application development
• Systems software and tools
• Supplier services
• eHealth services
• Procurement costs
• Project management
• Training
• Change needed to realise benefits.

“Each of these has different structures and timescales and needs to be set in the eHealth investor’s budget arrangements,” says Jones. “For an eHealth investment to have a chance of success, finance for all the factors must be in place.”

Being clear about the risks

Evidence from the EC’s eHealth IMPACT (eHI) study⁽¹⁾ shows that about 40% of an eHealth investment can be for procurement, project management, training and benefits realisation, and that finance for these must be assigned directly by the investing entity, such as a hospital, and included in its annual budgets for several years.

Jones continues: “Finance for payments to suppliers can rely on several models. They include conventional direct payments, leasing and joint ventures, and can be complex where ICT suppliers need finance for eHealth development as well as supply.”

eHealth users always need to be clear about where risks lie and how they will be mitigated. Financing arrangements with ICT suppliers benefit from the clarity about the eHealth investment goals provided by a rigorous business case. This helps eHealth users avoid the trap of mixing available financing opportunities with the value added by the investment.

Separating investment decisions from financial decisions

Irving Fisher’s separation theorem⁽²⁾ is essential in this setting, by separating investment decisions from financial decisions, recognising that value is not affected by how investments are financed.

This approach ensures that eHealth financing arrangements that can navigate around Member State’s healthcare financing models have to fit the investment need, not reflect the financing designers’ ingenuity in navigating financing constraints. The goal is to optimise eHealth investment, not to beat the different financing constraints in each Member State.

This perspective reflects the priority of several eHealth supporters who suggest that special financial arrangements and support for eHealth should be put in place to reflect its complexity and differences from other healthcare investments. Jones does not think this is a good idea.

“If eHealth is to compete effectively with new drugs and the like, it requires supporters to prepare excellent cases for investment. This supports the need for proposed eHealth investments to be scrutinised and challenged in order to secure finance.”

A lesson from the sporting world is “fail to prepare: prepare to fail”. Modern eHealth will benefit from this approach, and so it should be embedded in access to finance.

(1) eHealth is Worth it: European Commission Directorate General Information Society and Media www.ehealth-impact.org

(2) Theory of Interest (1930): "second approximation to the theory of interest" (Fisher, 1930: Chs. 6-8)

• A company’s choice of investments is independent of the preferences of the owner
• An investment decision is independent of the financial decision.

Tom Jones (www.tanjent.co.uk) has over 16 years experience of consulting in the economic, financial and business aspects of healthcare and e-health. He was part of the European team for the EC’s Information Society and Media Directorate eHealth IMPACT (eHI) study that evaluated the economic performance of ten ehealth applications across Europe. He presented the findings to the European Ministerial Conference on eHealth in May 2006. Findings from TanJent’s economic evaluation of telecardiology in Lombardy were also presented at the conference. Tom is also part of the team for the EC’s Good eHealth Project and the empirica team for the IPTS project ICT-enabled healthcare. He is a qualified accountant, has been a director of finance and information in the NHS, and has published extensively on healthcare finance over several years.

Searching for financing opportunities

Our second contributor, Alexander Dobrev from Empirica, looks at financing opportunities in the three phases of the eHealth investment life-cycle, and explains how the financing model changes as the eHealth project goes through planning, implementation and operation.

Once the economic decision for a particular eHealth solution has been made, the search for financing opportunities becomes meaningful. eHealth can be financed in different ways, such as part of general healthcare development financing, public-private partnership, leasing, research funds and venture capital. Moreover, public funds are available at a local, regional, national, EU and international level.

“The best option for financing a particular endeavour depends on the type of eHealth investment that is envisaged and its particular investment life-cycle,” says Alexander Dobrev. “Although common practice, it is wrong to regard eHealth investments as requiring only one-off financial injections.”

The three phases of the eHealth investment life-cycle

Financial injections are only a small part of the total investment life-cycle. In a simplified illustration, there are three different phases of the life-cycle: planning, development & implementation, and operation. Roughly speaking, they correspond to three sections of the cost curve – a pre-hump phase, hump, and post-hump period.

The pre-hump phase includes planning and preparation – first of the investment plan and then of the actual solution to be invested in. The hump consists of procurement of hardware and equipment, infrastructure building, software development, and if necessary even purchase of buildings and other facilities. It also has, or should have, a significant change management component.

“Later on, the chosen solution entails certain running costs, such as annual software licences, maintenance and updates of hardware, and administrative expenses,” adds Dobrev.

The appropriate financing model changes during the investment life-cycle

Different financing opportunities can and should be used in different phases of an eHealth investment life-cycle. Experience from the ten case studies evaluated during the EC’s eHealth IMPACT (eHI) study ⁽¹⁾ gives deep insights into current practice in financing eHealth investments.

The very first steps of developing ideas are usually ignored in calculations because they fall under the general running expenditure of involved organisations.

Dobrev explains: “Although often marginal, these costs are not to be neglected. Making a good investment decision is costly in terms of time and other resources and only pays off if the decision is right. Nonetheless, internal financing is frequently the best model for this pre-hump phase.”

The hump itself is the best explored part of the investment life-cycle. Currently, it is mostly financed by research grants of different types and origin. The range of more innovative possibilities is yet underexploited: financing models can influence the shape of the expenditure curve.

“By changing the balance between one-off and continuous financing, for example by signing a leasing contract, the cash requirements can be spread over time.”

Dobrev continues: “The investor needs less cash in the short run, yet faces higher annual expenditure levels in the longer run. If the investment is based on a sound business case, the financing of the post-hump phase can be adjusted accordingly, thus making larger investments affordable.”

eHealth as part of routine operations

When going from implementation to routine operation, i.e. when moving to the post-hump phase, the investment financing model should change to being part of the resource profile of the stakeholders involved, or as Dobrev puts it, “the eHealth solution should become part of routine operations.”

Here, the question of how the routine costs of healthcare are financed, including reimbursement procedures and scope, becomes important. Generally, reimbursement systems that provide a substantial degree of flexibility in pursuit of efficiency are more promising with regard to successful transition from project-based investment to sustainable benefit realisation in routine operation.

Finally, Dobrev emphasises that decisions on financing must be part of sound business cases.

“Affordability at the initial investment entry point alone is not the most significant inhibitor to sustainable eHealth implementation. Each phase in the investment life-cycle requires a different financing model, but all models should be integrated into serving the overall strategic objective.”

(1) Karl A. Stroetmann, Tom Jones, Alexander Dobrev, Veli N. Stroetmann (2006): eHealth is Worth it - The economic benefits of implemented eHealth solutions at ten European sites. Luxembourg: Office for Official Publications of the European Communities, 2006 (56 pp. - ISBN 92-79-02762-X) www.ehealth-impact.org

Alexander Dobrev is a consultant at empirica Communication and Technology Research (www.empirica.com). After graduating in Philosophy, Politics, and Economics from the University of Oxford (2005), he moved into the eHealth field with empirica, specialising in studies on socio-economic effects of eHealth applications, strategic eHealth decision making, and policy issues. He conducted, together with the rest of the team, eHealth IMPACT – a Study on the Economic Impact of eHealth; and is involved in Good eHealth, a Study on Exchange of Good Practices in eHealth, both for EC, DG INFSO. Alexander also contributed to the health sector report to the European "eBusiness W@tch", a market observatory implemented for the European Commission DG Enterprise & Industry and is involved in Scenarios4Health: Scenarios for ICT-enabled new models of healthcare, for the Institute for Prospective Technology Research – IPTS, Seville.

Michael Strübin, Executive Director HIMSS EMEA, invites you to join The Health IT Community, an online platform where health IT professionals can exchange information, views and tips.

“Greetings from Brussels, where we are excited to offer professionals and students in the health IT field a new opportunity for networking, professional development, peer-to-peer exchange, seeking and giving advice … and you don’t even have to leave your desk!

“HIMSS EMEA is proud to launch The Health IT Community, an online platform to exchange information, views and tips relevant for health IT professionals. Post jobs and opportunities online, and stay up to date on news and events in the field. Joining the Health IT Community is free and open to everybody.

“The features include discussions and threads, messaging and posts, and tools for finding other members that share your interests. Your privacy is completely assured – you only share your personal information you want to share, and only with those with whom you want to share.

“For The Health IT Community, HIMSS EMEA teamed up with XING, an accomplished business network platform for professionals with over 2 million members. Headquartered in Germany, XING is the only business network platform we know that offers support in 16 languages. Adherence to German privacy laws means your personal data is secure.

“XING is free and there are no distracting advertisements. XING charges for a premium memberships that allow access to advanced features, but new members joining through The Health IT Community will receive will receive a one-month premium membership for free. Come join us, network online with us, and start discussing the issues now.

Stay in touch

“As always, we hope you find the eMessenger to be lively and informative – please share it with others. And let us know what you think of it. Our editor Denzil Walton would be happy to receive your feedback. Which topics do you find the most interesting? What topics would you like to see in future issues? How can we improve it? Would you like to contribute?

“Finally, the eMessenger will take a break in August but will be back in September. Enjoy the holiday season and be in touch – perhaps in the Health IT Community at XING.com?”

Michael Strübin
Executive Director
HIMSS EMEA

“How well developed is ePrescribing in Europe and what recent initiatives have been taken by the EU in this field?”

ePrescribing is a hot topic: it was featured in last month’s eMessenger and was one of the subjects covered in the HIMSS EMEA June eSeminar presented by Veli Stroetmann and Jean-Pierre Thierry.

ePrescribing is one of the main priorities for the EU. The Nordic countries, especially Denmark and Sweden, are most advanced with the implementation of such systems. Other countries like England, Finland, Greece, Portugal, Spain, Sweden and Northern Ireland are following this example by launching implementation activities for ePrescribing. ⁽¹⁾

However, the current implementations of Electronic Health Record (EHR) and ePrescribing systems represent islands at EU level and often do not allow the exchange of medical information on a cross-border level. One of the reasons is the lack of awareness of the benefits of existing interoperable EHR and ePrescription systems and services.

The European Commission’s Directorate General for the Information Society and Media recently issued a call for tenders for a study on the economic impact of interoperable electronic health record and e-prescription in Europe.

The specific goals of the study are:

• to identify best practices – both at a general level and particularly in economic terms – in terms of the implementation of interoperable EHR and ePrescription in Europe
• to apply state-of-the-art evaluation methodologies and approaches focusing on efficiency and economic benefits in the implementation of EHR and ePrescription solutions
• to apply the chosen methods to a limited number of sites within the secondary care sphere, hospitals or regional health networks in a range of Member States. The findings should then be analysed and presented.

For more information contact Octavian Purcarea: tel: +32 2 299 89 65, email INFSO-H1@ec.europa.eu

(1) See eHealth priorities and strategies in European countries; eHealth ERA report March 2007

Cordula Singer
HIMSS EMEA Education Manager

Questions anyone?
Challenge us to help you with your (healthcare ICT related) questions. Send your input to emea@himss.org (subject line: question time) and we will research and publish your questions and our answers in forthcoming issues of the eMessenger.

The HIMSS Mission

The Healthcare Information and Management Systems Society (HIMSS) is the premier professional member organisation exclusively focused on providing leadership for the optimal use of healthcare information technology.

The HIMSS mission is to lead change in the healthcare information and management systems field through knowledge sharing, advocacy, collaboration, innovation and community affiliations. HIMSS EMEA brings this mission to Europe, Middle East and Africa.

HIMSS EMEA

HIMSS in Europe, the Middle East and Africa (EMEA) is dedicated to bringing together all the major players in the Health ICT community to transcend borders and languages and engender a truly regional dialogue. As members of HIMSS EMEA, individual professionals (managers, administrators, clinicians, technology experts and users), vendor companies and IT providers meet, interact and learn from one another.

With the opening of its EMEA office in Brussels, HIMSS is now positioned to provide activities, programmes and education specifically designed for the EMEA Health ICT community. Guided by a Governing Council of members from within the EMEA region, HIMSS EMEA focuses on the needs of individual and corporate members to ensure dedicated services and membership value.

Membership benefits include

• A monthly e-newsletter - HIMSS EMEA eMessenger – delivered to your inbox on the third Thursday of every month.
• A series of educational eSeminars on topics reflecting the challenges of the Healthcare ICT community in the EMEA region. Following April’s successful inaugural eSeminar on Electronic Health Record systems, HIMSS EMEA is planning a challenging programme for the coming months, which covers hot topics like Privacy Protection and Patient Safety. For detailed information, please have a look at the schedule for 2007.
• An interactive website targeted at the main issues and experts within our community. This includes a weekly “Expert View” on the issues that matter to you as well as industry news (RSS feed in partnership with Healthcare IT News Europe).
• Access to the latest industry and policy documents on the HIMSS EMEA online resource centre.
• Significant member discounts on the World of Health IT Conference and Exhibition, the HIMSS Annual Conference & Exhibition, the HIMSS bookstore and HIMSS events.

To learn more about HIMSS EMEA take a look at our website: www.himss.org/emea