Electrophysiology (EP) represents not only one of the fastest growing disciplines, but one of the costliest due to the rapid advancements in technology.1 Shifts in economics, shrinking Medicare reimbursement, and the high costs of new technologies consistently create challenges for administrators, especially during these current times when the financial (and other) impacts of the Covid-19 pandemic are being felt industry-wide. While advanced EP treatment options may improve quality of life for patients, the associated high costs create challenges for the organizations offering these treatments, which Corazon believes calls for the use of innovation, standardization, and collaboration with physicians — strategies that, if implemented successfully, will ensure ongoing sustainability and bring positive bottom-line results.
Healthcare systems are no doubt facing increasing demands for costly medical interventions, which forces organizations to not only consider the economic impact of new technologies and rising specialty care costs, but also determine what strategy will best improve the quality of (or access to) care for the price.
Corazon oftentimes recommends a complete economic evaluation, including cost effectiveness, for a program considering service expansion or capital purchases. This process provides a systemic way to compare the benefits of a healthcare intervention with its costs and identify relevant alternatives. Fundamentally, individual healthcare facilities and/or multi-site systems as a whole need to make wise choices, especially in an area such as EP, where numerous advances have occurred at a rapid pace.
One useful process for evaluating is a cost-benefit analysis (CBA), a quantitative analytical tool widely used in other service industries, but sometimes not considered for the ‘business of healthcare.’ A hospital value analysis committee should be reflective of the multiplicity needed to engage in a complete cost benefit review, not only of the device/technology costs, but also for evaluating the clinical literature and research/outcomes related to a new procedure or piece of equipment. And while a specific add-on may not be proven to be cost effective for a hospital, the benefits to the community and patients may make the endeavor worthwhile.
Therein lies the challenge, even when performing an official CBA: the patient must come first. So despite high costs for implementing new procedure offerings and/or new accompanying or stand-alone technology, the positive impact on the community may far outweigh the price tag as a “benefit” to the acquisition or implementation.
Innovation and Costs
Because of the fast pace and explosive growth of both device and ablation technology at which EP continues to develop, innovation and the blending of technology considerations with economic realities must exist. And while innovation has proven to be a hallmark of modern-day healthcare, and advances in technology over the past decade have had an astonishing impact on outcomes and quality of life for patients, cost-cutting strategies need to have that same innovative spirit.
In order to determine the value and justification for making a new service or technology decision, a systematic approach to assess the benefits and demonstrate savings should be completed. This key decision-making approach can be used for several situations, including:
- Determining whether a new service is worth the price, and if so, what value can be assigned that will outweigh or offset the cost. Unfortunately, as margins increasingly shrink due to reimbursement and payor pressures, sometimes a decision can be ‘all about the money.’ In such a scenario, it is of even greater importance to clearly articulate the clinical impact. Making the case for an expensive implementation or purchase will be best supported with volume and market data, along with clinical quality outcomes that support a rationale for the decision. Involving both physicians and program administrators in this particular step in the process will add credibility and could influence the decision, especially if a favorable return on investment (ROI) can be anticipated after a year or a few years, while in tandem increasing access to care and therefore, bringing added volume/patient capture within a local or regional marketplace.
- Evaluating a new project or change initiative. Cost-benefit criterion needs to be devised to evaluate clinical efficacy and effectiveness. Costs, both upfront and those associated over the duration of the initiative or project, should be assessed. The evaluation should answer how well the initiative will improve a patient’s health.
- Determining the feasibility of a capital purchase or new technology. Physicians have considerable autonomy and many choices when considering equipment and technology. When determining the feasibility of a capital purchase or technology, a decision needs to be made if more expensive technologies and equipment increase procedural efficiency and/or patient safety enough to justify the higher costs. Physician involvement in this aspect is critical. Certainly, understanding their reasons for a particular preference or request will do much to create shared accountability in the decision. Open and honest discussion about options, the cost of each, and the rationale for ultimate decisions will bring the physicians on-board upfront, and any subsequent issues can perhaps be proactively mitigated based on this more collaborative approach to program decision-making.
However, before beginning a cost-benefit analysis, all expenses must be clearly outlined, including any anticipated additional labor costs, consultant fees, and the price of new equipment, to name a few. Does the space need renovation? Will staff need additional training? These and many more considerations should be brought to the table, so a very comprehensive picture of the financial cost is shared with the planning group. A detailed budget will produce a more accurate cost analysis, which is another reason to bring various stakeholders to the discussion. Capturing any and all potential costs up front will avoid the challenges of adding expensive items farther along in the process.
The Process of Cost-Benefit Analysis
As shown in Figure 1, the high-level process for a CBA is rather easy to explain, but given the details involved in each step, it is quite daunting to undertake — and the process is only as accurate as the data used. Corazon’s client experience proves that at various steps along this process, challenges can emerge that may derail the discussions or stall the motivation to continue forward. Typically, a client evaluating a new offering or updated equipment to an EP program can expect to decide relatively quickly using this process.
- Define the scope/purpose. Clearly defining the scope and providing a definitive idea of the purpose are perhaps the most important steps in the process. Determine if there are alternatives to be considered and the best path forward. The scope describes what is being evaluated. The purpose relates to the expected result and clarifies the economic aspects being considered.
- List benefits/costs. A second critical step is to identify, quantify, and value the costs and benefits of each alternative. All costs need to be specified and validated in order to ensure the projections are accurate and also realistic.
- Evaluate the impact. The ROI is one of the most common indicators used as a success measure for the CBA, mostly because it is simple in calculation and easy for all to understand. Conducting a sensitivity test for uncertainty is also beneficial.
- Decide based on the outcome of the analysis. Physicians are often data-driven with respect to such considerations. Using data to determine whether a new service or technology has a positive or negative consequence on the program and patients will certainly assist with conversations around the decision. Further, the ability to gain physician buy-in will only be improved through the use of clear and accurate data.
Flaws of Cost-Benefit Analysis
The CBA approach does have some flaws that are tied to the strengths of this type of approach. For instance, as this approach provides clarity, it does so in some instances that are not as clear as initially thought. This type of approach is also a struggle when returns vary from period to period or when revenue is hard to project over a longer period of time. For these projects, determining the net present value is a better tool to use to determine profitability over the longer term.
Another flaw in this method is subjectivity. The value placed on intangible benefits can be very subjective and often makes the assessment of possible revenues unreliable. Another disadvantage related to subjectivity involves identifying, quantifying, and estimating different costs, since some are non-monetary in nature, such as increases in customer and employee satisfaction. In such a scenario, assigning a monetary value to something intangible serves the purpose of weighing the total costs of a particular endeavor. This type of estimation and forecasting is often based on past experiences and expectations, which can often be biased and subjective as well.
An outside perspective can oftentimes help with these instances, as Corazon’s client experience proves. Understanding the overall value of something like “the patient experience” may only become tangible when the alternate scenario is outlined (ie, what negative impact can be felt through low patient satisfaction scores).
While a CBA can be carried out using only financial costs and benefits, including intangible though oftentimes equally important items within the analysis will inevitably bring more subjectivity into the process, and can provide a more accurate picture of the real value that can be derived from the new service or technology. In fact, most healthcare leaders would agree that intangible considerations such as hospital reputation, community perception, word-of-mouth referrals, and industry reputation are indeed not simply financial considerations, but are nonetheless important ones.
Comparing the positive and negative impacts during a CBA is beneficial to decision-making in the determination of whether a new technology or new service is worthwhile. To be considered worthwhile is for the value of the benefits to exceed the value of the costs (ie, the net benefits are positive). In other words, the benefit/cost ratio is greater than one and the internal rate of return is greater than the cost of capital.
While there are drawbacks to this approach, the overall positives of a formalized CBA effort to a capital equipment purchase or technology acquisition cannot be understated. The clear significance of understanding the entire financial picture, increasing collaboration with program physicians, and assigning value to various intangible aspects gives the hospital and program leaders the information necessary to make the best decision for all involved.
As mentioned, an ideal outcome is having the benefits outweighing the costs, but a break-even scenario can also be a “no brainer” to move forward. However, should the outcome of the analysis be less straightforward, at least all elements were considered and the eventual decision can be justified through the results of the process as well as supported by the data and other information presented, debated, and used to decide. Opportunity costs are also a very real consideration — what is the “cost” of the status quo? Can the organization afford to not invest in new or advanced equipment or technology?
These and other questions often initiate the process, and lead to a real and meaningful analysis. In the EP specialty in particular, where costs are ever on the rise and continual industry changes create a rippling impact, even beyond the changes and challenges resulting from the Covid-19 pandemic, a CBA can lead to a fundamental understanding of program needs vs wants as well as the costs vs benefits — a valuable exercise for any program seeking to make the most effective use of limited funds in an ever-shrinking budgetary environment.
Key Points to Remember
- A CBA is a straightforward tool that measures the benefits of a decision minus the costs associated, which ultimately aides in decision-making.
- All anticipated costs and benefits must be considered to create an accurate and realistic view of the clinical, operational, and financial aspects.
- A CBA involves measurable financial metrics but can also include intangible benefits and costs, such as customer satisfaction.
Cost-Cutting Strategies: One Small Example With Big Impact
According to Corazon’s alliance partner MedCom Solutions, a Customized Charge Cycle firm whose work in cardiac programs helps to reduce denials, enhance revenue, and sustain results, sometimes small changes can result in big impact to the bottom line:
When looking to cut costs and identify EP lab efficiencies, evaluating the supply cost will grant the most direct success opportunity. Catheter costs can vary widely, and even though all are manufactured and approved for the same use, physician preference weighs heavily on the selection of catheters.
While physician preference can inflate costs, especially if the physician isn’t involved at the financial level of program operations (eg, the physician might not understand the difference in price for one supply vs another), there is a significant opportunity for change. Standardizing the supply ordering will optimize cost if the most price-effective catheters for these procedures are chosen. However, gaining physician buy-in is critical in making the switch. But how?
The following are 3 key ways to empower docs to become involved in this important process:
1) Trial participation. Include physicians in a blinded product trial so they have first-hand proof of the product’s performance, regardless of cost.
2) Data sharing. Once the products have proven themselves, illustrate the different case costs and associated margins.
3) Outcomes reporting. Provide the necessary information and guide the physicians to inquire about what is in it for them. Once the quality and cost education are complete, physicians can be offered incentives based on improved bottom line performance. The clinical quality and procedure results can also confirm that a less expensive supply item can still perform at or better than the level of another more expensive one.
Standardizing and reducing the number of catheters will also reduce the administrative cost associated with maintaining accurate data. With fewer supplies to sustain and select, there will be decreased soft costs related to setting up proper charging for these procedures.
- Thording L. Advancements in electrophysiology continue but with few solutions to reduce costs. Take-aways from the 2019 Heart Rhythm Society’s 40th annual scientific sessions. Published May 19, 2019. Accessed January 21, 2021. https://bit.ly/3iJP2N5
- Cost-benefit analysis. Deciding, quantitatively, whether to go ahead. Mind Tools. Accessed January 21, 2020. https://bit.ly/3qKnWYS
- Vaidya VR, Sugure A, Asirvatham SJ. Innovations in clinical cardiac electrophysiology: challenges and upcoming solutions in 2018 and beyond. J Innov Card Rhythm Manag. 2017;8(12): 2943-2955.