HIM 660 Module 7 Final Project Milestone Three Example

Final Project Milestone Three: Worth the Money? Financial Analysis of Three Health Information Initiatives at Kanawha Ridge Health

[Student Name]

Southern New Hampshire University

HIM 660: HIM Strategic Planning and Financial Management

Final Project Milestone Three

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Final Project Milestone Three: Worth the Money? Financial Analysis of Three Health Information Initiatives at Kanawha Ridge Health

In Milestone Two, the department serving the composite Kanawha Ridge hospitals chose three initiatives: a documentation review program at the larger hospital, a workforce plan to replace contract coders with employed staff and a jointly staffed denial unit with the revenue cycle office. Before the chief financial officer funds them, she will want to know what each costs, what it returns, how soon and how certain those returns are. This milestone answers those questions with three-year cash flows, return on investment, net present value at a 6% discount rate, which is the system's planning rate, and payback periods. It then tests the key assumptions.

Assumptions

Every figure rests on a stated assumption. For the documentation program, the cost is four documentation specialists at $98,000 each including benefits, a physician advisor at two-tenths time for $70,000, software at $85,000 a year and $30,000 of one-time training, for $577,000 in the first year and $547,000 after. The benefit comes from more complete documentation of how sick patients are. The regional hospital has about 7,400 Medicare and Medicaid inpatient discharges a year with an average base payment near $6,500. If the program raises the documented case mix index by 0.02, which is modest relative to published results, payment rises by about $130 per discharge, or $962,000 a year. On one surgical service, Castaldi and McNelis (2019) traced over two million dollars of confirmed new revenue to a documentation team, which makes 0.02 across a whole hospital a cautious figure. The program is assumed to reach half that effect in its first year while specialists are trained and physicians learn the query process.

For the workforce plan, the department expects to move about 12,000 contract hours a year to employed coders. Contract coders cost about $68 an hour and employed coders about $46 including benefits, a saving of $264,000 a year. Recruiting costs and retention bonuses are $40,000 in the first year and $20,000 a year after. The computer-assisted coding trial is excluded because the vendor has waived its license fee during the trial and no savings are claimed from it yet; Campbell and Giadresco (2020) found accuracy benefits but stressed that savings depend on how coders' work is redesigned, which the trial must first show.

For the denial team, the cost is two analysts at $75,000 each and $30,000 a year for claim edit software, $180,000 a year. Denial write-offs are $2.9 million a year. The team aims to reduce them by a quarter, $725,000, reaching half that in the first year. Tseng et al. (2018) showed that billing work for a single inpatient stay takes more than an hour, so preventing denials also saves rework, but that saving is not counted here, which keeps the estimate conservative.

Avoiding Double Counting

Documentation review should reduce clinical denials, which the denial team also targets. To avoid counting the same dollars twice, the documentation program's benefit is limited to higher payment from more complete documentation, and every reduction in denial write-offs is credited to the denial team alone. This understates the documentation program's value somewhat, but it means the combined total can be trusted.

Results

Table 1 shows net cash flows, net present value and payback for each initiative.

Table 1. Net Cash Flows and Financial Measures, Three-Year Horizon

Note. Net cash flow equals benefits minus costs. Discounted at the system's 6% planning rate.

Reading the Results

All three initiatives have positive net present values over three years, and together they are worth about $2.38 million in today's dollars. Their return on investment differs widely. The denial team returns about $2.36 for every dollar spent over three years, net of its cost, because its costs are low and denial write-offs are large. The documentation program returns about 44 cents per dollar over the same period and loses money in its first year, because it carries the largest staff cost and needs time to reach full effect. The workforce plan has almost no up-front cost, so its return is better measured in annual savings than as a ratio. The order of financial strength is therefore denial team first, workforce plan second and documentation program third, although the documentation program has strategic value the numbers do not capture, including better accountable care data and fewer clinical denials.

Sensitivity Analysis

The documentation program's case depends almost entirely on the case mix gain. The break-even gain, at which annual benefits equal annual costs, is about 0.011. If the gain is 0.01 rather than 0.02, the program's three-year net present value falls to about negative $432,000. If full effect is delayed by a year, so that the program earns nothing in year one and half in year two, net present value falls to about negative $255,000 over three years. The denial team is much sturdier: even if write-offs fall by 15% instead of 25%, its net present value remains about $476,000. The workforce plan depends mainly on filling positions, and each month a position stays empty delays roughly $4,400 of savings, since one coder covers about 2,400 contract hours a year; a two-month slip on every hire would trim the first year's savings by about a fifth, which the plan can absorb.

These tests change the launch plan. The documentation program should begin with two specialists in medicine and cardiology for six months, with a target of 0.01 case mix gain in those services before the remaining two positions are filled. That phasing lowers first-year cost and lets the system confirm the key assumption with its own data before committing fully.

Conclusion

The three initiatives are financially sound together, and two of them are sound under nearly any reasonable assumption. The documentation program is the riskiest investment and the most strategically important, so the plan phases it and measures its central assumption early. Milestone Three's numbers, with their assumptions shown, will anchor the final strategic and financial plan, and the steering group will compare actual results with these estimates every quarter so the forecast improves as real data arrive.

References

Campbell, S., & Giadresco, K. (2020). Computer-assisted clinical coding: A narrative review of the literature on its benefits, limitations, implementation and impact on clinical coding professionals. Health Information Management Journal, 49(1), 5-18. https://doi.org/10.1177/1833358319851305

Castaldi, M., & McNelis, J. (2019). Introducing a clinical documentation specialist to improve coding and collectability on a surgical service. Journal for Healthcare Quality, 41(3), e21-e29. https://doi.org/10.1097/JHQ.0000000000000146

Tseng, P., Kaplan, R. S., Richman, B. D., Shah, M. A., & Schulman, K. A. (2018). Administrative costs associated with physician billing and insurance-related activities at an academic health care system. JAMA, 319(7), 691-697. https://doi.org/10.1001/jama.2017.19148