Healthcare Finance Milestone 4

Finance, Budget, and Justification Introduction The recommendation for Duke University Health System to implement the Epic Electronic Medical Record (EMR) software is a move forward so that this organization can improve their charge capture ability and at the same time improve the patient-centered care experience for every person that enters one of their facilities. Before this organization moves forward with this project, leadership needs to focus on reviewing the correct financial statements that will help this project positively impact the organization. There are valuable tools that Duke University Health System can work with, such as choosing between whether a fixed or flexible budget is best when determining how much money should be spent on the project. Also, selecting the right ratio prior to implementing the project will help to determine if the new software system will positively or negatively impact the organization. Each of these elements are vital to Duke University Health System’s knowledge about this project because it will help the leadership within the organization to ascertain the potential short- and long-term impact to the organization’s bottom line. Financial Statements Financial statements, such as a balance sheet or income statement, will provide healthcare organizations the ability to review and trace the amount of money the facilities are making or not making. The balance sheet for an organization shows the financial position of the company at a fixed point in time, but the data from an income statement reveals how much revenue an organization brings in over a specific period of time (Reutter, 2016). Before Duke University Health System invests in a new documentation system, reviewing the income statement, or profit and loss statement, will be a critical component for leadership to review. On a profit and loss statement, this tool takes the gross profit of a company and subtracts the total operating expenses 2 to show what their net profit or loss is. Through the use of income statements, leadership can compare prior periods to discover trends and what cost and expenses are associated with the earning of revenue. Since the income statement summarizes an organization’s revenue and expenses over a period of time, Duke University Health System’s leadership will be able to track how the new documentation system can improve the revenue cycle by the way of improved charge capture and revenue from third party payors. The income statement shows how revenue flows into the company and can be used to forecast the future of Duke University Health System’s direction, expenses, and income. Based on the formula used for a profit and loss statement, Duke University Health Systems net profit in 2017 was $275,331. The healthcare system’s overall gross profit for this time period was $3.364,724 with operating expenses at $3,089,393 (Duke University Health System, 2019). Proposal Impact My proposal for the Duke University Health System is to implement the EMR system called Epic. Epic will allow all of the Duke University Health System’s facilities to improve the quality of patient care by allowing a patient’s chart to follow them throughout the system wherever the patient receives care. Duke University Health System’s mission is all about “advancing health together” and one of their visions is to “deliver tomorrow’s health care today.” Using the Epic EMR software will help fulfill their mission and vision by helping clinicians to connect with one another to deliver the best and correct care possible to the patient the first time. The initial impact to Duke University Health System’s financial statements to implement this program, specifically the income statement, is the initial expense to purchase the Epic software, 3 purchase update equipment needed to run the software, train the staff on how to use the Epic program, and the cost to roll out the Epic documentation system at each of the organization’s locations. Through the use of Epic, the program will help the Duke University Health System to create a standardized documentation system, which in turn will decrease coding errors, duplication of services, and improve the ability to receive timely reimbursement for services provided. It is imperative that healthcare organizations realize that accurate documentation and complete and compliant coding impacts almost every area of quality reporting, and ultimately provider reimbursement (American Health Information Management Association, 2018). As the healthcare industry moves from volume to value-based provider reimbursement models, using a software system like Epic will help to collect the data necessary to track procedures, process payments, and ensure billing code compliance. By using a high-quality EMR system, it will help to achieve quality care information requirements needed to determine reimbursement amounts and decrease denials, penalties, and lost revenue (Greenfield, 2021). Even though the initial expense of purchasing, training, and rolling out the Epic software will affect the Duke University Health System’s bottom line, in the end it will help to improve compliance and outcomes, while helping to improve reimbursement through the revenue cycle. Flexed vs Fixed Budgeting is an important aspect when it comes to running an organization. A budget determines how much money can be spent on each facet of an organization, along with dictating the organization’s plan of action (Levinson, 2018). There are two types of budgets an organization can utilize when setting up a budget. The two types of budgets are called a fixed and a flexible budget. A fixed budget remains constant and it is established prior to the start of a 4 project. A fixed budget will remain constant, no matter how much of a change may happen during the project. This means that even if a project requires more resources than expected, the budget for the project will not change. A flexible budget on the other hand is meant to fluctuate with the needs of the organization. A flexible budget can be more beneficial for an organization’s budgeting concerns because it can shift with the changing landscape of the business (Levinson, 2018). For my proposal to invest into the purchasing and implementation of the Epic EMR software, choosing the flexible budget would be the most beneficial to the Duke University Health System. Using the flexible budget would allow this organization to have the adaptability if any unforeseen variables could occur during the training of staff, the purchasing of any new equipment, and the rolling out of the program to the 200 facilities under the Duke University Health System umbrella. Through the use of the flexible budget, it will allow resources to be applied toward any outlying issues that may have been overlooked. Ratio Selection Ratio analyses can present important data to a healthcare organization prior to them venturing into a new project. Ratios allow an organization to compare numbers on the current status of an organization and ratios can be used to make comparisons about numbers over a period of time. Information derived from using a ratio analysis can help an organization gain confidence about their investment decisions and potentially help the organization avoid any large losses (Elmerraji, 2021). The financial ratio that would benefit Duke University Health System to gauge the impact of implementing the Epic EMR software is the return on investment (ROI) ratio. The ROI is a financial ratio that is used to determine the advantage an organization would receive in relation to their investment cost (Corporate Finance Institute, 2021). With Duke 5 University Health System using the ROI tool, the organization will be able to estimate how the Epic EMR system can affect their revenue and operating costs along with evaluating the financial effects of the implementation of the Epic program. Ratio Results The ROI formula has to do with taking a “benefit” and dividing it by the “cost” (Corporate Finance Institute, 2021). ROI Formula: (Gain of Investment) - (Cost of Investment) / (Cost of Investment) The average cost of the Epic EMR software for a large healthcare system is $500,000 (Costhack, 2021). The $500,000 is the cost of the investment for the Duke University Health System. Most organizations when using the ROI ratio are hoping for a ROI of 20% or less over the cost of their capital when investing in a software program (Lucco, 2021). Calculation for ROI: 575,000 (GOI) – 500,000 (COI) / 500,000 (COI) = 15% Through this calculation of ROI, Duke University Health System stands to gain a 15% return on their investment after the implementation of the Epic EMR software system. With this type of return, it will be easy to demonstrate to the leadership within the organization that this software program is the best route to take to move the organization forward as a whole. Short- and Long-Term Impact The Duke University Health System needs to ask itself the question, what are the possible short- and long-term consequences of implementing the Epic software system on the organization and its financials? For the proposal of investing in the Epic software for 6 documentation, the short-term impact on the organization and its financials will be the cost of integrating the software into every facility and the training for each employee on how to use the program. During the training period, staff will be paid for non-productive time while learning the system. Healthcare system rely on every employee being productive at their jobs to help them remain financially sound. Another short-term impact on the Duke University Health System is the possibility of having to upgrade seral computer systems so that every facility within the system can run the Epic software. These upfront costs and loss of revenue from staff not being able to treat patients during training, can potentially affect the Duke University Health System’s bottom line. The long-term effects on the Duke University Health System and its financials by putting the Epic software system into action will be that the billing and reimbursement process will improve. Through the use of Epic, the software can increase revenues by using billing codes that are based on the services that were accurately documented without fear of a possible audit by a third-party payor. Medical Economics estimated that physicians, who routinely down coded to prevent audits, lost an average of $40,000 annually (RevenueXL, 2021). The Epic software in the long run can also decrease administrative and overhead costs as workflow efficiency improves. Ultimately through the use of Epic, every area of the revenue cycle can be improved, which could help improve the Duke University Health System’s income statement by increasing their net income through a gain of approximately 15% on their investment into the Epic program. This increase in net income will allow Duke University Health System to invest this money into other areas to help achieve its mission and financial goals. 7 Conclusion As the demand for more complete and detailed information about a patient’s care is requested for healthcare reimbursement, Duke University Health System is taking the first important step forward by investing in themselves by pursuing the implementation of the Epic EMR software into each of their facilities. By using a high quality EMR, like Epic, this organization will be able to remodel the way they deliver healthcare and improve how they are compensated for the services that they deliver. Through the use of information gained from financial and budgetary evidence, the Duke University Health System will be able to anticipate how Epic will impact the organization financially. Justifying the proposal to use this program is also necessary to the project. Through the use of ROI and how the calculations will affect the Duke University Health System in the short- and long-term as an organization along with its financials, this data will help to identify how successful this project will be and help to avoid any drawbacks along the way.