Radiofrequency identification (RFID) technology and its emerging cousin real-time location system (RTLS) technology may be perched near the top of many healthcare facility wish lists but a much smaller number actually have progressed to the next level.

Those facilities have figured out how to develop an effective business case for evaluating, adopting and implementing an RFID or RTLS package for a variety of functions, such as tracking equipment, people, workflow and location-specific content. The key element of that business case, of course, conducting a reliable cost-benefit analysis so that few, if any surprises, emerge once the facility decides to move forward.

What constitutes a valid and reliable cost-benefit analysis may vary by facility but only in the specific details. Common threads exist – primarily in philosophies, strategies and structures.

Healthcare Purchasing News Senior Editor Rick Dana Barlow asked key executives at a variety of organizations involved in RFID and RTLS, ranging from software manufacturers to consulting firms, to offer advice that would help healthcare facilities develop a convincing business case for adopting and implementing RFID. In the second part of this multipart series, RFID and RTLS experts highlighted how to determine the key elements needed for a comprehensive cost-benefit analysis. In subsequent parts, RFID and RTLS experts will explore where
implementation makes the most sense, initially and ultimately, what materials management’s role should be in the process, as well as what pitfalls to avoid.

Our panel of experts includes:

• Mike Braatz, vice president, marketing, PanGo Networks, www.pangonetworks.com

• Ned Simpson, senior industry specialist, global health solutions practice, Computer Sciences Corp. (CSC), www.csc.com

• Rich Schaeffer, CIO and vice president, technology, St. Clair Hospital, www.stclair.org

• Andrew McGrath, product manager, RFID, Manhattan Associates, www.manh.com

• Jamie Wyatt, vice president, health industries, Oracle Inc., www.oracle.com

• Suneil Mandava, president and CEO, Mobile Aspects Inc.,
www.mobileaspects.com

• Gary York, Ph.D., founder and chairman, Awarix Inc., www.awarix.com

• John Wass, CEO, WaveMark,
www.wavemark.net

• Mark Schmidt, executive vice president, strategic initiatives, Metrologic Instruments Inc., www.metrologic.com

• Jeff Schou, director, healthcare industry solutions group, Symbol Technologies, www.symbol.com

• Chris Click, vice president, marketing, InnerWireless Inc. www.innerwireless.com

• Gabi Daniely, vice president, marketing and product development, AeroScout Inc., www.aeroscout.com

• Sam Adams, CEO, St. Croix Systems, www.stcroixsystems.com

• James W. Hermann, vice president, business development, RF Technologies Inc., www.pinpointco.com

• Debbie Murphy, global practice leader, healthcare, Zebra Technologies, www.zebra.com

The most referred to cost-benefit is tracking equipment and minimizing loss or hoarding. In reality, the bigger issue is hospitals not knowing they even own the equipment. For example, we just had a client that came onto our software and after doing a physical inventory found over 3,000 pieces of equipment for which they did not have an item of record. Thus, before you can tag it and make sure you don’t lose it, you have to know you own it! Moreover, owning it means capturing every bit of data about that asset during its lifecycle of use within the hospital – location is one element of this lifecycle.

Other costs include looking at the overall total-cost of ownership, i.e., battery life, number of readers required, IT support, ability to utilize existing infrastructure versus investing in a proprietary infrastructure, integration with other hospital information systems and what can be leveraged to further calculate ROI. These items also must go into the business case but often times the investment, cost is not broken out to this level of detail and true costs are not realized until well after implementation. 

Key elements in a cost-benefit analysis include:

• Identify and prioritize the specific process issues that can be addressed with RFID. RFID technologies can be applied to address many issues and it is important to understand where the solution makes the most sense today, while keeping an eye on future expansion opportunities.

• Take a total cost of ownership approach to developing a cost-benefit analysis. The total solution costs and benefits over its projected lifetime are critical to finding the right approach. Avoid getting too focused on the cost of a single element of the solution – e.g., tags – versus the entire solution and the ROI it can deliver.

• Identify existing standards-based technology and infrastructure elements that can be leveraged for implementing RFID. Leveraging an existing Wi-Fi network, for example, remains the most cost-effective and IT-friendly approach, rather than adding a single purpose non-standard overlay network.

Purchasing emerging technology comes with certain risks. There’s a fine line between being on the leading edge and being on the bleeding edge. The hospital has to make sure the RFID system it’s purchasing today is flexible enough to incorporate tomorrow’s enhancements.

Hospitals also have to evaluate the cost of the RFID system (tags, middleware, readers, training and network upgrades) to see if a cheaper, yet equally effective alternative, like bar codes, is available.

Another consideration is how many years it will take for the system to pay for itself. How much will this system save the hospital annually in terms of shrinkage and litigation arising from medication errors?

RFID cost benefits are about the same as any technology based cost benefit. Typical expenditures will include antennas and the infrastructure to connect them back to the application server, RFID tags, RFID middle ware and application software; plus the people to develop, operate and support the applications. Avoidance of capital expense, operating cost savings, improved throughput or capacity translated into new revenue and patient safety factors are the most common benefits.

Projecting ROI for a RFID project related to patient safety is very different from calculating ROI for a RFID project related to asset tracking. The benefits of RFID can be easily calculated for asset tracking by simply measuring the reduction in inventory shrinkage or measuring the reduced level of equipment necessary to meet the needs of the organization. Despite the fact that these numbers can be very tangible, they do not compare in magnitude to the benefits associated with an RFID project aimed at medication error reduction. The benefits of med error reduction are less tangible because they are associated with liability and risk avoidance, which are more difficult to assign a dollar value to.

Today, numerous studies have shown that medication errors occur at alarming rates. The results of the IOM study released in July 2006 showed that on average, a hospital patient is subject to at least one medication error per day. This leads to the question of how to quantify the value of not committing those errors, avoiding the harm that the patient could incur, avoiding the costs associated with increased length of stay and avoiding the liability that any of those errors could present.

The following calculations show how the savings associated with med error reduction were calculated using data collected at St. Clair Hospital:

• (Annual Admissions) X (Preventable Adverse Drug Events or PADE rate) X (PADE cost) = Savings

• Annual Admissions at St. Clair Hospital (fiscal year ended June 30, 2005) = 15,646

• PADE Rate ranged from 0.63 to 2.43 per 100 admissions. The low end of the range was used. (Source: Journal of American Healthcare Association, vol. 277, number 4)

• Cost of PADE = $6,400 (Source: Healthcare Quarterly, vol. 8, number 3)

• Result: Up to $630,000 in annual savings

The other element of cost benefit analysis that often gets overlooked is that RFID-enabled systems have a significant impact on user adoption of the system. For example, to achieve reductions in med error rates, it is imperative that nurses scan IV solution bags to perform the 5 Rights of medication administration. An IV bag that is RFID tagged is vastly easier to scan than a bag that is bar coded. Med error reduction can only be achieved if the nurse is willing to use the handheld scanning technology with each med administration. If it is difficult to scan the bar code, the nurse may feel the extra effort is unjustified. However, when the RFID tag is applied to the IV bag, the scanning process is effortless and the nurse becomes fully willing to adopt the technology. This then saves patient lives, reduces liability, and reduces costs.

The ROI should be specific to the problem being solved. Of course, hospital executives are frequently interested in hard dollar benefits.

First, expense reduction is valuable to any organization. If you can demonstrate how the technology will eliminate expenses through improvements in staff efficiency or equipment expenditures it can be easy to justify the investment.

Second, we see demonstrated increases in revenue to many hospitals. If the revenue can be increased due to improvements in patient flow – without increasing variable expenses – then we see an improvement in margin for the hospital. Top and bottom line improvements are what most CFOs are looking for.

For clinical staff, we see substantial softer benefits. Improvements in patient satisfaction have long-term community benefits. Improvements in staff productivity can give caregivers more time at the bedside and lead to improvements in the quality of care or allow doctors to see more patients.

Once the problem and the proposed solution are clearly identified, a detailed analysis of the benefits should be created by the team that has responsibility for the area. Benefits should include cost savings (e.g., reduced inventory, fewer capital replacements), revenue increases (RFID can enhance point-of-service charge capture), avoided costs (e.g., shorter hospital stays), and the soft benefits (staff satisfaction) should also be identified to help create the total picture of the solution. Hospitals should identify the total cost of the solution (e.g., up-front capital, ongoing operating costs, startup costs, interface costs and productivity losses during the implementation.)

Costs for hardware maintenance and end-user training should not be overlooked. Without adequate end user training on the technology infrastructure, support costs can quickly add up. Hardware often requires periodic maintenance for firmware upgrades which can usually be completed quickly and cheaply if team members are properly trained.

Elements of the cost benefit analysis:

Cost elements – Help to determine the cost of the solution

• Cost of IT Infrastructure improvements

• Cost of RFID technology and application

• Cost of retrofitting facilities to accommodate IT Infrastructure or RFID technology

• Cost increases in supplies or additional costs associated with RFID tags

Staff cost implications – The savings and business process changes that may impact staffing models and costs

• Determination of how and to whom RFID tags will be affixed to the tracked equipment/supply/pharmaceutical/patient/
staff member

• Determination of staff time-savings and reallocation of time/effort or staff reductions

• Reduction in time spent looking for equipment/supplies

• Increase in the cost of staff required to operate the technology in both IT and Materials Management

Cost savings – Determining where shrinkage or rental charges will occur

• Potential asset shrinkage reduction rates for lost equipment, computers and printers

• Potential rental equipment cost reductions

• Revenue increase from more comprehensive and timely equipment cost charging

• Determining the possibility of converting existing supply/equipment storage space into revenue generating space

In evaluating any given project, hospitals should identify and quantify the financial, care quality and resource allocation benefits that systems can bring to bear. Given healthcare’s trying financial environment, most organizations see this as the most tangible and practical area to evaluate and often have an expectation for a return in 18 months or less. However, beyond those areas that may have the most measurable, tangible implications such as hard dollar returns, there are other benefits that provide value to the organization.

For instance, improving the timeliness of identifying and removing inventory items that may have been recalled by the manufacturer does not have an easily quantified benefit, however clearly it aligns with an organization’s commitment to providing high quality care. Another example is having access to a detailed set of data that can create a very accurate picture of the costs involved with a procedure. In our case, with a very robust set of data around device and supply costs at the procedure level, the organization can be well positioned to negotiate reimbursement levels with various payers.

On the cost side, the analysis should include the initial and ongoing costs of the project. Specific to RFID, it seems some organizations underestimate the costs and time required to implement the infrastructure to support RFID-based tracking for systems such as real-time location systems. Hopefully, most systems are virtually plug and play, but this is not often the case. Another cost area to examine is the initial and ongoing costs for system integration with disparate IT systems in the hospital. Lastly, but certainly not least, although difficult to quantify, the impact on clinician workflow for any new process or systems should be very well understood. If achieving the desired benefits of the project is realized through perceived ‘costs’ incurred by clinicians due to changes in workflow or processes, it is extremely important to evaluate any impact on their goals of providing the highest levels of care to the patient.

Common cost items that must be included are deployment costs, software, integration, readers (mobile and/or fixed), tags, maintenance and training. Symbol is especially positioned well to reduce costs in deployments since its strength in mobility lowers the cost of the integration and the infrastructure components. 

The benefits include inventory management, speed of response, maintenance, automation of current manual process, patient safety, greater utilization of capital assets, charge capture, process automation.

Decision makers must demonstrate the need for RFLS by proving how much the hospital spends on excess equipment to make up for assets that are lost or misplaced. Also, decision makers need to show how the process of locating equipment without takes more manpower, which eventually costs the hospital money because they have to hire more personnel to accommodate patients.

Decision makers also should reiterate that these issues can be remedied with RFLS because it will help the staff better utilize equipment by providing the location of assets immediately. Knowing the exact location of assets and devices will provide a shrinkage reduction of the medical equipment.

Also, the staff will become more productive because less time will be spent looking for assets, so workflow will improve along with performance efficiency. RFLS also improves patient safety by reducing delays in care, thus increasing bedside attention.

It’s very important that a hospital consider total cost of ownership, including environmental/infrastructure changes and staffing requirements, not just the hardware and software. From the benefits standpoint, asset utilization is key for asset tracking and RFID. Streamlining the amount and use of equipment in a hospital can be attained by having accurate visibility of how equipment is being used. Knowing how often an asset is used (or not used) leads to better decision-making about asset purchases, and if a hospital can improve their utilization rate, they can cut down on spending and even sell underutilized equipment.

A secondary measurable benefit is staff searching time – several stakeholder groups within hospitals commonly waste much of their day looking for a clean infusion pump, or the right type of bed, or a cart due for maintenance, for example.

From an equipment and staff perspective the common elements are:

• Equipment inventory shrinkage costs

• Equipment utilization

• Equipment rental costs

• Time that the entire staff spends looking for equipment

• Inventory counts

• Late or missed preventive maintenance costs

When evaluating the costs of RFID, it is important to consider the investment as a whole. The costs of RFID tags and readers have fallen significantly in recent years, yet these are only part of an organization’s RFID investment. Other costs, such as implementing a wireless infrastructure or purchasing hardware, middleware and software, must also be considered to get a true picture of exactly how much the financial outlay will be. At this stage, it is also important to compare the costs of RFID with bar coding. In many cases, bar coding may meet some or all of your needs more cost effectively than RFID.

Healthcare organizations must also consider the cost of reengineering business processes to complement the use of RFID. The most successful applications of RFID involve process change, which requires users to develop strategies for revamping business procedures and internal workflow. For example, RFID can provide an organization with significantly more data than it normally manages. To prevent information overload, the organization will need to work with an experienced RFID integrator who can demonstrate how to best manage the data.

When determining the potential benefits of the technology, estimate how much RFID will allow your organization to save both in the short term and in the long term. For example, using RFID to improve asset tracking may allow you to reduce inventory losses, like misplaced or lost wheelchairs. Or it may help to increase productivity in the materials management department by streamlining the way supplies are re-ordered and re-stocked. These benefits will likely be realized in the short term while other applications of the technology, such as monitoring elderly or disoriented patients, represent long-term benefits that can be difficult to quantify.

Based on the relative costs and benefits of RFID, adoption of the technology is likely to grow in those areas where the return on investment is greatest, including asset and inventory management, track-and-trace and e-pedigree solutions. For other applications, such as bedside medication administration, unit-dose labeling in the pharmacy, specimen collection at the patient bedside and specimen tracking and management in the laboratory, many hospitals will find that bar coding continues to offer a proven, efficient and cost-effective method for capturing data.

A few elements that have to be decided would include such items as: 1) Will the RFID tag be used as a ‘re-writable database’ or simply as a ‘license plate?’ This small decision has major implications for which RFID technology (HF or UHF) is most appropriate, what capabilities the software will need to have, and to what level does the RFID total system need to be integrated into the hospital data management system. This will have a ripple effect on how much network traffic is sustainable, how much network data storage is required and what size budget will need to be approved to run the test case. HPN