DENNIS WINSTEN & ASSOCIATES, INC

8835 E Speedway Blvd. Tucson, AZ 85710 (520) 885-3416

Healthcare Systems Consultants Specializing In Clinical Information Systems

STRATEGIES FOR LABORATORY INFORMATION SYSTEM JUSTIFICATION

[HOW TO CONVINCE YOUR ADMINISTRATION THAT A LABORATORY INFORMATION SYSTEM IS WORTH THE MONEY]

Dennis Winsten, M.S.

In today's economy, greater scrutiny is being given to all major capital expenditures. Fiscal pressures on administration and competition for limited resources are requiring decision-makers to determine, in advance of purchase, those benefits (usually in financial terms) expected to be obtained from the proposed expenditure. A computer-based laboratory information system (LIS) can be the single largest capital expenditure made by a laboratory and will often require detailed justification.

LIS have evolved in the last ten years to comprehensive systems serving all laboratory departments. Today's LIS support blood bank and anatomic pathology/cytology and provide applications for laboratory marketing, financial and business operations. The cost of a minicomputer-based LIS for 300-500 bed hospitals today can be one half to three quarters of a million dollars and LIS costs in excess of $1,000,000 are common for larger hospitals and private laboratories.

For smaller laboratories, the significant advancements in microcomputer technology in the past decade and subsequent the evolution of PC-based LIS have established lower cost system alternatives appropriate for many smaller hospital and private laboratories. LIS based on personal computer network architectures can be acquired in the $30,000 to $250,000 price range.

In addition to the initial capital costs of system acquisition, there are recurring costs of support and maintenance paid to the LIS vendor and/or the hardware supplier. These costs are exclusive of the laboratory's personnel and supplies costs for supporting the system and typically amount to 12%-18% of the LIS purchase cost annually. In today's healthcare economy, expenditures of such magnitude will require some form of cost-benefits justification.

DIFFERENCES BETWEEN INITIAL ACQUISITION AND REPLACEMENT
There are significant differences in the perspectives and criteria for LIS justification between the laboratory buying its first LIS and the experienced laboratory replacing an existing system.

The new, first time user will develop justification based on an absolute differentiation of manual vs. automated procedures while the experienced user replacing an existing LIS is faced with the task of differential justification between the old and new automated systems.

Initial Acquisition
The laboratory which is acquiring its first LIS (i.e., going from a manual to an automated system) has greater potential benefits than a lab which is replacing an existing LIS (i.e., automated to advanced automated). The first time user, however, if lacking previous LIS experience from other sites, is often faced with conceptual difficulties in establishing detailed, credible support for an LIS. The difficulty is in determining what difference an LIS will make, when insufficiently familiar with what it is, specifically, that an LIS can do.

First time users need also to consider space and environmental planning for the computer system, costs of computer supplies and the allocation of laboratory staff to computer activities. All of these things are new considerations for the neophyte. Nevertheless, most non-automated laboratories today can, even with conservative assumptions, justify LIS acquisition on a sound business basis. Justification can be performed on an "absolute" basis; i.e., difference between a completely manual system and a computerized one. Table 1 indicates the major factors which support and, alternatively, inhibit the acquisition of an LIS.

TABLE 1: Factors Influencing LIS Acquisition

 Replacement
The experienced user, who understands LIS functions, is faced with establishing the substantive, incremental changes between the benefits of the current computerized system and the new LIS under consideration. Many of the benefits, cost savings, and productivity gains (e.g., in clerical activities) have already been achieved to some degree by the existing LIS. Therefore, the techniques required for this differential justification often must be more subtle and precise than was required for an initial LIS purchase.

For replacement systems, major benefits may be derived from the support of new services or departments not possible on the existing system; e.g., blood bank, anatomic pathology/cytology, outreach services including remote reporting, pricing flexibility, etc. In addition, the maintenance costs of the new computer equipment will generally be less than that of the existing hardware.

The data available through use of the current LIS can be a major asset in establishing baseline data for a number of important measurements of the existing laboratory operation; e.g., turnaround time, workload per FTE. This is a resource unavailable to the first time buyer who must establish methods to measure such parameters.

There may be a number of outstanding issues or "driving forces" which are stimulating the need for LIS replacement and, conversely, a number of opposing influences which favor retention for "at least a little longer" of the existing LIS. These factors are indicated in Table 1.

JUSTIFICATION APPROACHES
There are three generic approaches to LIS justification:

• Literature Reference - preview of published literature and inference to the specific laboratory situation
• Prospective Analysis - detailed study of existing laboratory environment and costs of operation relative to projected environment and costs using an LIS.
• Retrospective Analysis - study of the environment and costs/benefits of operation after implementation of an LIS. This approach can be used in conjunction with 1 or 2, or independently, and serves as a post-facto justification for LIS acquisition.

LITERATURE REFERENCE
An approach to justification can be based on a review of available literature citing benefits of laboratory computerization with inference of applicability of the findings in the literature to the specific laboratory situation. This approach has the benefit of low cost but is largely qualitative, and lacks detail and quantitative specificity for the particular institutional situation.

A common question which often arises when considering the literature search as basis for LIS justification is: "We've read the literature about savings/benefits others have achieved, but they're not like us!" All hospitals, laboratories are the same... except for the differences. Of course, despite many commonalities, laboratories are different, and if it is determined that there is little in common between the situations cited in the literature and the existing laboratory situation, then another approach to justification is required.

PROSPECTIVE ANALYSIS
Prospective analysis for the projection of expected benefits, costs, cash flows and financial return on investment of a laboratory information system can be a complex undertaking.

The difficulties lie primarily in unambiguously identifying those functions, services and activities which will be impacted by an LIS, the valid projection of the measurable extent to which they will be affected (given required supporting management decisions), and the ability to isolate LIS effects from other changes; e.g., physical renovation, changes in service patterns, etc., which may (and usually do) occur concurrently with LIS implementation.

A rigorous hospital/laboratory-specific cost-benefits analysis, while capable of providing specific quantitative information, is time-consuming and costly if valid information outcomes are to be achieved.

There are a number of questions or issues which arise regarding cost-benefits analyses, no matter how rigorously done. A common concern about the prospective approach is: "How do we know that we can really achieve the benefits?"

A proper analysis should identify management practices which will be required to obtain the potential projected benefits, eliminate the affects of other influencing factors and measure existing parameters in a form suitable for re-measurement, retrospectively, after several months of system usage.

RETROSPECTIVE ANALYSIS
Retrospective analysis is not truly a justification methodology. Retrospective analysis can measure what "really happened" and compare the results with expectations. A retrospective analysis of "realized benefits" can be conducted in conjunction with an earlier pre-purchase justification process; i.e., either literature-based or prospective analysis. However, retrospective analyses can also be used independently to determine the impact of the LIS on the laboratory and hospital and to both measure actual benefits obtained and provide information to management about improving procedures or implementing other adjustments to further optimize benefits already achieved or increase benefits not yet realized. Periodic re-evaluations can lead to measurement of realized return on investment and comparison with projections.

A comparison of the advantages and disadvantages of each approach to justification (Literature, Reference, Prospective Analysis, Retrospective Analysis) is presented in Table 2

TABLE 2: Alternative Approaches to Justification APPROACH ADVANTAGES DISADVANTAGES Literature Reference

 SUMMARY
Laboratory information systems (LIS) represent a major budget expense. Justification of the acquisition of such systems can be conducted by several methods: literature search, prospective analysis and retrospective analysis. Laboratories vary as to workflows, workload, LIS experience, organization and markets and will thus face different challenges in determining if LIS LIS acquisition (or replacement) can be justified on a sound business basis.

References:
Winsten, D. "Why Spend the Money?" Clinics in Laboratory Medicine, Volume 11, Number 1, March 1991 (W. B. Saunders Company).

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Copyright (1996-2000) by Dennis Winsten & Associates, Inc.

Updated 9/6/00