Journal of Medical Systems, Vol. 16, No. 6, 1992
Cost Justification of a Laboratory Information System: An Analysis of Projected Tangible and Intangible Benefits Rodney S. Markin and David L. Hald
A pre- and postimplementation comparison of tangible and intangible benefits of the laboratory information system are presented. The key activities projected to save costs through work reduction were evaluated as a basis for procuring a laboratory information system. Following implementation and four years of L1S operation the individual activities used for justification were resurveyed. The tangible benefits which were measured prior to LIS justification totaled $153,471.84 per year based upon fiscal year 1985--86 dollars. The objective re-evaluation of these activities four years after implementation and operation resulted in a measured $115,326.93 per year savings. The loss of projected savings is directly related to over estimates in the original justification evaluation and personnel behavior. The intangible benefits projected were all realized including a number of intangible benefits which made a significant impact on several departmental and clinical services at our institution.
INTRODUCTION The purchase of a laboratory information system (LIS) is by far the most expensive single capital acquisition that a clinical laboratory operation will make. Several cost analysis and cost justification studies of the implementation of an LIS into the clinical laboratory have been published. 1-18 These articles discussed the tangible (financial) and intangible benefits of the laboratory information system and the problems encountered in evaluating those benefits. 1,3,8,14,17 One of the articles by Westlake defines several of the significant problems encountered when deriving costs for financial justification and suggested an approach to minimize these difficulties. This article was well written and provides a firm basis for cost justification of an LIS purchase. A retrospective evaluation of the projected tangible and intangible benefits of an LIS is useful for each individual institution as they justify an LIS purchase. In order to validate our methodologies of cost justification, we have reevaluated our laboratory information From the Department of Pathology & Microbiology, College of Medicine; and Management Services, University Hospital, University of Nebraska Medical Center, 600 South 42nd Street, Omaha, Nebraska 68198-3135. 281 0148-5598/92/1200-0281506.50/0
© 1992 Plenum Publishing Corporation
282
Markin and Hald
system after four years of operation. This article describes our institution and an analysis of the activities which we evaluated during cost justification of our LIS purchase. An analysis of the cost savings realized 4 years after implementation was discussed.
LABORATORY OPERATION AND INFORMATION SYSTEMS HISTORY
The University of Nebraska Medical Center clinical laboratory supports a 320 bed hospital and a 240,000 per year outpatient visit clinic operation. The clinical laboratory employees 186 full-time equivalents including bench level medical technologists, technical coordinators, supervisors, phlebotomists, and administrative personnel. Our clinical laboratory receives approximately one million orders or requests per year which translates to approximately three thousand test requests or orders per day. Prior to November 6, 1988, information processing in the clinical laboratory relied upon a module of the hospital information system (HIS). The hospital information system (DataCare, Roanoke, VA) produced requisitions using a printer centrally located in the clinical laboratory. Clinical laboratory results and specimens were handled manually and results entered into one of twelve HIS terminals in the clinical laboratory. On November 6, 1988, our laboratory information system (FlexiLab, Sunquest Information Systems, Tucson, AZ) was activated. At the time the system was activated, the system supported 150 full-time equivalent employees. The system consisted of a Digital VAX 8250 computer and an Ethernet network. Seventy-six terminals were connected to the system as well as were twenty-two impact printers and six laser printers. In addition, a bi-directional interface between the HIS and the LIS provided admissions/discharge/ transfer (ADT), order entry (OE) and result reporting (RR) functionality (see Table 1). The current laboratory information configuration includes software licenses for 150 simultaneous processes. The network and devices to support it have been expanded to include 128 terminal devices, access through the hospital phone system (ISDN network), TCP/IP access through the campus Token-ring network, 42 printers (Table 1).
Table 1. LIS Terminal Devices and Interfaces
1985-86 [Justification] Terminals Direct access Competitive(ISDN Connection) Printers Interfaces Billing Hospital InformationSystem Other Systems Results-Component
1987-88 [Implementation]
1991-92 [Current]
78 0 28
78 16 28
128 32 42
2 1
2 1
2 1
0
0
1
Cost Justification of a Laboratory Information System
283
LIS PURCHASE JUSTIFICATION METHODOLOGY Tangible Benefits
Cost justification for the purchase of our LIS was divided into tangible and intangible benefits. The analysis of tangible benefits was performed by management services division (industrial engineering) of the University Hospital administration. The time required to perform specific tasks was identified using CAP standards, 19 logs, or technical estimates by supervisory personnel. These activities were divided into specimen processing, results reporting (including calculation of results), and administration and management. Tables 2 through 4 list the specific activity as delineated by the management services group. A telephone inquiry was included in specimen processing since the majority of the cells were with respect to the status of the specimen--whether it was received in the lab, accessioned, or the results were reported. The time required to report results was also included in the "inquiry of status" component. The total number of hours which were expended each year for the individual tasks are listed in the first column of each table. The predicted reduction in total hours as estimated during the LIS purchase cost justification analysis during the fiscal year 1985-86 is presented in column two. The measured reduction in hours expended per task as measured during fiscal 1991-92 (4 years post implementation) is present in column three. The net hours saved in the justification period (FY '85-86) and the number of hours saved as measured during FY 1991-92 are also presented. The dollars saved per category are calculated in FY 1985-86 dollars and is also presented in each table.
INTANGIBLE BENEFITS The intangible benefits estimated during the cost justification analysis are summarized in Table 5. The majority of these intangible benefits are expected and have been published in one form or another in a variety of different articles. 1,20-22 The most frequently expected tangible benefit after implementation of an LIS is decreased turnaround time for test result reporting. Other important features categorized under the general heading of improved services include increased legibility of reports to physicians and other healthcare providers, reduction in transcription errors, flexibility of result reporting, deletion or elimination of duplicate test orders or requests, and the production of pending and overdue worklists. In addition, the flexibility of the system offers the most important long-term intangible benefit due to the changing environment of the clinical laboratory.
EVALUATION OF THE LIS IMPLEMENTATION IMPACT Tangible Benefits
The tangible benefits were measured approximately four years after implementation of the laboratory information system. The tangible benefits measured were those used to
284
Markin and Hald
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Cost Justification of a Laboratory Information System: An Analysis of Projected Tangible and Intangible Benefits Rodney S. Markin and David L. Hald
A pre- and postimplementation comparison of tangible and intangible benefits of the laboratory information system are presented. The key activities projected to save costs through work reduction were evaluated as a basis for procuring a laboratory information system. Following implementation and four years of L1S operation the individual activities used for justification were resurveyed. The tangible benefits which were measured prior to LIS justification totaled $153,471.84 per year based upon fiscal year 1985--86 dollars. The objective re-evaluation of these activities four years after implementation and operation resulted in a measured $115,326.93 per year savings. The loss of projected savings is directly related to over estimates in the original justification evaluation and personnel behavior. The intangible benefits projected were all realized including a number of intangible benefits which made a significant impact on several departmental and clinical services at our institution.
INTRODUCTION The purchase of a laboratory information system (LIS) is by far the most expensive single capital acquisition that a clinical laboratory operation will make. Several cost analysis and cost justification studies of the implementation of an LIS into the clinical laboratory have been published. 1-18 These articles discussed the tangible (financial) and intangible benefits of the laboratory information system and the problems encountered in evaluating those benefits. 1,3,8,14,17 One of the articles by Westlake defines several of the significant problems encountered when deriving costs for financial justification and suggested an approach to minimize these difficulties. This article was well written and provides a firm basis for cost justification of an LIS purchase. A retrospective evaluation of the projected tangible and intangible benefits of an LIS is useful for each individual institution as they justify an LIS purchase. In order to validate our methodologies of cost justification, we have reevaluated our laboratory information From the Department of Pathology & Microbiology, College of Medicine; and Management Services, University Hospital, University of Nebraska Medical Center, 600 South 42nd Street, Omaha, Nebraska 68198-3135. 281 0148-5598/92/1200-0281506.50/0
© 1992 Plenum Publishing Corporation
282
Markin and Hald
system after four years of operation. This article describes our institution and an analysis of the activities which we evaluated during cost justification of our LIS purchase. An analysis of the cost savings realized 4 years after implementation was discussed.
LABORATORY OPERATION AND INFORMATION SYSTEMS HISTORY
The University of Nebraska Medical Center clinical laboratory supports a 320 bed hospital and a 240,000 per year outpatient visit clinic operation. The clinical laboratory employees 186 full-time equivalents including bench level medical technologists, technical coordinators, supervisors, phlebotomists, and administrative personnel. Our clinical laboratory receives approximately one million orders or requests per year which translates to approximately three thousand test requests or orders per day. Prior to November 6, 1988, information processing in the clinical laboratory relied upon a module of the hospital information system (HIS). The hospital information system (DataCare, Roanoke, VA) produced requisitions using a printer centrally located in the clinical laboratory. Clinical laboratory results and specimens were handled manually and results entered into one of twelve HIS terminals in the clinical laboratory. On November 6, 1988, our laboratory information system (FlexiLab, Sunquest Information Systems, Tucson, AZ) was activated. At the time the system was activated, the system supported 150 full-time equivalent employees. The system consisted of a Digital VAX 8250 computer and an Ethernet network. Seventy-six terminals were connected to the system as well as were twenty-two impact printers and six laser printers. In addition, a bi-directional interface between the HIS and the LIS provided admissions/discharge/ transfer (ADT), order entry (OE) and result reporting (RR) functionality (see Table 1). The current laboratory information configuration includes software licenses for 150 simultaneous processes. The network and devices to support it have been expanded to include 128 terminal devices, access through the hospital phone system (ISDN network), TCP/IP access through the campus Token-ring network, 42 printers (Table 1).
Table 1. LIS Terminal Devices and Interfaces
1985-86 [Justification] Terminals Direct access Competitive(ISDN Connection) Printers Interfaces Billing Hospital InformationSystem Other Systems Results-Component
1987-88 [Implementation]
1991-92 [Current]
78 0 28
78 16 28
128 32 42
2 1
2 1
2 1
0
0
1
Cost Justification of a Laboratory Information System
283
LIS PURCHASE JUSTIFICATION METHODOLOGY Tangible Benefits
Cost justification for the purchase of our LIS was divided into tangible and intangible benefits. The analysis of tangible benefits was performed by management services division (industrial engineering) of the University Hospital administration. The time required to perform specific tasks was identified using CAP standards, 19 logs, or technical estimates by supervisory personnel. These activities were divided into specimen processing, results reporting (including calculation of results), and administration and management. Tables 2 through 4 list the specific activity as delineated by the management services group. A telephone inquiry was included in specimen processing since the majority of the cells were with respect to the status of the specimen--whether it was received in the lab, accessioned, or the results were reported. The time required to report results was also included in the "inquiry of status" component. The total number of hours which were expended each year for the individual tasks are listed in the first column of each table. The predicted reduction in total hours as estimated during the LIS purchase cost justification analysis during the fiscal year 1985-86 is presented in column two. The measured reduction in hours expended per task as measured during fiscal 1991-92 (4 years post implementation) is present in column three. The net hours saved in the justification period (FY '85-86) and the number of hours saved as measured during FY 1991-92 are also presented. The dollars saved per category are calculated in FY 1985-86 dollars and is also presented in each table.
INTANGIBLE BENEFITS The intangible benefits estimated during the cost justification analysis are summarized in Table 5. The majority of these intangible benefits are expected and have been published in one form or another in a variety of different articles. 1,20-22 The most frequently expected tangible benefit after implementation of an LIS is decreased turnaround time for test result reporting. Other important features categorized under the general heading of improved services include increased legibility of reports to physicians and other healthcare providers, reduction in transcription errors, flexibility of result reporting, deletion or elimination of duplicate test orders or requests, and the production of pending and overdue worklists. In addition, the flexibility of the system offers the most important long-term intangible benefit due to the changing environment of the clinical laboratory.
EVALUATION OF THE LIS IMPLEMENTATION IMPACT Tangible Benefits
The tangible benefits were measured approximately four years after implementation of the laboratory information system. The tangible benefits measured were those used to
284
Markin and Hald
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O O O
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