Terance Kinninger
Lee Reeder

Establishing ROI for technology to reduce medication errors is both a science and an art.

Issues and Actions

The decision to invest in a medication-safety system should take into account not only implementation costs but also reduced hospital costs for treating complications resulting from medication errors and potential liability.

  • Medication-safety programs should be analyzed and planned the same as any other investment.
  • Providers should base their projected return from a medication-safety system on intangible benefits to the organization as well as an ROI calculation.
  • Investment in medication-safety systems can be justified in terms of risk management and legal liability.

Fact: Preventable medical errors result in 44,000 to 98,000 deaths among hospital patients each year-more than die from workplace accidents, motor-vehicle wrecks, breast cancer, and AIDS.

Fact: Medication errors alone cause an estimated 7,000 deaths every year.

Fact: These medication errors cost the nation $2 billion in terms of lost income, lost household production, disability, and healthcare cost.

These statistics rocked the healthcare industry and the public when the Institute of Medicine (IOM) released its landmark report To Err Is Human: Building a Safer Health System in 1999.

Even without the mounting pressure on hospitals from the Joint Commission on Accreditation of Healthcare Organizations, the IOM, and purchaser consortiums such as the Leapfrog Group to employ patient-safety information technology (IT), health care is experiencing rising public expectations as more people employ technology in other aspects of their lives outside of health care. Increasingly, consumers also are learning about advances in healthcare technology that may not be available in their local areas. As a result, some organizations may soon need to catch up to their competitors to retain service-line market share.

IT holds the potential to reduce medication errors, the most common type of medical error made in hospitals. Research shows that almost half of nonintercepted medication errors originate at the point of administration; a bar code-enabled point-of-care (BPOC) system can catch these errors as well as a high percentage of errors originating upstream before they reach the patient. Such systems require a significant investment. Before investing in such technology, providers must be able to articulate the potential return on this significant investment.

To explore the return from medication-safety programs, providers should approach them like any other investment, using the tools and language of finance in the planning process. This article looks at the cost/benefit determinations in medication-safety system implementation, how such systems can create value both internally and externally, and how real dollar figures can be assigned to seemingly intangible benefits. These issues are illustrated by the experiences of Northeast Medical Center, Concord, N.C., and Grand Rapids, Mich.-based Spectrum Health.

Ramifications of Medication Errors

Of course, ensuring that medication errors do not occur is the right thing to do. Even so, because the cost of implementing IT systems for medication-error reduction can run into millions of dollars, return on investment (ROI) must be addressed. The ROI consideration starts with the volume and cost of medication errors, but ultimately is tied to the organization's mission and future survival.

One study found that 19 percent of medications administered in 36 hospitals and skilled nursing facilities were done so erroneously; 7 percent of these were potentially harmful. These numbers equate to more than 40 potentially serious medication-administration errors occurring every day in a typical 300-patient organization.a

A medication error that results in an adverse drug event (ADE) is costly. According to the IOM report, the increased hospital cost of treating ADEs averaged $4,600 per incident. In other words, a 700-bed teaching hospital would see an annual $2.8 million in increased costs due to these events. Further, one of the studies cited found that the risk of death during a hospital stay doubled for patients experiencing ADEs.b

Death and disability resulting from medication error can result in significant legal costs. In 2000, the median compensation award for medication errors was $668,000 per award.c Investment in medication-safety systems may be justified in terms of risk management and legal liability. Catastrophic events with large damage awards may grab the headlines, but they may be eclipsed by the incremental costs that are being incurred every day in health care because of ADEs. Many other factors may cost significantly more than the catastrophic event itself, such as extended patient stays and additional treatments, therapies, and medications needed to overcome the effect of the medication error. 

Value-Added Benefits

Providers should perform analyses of issues such as costs of adverse events and potential liability before implementing a medication-safety system. However, these will not be the only persuading factors in implementing medication-safety IT systems.

Hospitals are challenged to capture charges for medications, medical supplies, and clinical services for patients in an accurate, timely manner. Point-of-care patient-safety systems can help providers improve the accuracy of medication charge capture by providing documentation of actual administration of medications, known as an electronic Medication Administration Record(eMAR). If fully used, this e-system potentially can accelerate invoicing, reduce billing disputes and avoid government charges of fraudulent billing, and improve inventory and supply-chain management.

Although some of the costs that go into an ROI calculation on medication-safety IT implementation are reimbursed anyway, in the long term, higher quality care and reduced costs-whether reimbursed or not-can result in a more efficient, profitable hospital. Higher quality and efficiency can put those hospitals in a better future bargaining position with payers compared with other hospitals and also can enhance patient loyalty and employee satisfaction.

In addition to the direct patient-care savings, implementing a medication-safety system at the point of care can result in less-obvious benefits, such as increased satisfaction of nurses in their daily work, which reduces using turover-a growing and increasingly expensive problem in health care. The technology reduces the paperwork burden, allowing nurses to spend more time interacting with their patients and providing high-quality care.

There also is a public-relations consideration on both community and personal levels. The news media has made the public keenly aware of patient safety and medical-error issues. For instance, last spring, a widely publicized report by The Commonwealth Fund said one-fifth of adults surveyed, or 22.8 million people, reported they or a family member had experienced a medical error of some kind; of these, an estimated 8.1 million households reported experiencing a medical "error that became a serious problem.d A medication-"safety IT system is a visible sign of the safe clinical "operation of the hospital. 

Northeast Medical Center

Northeast Medical Center (NEMC), Concord, N.C., is a private, not-for-profit healthcare organization that has 457 beds, 3,200 employees, and 18,000 discharges per year. NEMC sets five major corporate goals every year, and one of those goals is always a commitment to quality improvement in patient care. NEMC has spent $6 million to $7 million per year during the past three years on IT-nearly a third of its capital budget. The organization made a significant patient-safety IT investment in August 2002 when it implemented a barcode-enabled point-of-care (BPOC) system to reduce medication errors at the administration point at the bedside.

When NEMC was planning to implement a medication-safety system, much more went into the decision than a straight ROI calculation. The decision included intuitive judgments-doing the right thing for the patient. According to Mark Nantz, NEMC executive vice president and CFO, "Almost all investments in information systems are great leaps of faith. You feel like it's the right thing to do, and you know it's going to make things better and safer, but getting your arms around that quantitatively without making huge assumptions is difficult to do."

He added, "I think managers convince a CFO or CEO based on the fact that it is a finite investment that is going to make us do our jobs better, make it safer for our patients, and help us measure what we're doing in a better way. I don't think you're going to get someone to dig in and find a completely fact-based return-on-investment calculation."

An ROI calculation can include intuitive judgments. According to Nantz, it "just makes good business sense" to have a system that helps reduce errors by ensuring the "five rights" of medication administration-right patient, right drug, right dose, right time, and right route of administration-and that provides alerts and dosing instructions. Nantz added that if such a system helped an organization avoid even one lawsuit settlement, it would pay for itself more than once. In 2003, NEMC plans to invest in a computerized prescriber order-entry system, which reduces errors in the ordering phase of the medication process. 

Spectrum Health

Spectrum Health, an integrated healthcare system based in Grand Rapids, Mich., includes seven hospitals with more than 1,800 beds, 12,000 employees, and 60,000 acute care admissions per year. Spectrum Health's commitment to clinical quality is a factor in its IT investment. John Byrnes, MD, Spectrum Health's corporate vice president of quality, has successfully implemented patient-safety information systems in the organizations for which he has worked because they focused on quality.

"I really haven't had a lot of trouble convincing CFOs, CEOs, or other members of the senior management team to implement a patient-safety plan without necessarily demonstrating an ROI," Byrnes said. "I think most of them realize that when errors occur, the cost is so huge to the organization-whether it's treating complications or prolonging the course of treatment or even potential litigation-that they see the benefit up front in avoiding all of those eventualities. I think the 1999 IOM report raised our awareness to the point where patient safety became more of a have-to item rather than one of those issues where we have to argue the ROI."

Byrnes says he believes the argument that implementing a medication-safety information system is the right thing to do has merit. "Actually, I take it beyond that," said Byrnes. "I'd say we have ethical and moral obligations to put these patient-safety systems in place."

Spectrum Health formalized its commitment to patient safety by developing a patient-safety plan, which includes medication safety. The plan is a how-to document for the system's patient-safety initiative. Spectrum Health is involved in a five-year IT implementation project that will result in a massive clinical information repository. This system ultimately will allow any caregiver to locate any clinical history or current information on any patient from any location in the system, including medication and laboratory information, further helping to improve medication safety. 

What You Can Do

A medication-safety IT investment offers providers both tangible and intangible benefits. Tangible benefits include fewer costly medication errors, increased nurse satisfaction, positive identification of patients, increased communication among caregivers, and improved safety in the use of high-alert medications. Intangible benefits include public perception of the organization's commitment to safety, word-of-mouth value from former patients, and patient satisfaction. Before implementing a medication-safety system, providers can take steps to ensure that the system will meet the organization's needs and function compatibly with IT systems that are in place.

Although there is no government or payer mandate to implement patient-safety IT systems, it is likely such systems eventually will become part of the cost of doing business in health care. Indeed, there may come a time when, in the words of Mark Nance, "if you're not doing these things, you're going to be behind the times, and you're going to be competitively disadvantaged."

Terance Kinninger is senior vice president of business development and CFO, Bridge Medical Inc., Solana Beach, Calif., and a member of HFMA's San Diego-Imperial Chapter.

Lee Reeder is editor-in-chief, Healthcare Leadership & Management Report and Disease Management & Quality Improvement, Lake Arrowhead, Calif.

Questions or comments regarding this article may be sent to Terance Kinninger at tkinninger@bridgemedical.com  and to Lee Reeder at winningwords@earthlink.net


a. Barker, K. N., Flynn, E. A., Pepper, G. A., Bates, D. W., and Mikeal, R. L., "Medication Errors Observed in 36 Health Care Facilities," Archives of Internal Medicine, September 9, 2002, pp. 1897-1903.

b. Institute of Medicine, To Err Is Human: Building a Safer Health System, Washington, D.C.: National Academy Press, 2000 (www.nap.edu/catalog/9728.html) .

c. Jury Verdict Research, Medical Malpractice Verdicts, Settlement and Statistical Analysis, Horsham, Pa.: LRP Publications, 2002, p. 6.

d. Davis, K., Schoenbaum, S. C., Collins, K. S., Tenney, K., Hughes, D. L., and Audet, A. J., Room for Improvement: Patients Report on the Quality of Their Health Care, New York City: The Commonwealth Fund, April 2002, p. 7.

Publication Date: Saturday, February 01, 2003

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