The calls for demonstrating the “business case” in healthcare are expanding rapidly, particularly in the quality improvement space. Where previously it was enough to talk about patient outcomes, quality of life, and population health, it is now common to also sketch out the value of undertaking the initiative. Federal agencies and those funding quality improvement efforts are more commonly asking for ROI as part of funding applications.
However, I think “value” and ROI are sometimes used to refer to the same thing, even though they are not the same thing. The value of improving quality encompasses many things, of which ROI is one. Additionally, value is subjective, while ROI (should be) objective and based on tangible and measurable quantities. As I’ve written about previously, ROI is simply the financial return from a single perspective. When we consider that value may encompass benefits for multiple perspectives (patients, providers, payers, caregivers) and non-monetary aspects of improved care (peace of mind, quality of life, satisfaction) it comes clear how much more there is to value than just ROI.
My question, then, for those asking for and performing ROI is: why?
For what purpose(s) or end(s), specifically, does ROI provide you with the necessary information? Asking this will not only determine whether or not an ROI analysis is appropriate, but it will also help inform what that analysis should entail.
ROI analyses are done either prospectively (during the planning or proposing stage to estimate the financial return) or retrospectively (during or after the completion of a project to summarize realized costs and benefits). Here are several purposes for ROI analyses at either time period.
Feasibility. ROI can be used to determine whether an intervention is feasible. Through the process of identifying costs and benefits one can verify that the investment can be made and that an acceptable portion of it will be returned in some form.
Budgeting. Related to feasibility, ROI can help identify what the budget will need to be. In most cases, it will not only be about if a financial return will be realized but when. If many years will be necessary to recoup costs, perhaps it will be necessary to secure a loan or a line of credit. The amount and/or timing can be informed by calculating ROI.
Motivation. While improvements in care are typically the motivation for pursuing quality initiatives, demonstrating a financial return can help to garner support and buy-in for a specific initiative. That is, if in addition to improving care one can show that the investment needed to do so will be recouped quickly and completely, those holding the money needed to perform the activities are likely to be more willing to move forward.
Selection. Often a hospital or facility has multiple things on their “wish list,” and it is not always straight-forward to compare the quality outcomes to determine which should be the priority. If a hospital is considering the purchase of additional medical equipment but also has a particular quality initiative in mind, the process of determining which will receive the next investment may benefit from understanding the financial return of each, especially since that return is likely to stem from very different benefit sources.
Specification. When planning an initiative, an ROI analysis can help illustrate what size or scope is appropriate. Given event rates and assumed levels of improvement, one can quickly learn how many patients will need to be enrolled in the initiative before there is even the potential for a positive financial return. If the expected monthly return for reducing an adverse event is less than the monthly cost to achieve it, then eventually the initiative will need to be terminated. Increasing enrollment may increase the likelihood of a positive return by spreading fixed costs over more individuals. This provides important information not available from quality metrics alone.
Justification. For some federal programs, ROI is required so that (I assume) the funding agency can justify the cost of the program. In this retrospective look, the goal is to be able to say, “see, we got more monetary benefit out of the program than we spent by funding it, therefore it was a good use of funds.” While this can be useful, it likely does not provide the full picture because so much typically goes into a ROI analysis and each one is different. Perhaps the observed return was largely a function of the specific patient population or setting of the initiative; in the case of a lower-than-acceptable return, maybe there were key data not collected that would have provided evidence of additional financial benefits. To really be useful, a retrospective ROI analysis should attempt to understand more about the driving forces behind the observed return and the interplay of key results of the initiative.
Understanding. Most likely, the usefulness of a retrospective ROI analysis comes from what it teaches you. If done correctly, it can help you understand what drove the observed return, what differed from what had been expected, and how those differences affected return. Was recruitment less than expected? Did the intervention result in less of an improvement than anticipated? How would the return have been different if recruitment and/or effectiveness had been 10% better or worse? Answers to these kinds of questions provide insight into why the initiative produced the observed return and will be the most useful when planning future initiatives.
Projection and Planning. Along those same lines, there is often a desire to replicate or scale successful interventions to larger or different patient populations or settings. Using information from a completed intervention, one can estimate and extrapolate what could be expected if the patient population doubled, or certain activities were enhanced, reduced, or removed. Where might there be avoidable costs or appreciable benefit one can attempt to accrue more of next time? Are there thresholds that are crucial to the financial success of the project (e.g., a certain level of recruitment) that warrant specific attention or resource allocation to ensure they are met? Applying financial learnings from a previous intervention to better plan the next intervention will most likely provide a return of its own.
It seems like these days most apply ROI for only one or maybe two purposes. My plea for all of the organizations and agencies out there asking for and performing these analyses: “Why ROI? What questions will you use the results of the analysis to answer, or what information do you think it will allow you to convey to your audience?” The answers will undoubtedly lead to more relevant and useful ROI analyses.