I get asked this question a good amount, although sometimes it is clear it is simply out of curiosity. Notably, this question is really a corollary to the question “What’s a good ROI?” The latter involves a more general exploration of the concept of value and the non-monetary benefits of good health care and population health. But the former requires much of the same considerations.
To more fully address this question, let’s consider a couple of hypothetical scenarios:
Scenario One: A facility is trying to determine whether to make a capital investment (new equipment, renovations to the physical space, etc.), and when they extrapolate costs and benefits out to three years, they observe a negative return.
Scenario Two: A group of clinicians seek to introduce a training process to improve patient transitions of care to skilled nursing facilities from their hospital because they see first-hand how poor transitions produce adverse patient outcomes and often require re-hospitalization; but, a successful process would actually mean lower revenues for their hospital and other benefits will be realized by payers and patients, so that they will receive almost no monetary benefit.
Scenario Three: A digital health start-up runs a pilot study in a single rural community of their telehealth device to show how it will help facilitate care continuity and improve access to specialty care services; when they run the retrospective ROI analysis from the payer perspective, it comes back negative.
In the first scenario, the result may be what many would expect: the facility may not be able to float the costs for three years and the capital investment is just not feasible at the current time. However, a good use of the ROI analysis would be to try to understand why the return is negative and what might be done about it. Is there a particular aspect that is driving the costs and/or benefits? Are there benefits that would be realized by other parties who may be willing to cover some of the costs or provide some of the inputs (e.g., perhaps a new piece of equipment would improve the efficiency of care or patient outcomes, which would benefit a payer)? Are there any aspects that would qualify for public or private funding to cover some of the cost (e.g., perhaps it would reduce health disparities or further the mission of a foundation or private funder who might be willing to consider helping out)? While at first glance this scenario might seem straight-forward, ROI and value assessments can be used to seek out innovative solutions because they allow one to more fully understand the drivers of costs and benefits.
In the second scenario, the clinicians would need to consider (together with their administrators, probably) whether the financial investment needed to implement this change would be worth the non-monetary benefits their patients receive. While anything that is done needs to be financially viable, there may be scenarios where facilities are willing to invest in better care, even if they won’t immediately see a financial return. And, many of the same questions applied to first scenario apply here as well: are there other parties who may be willing to help cover some of the cost given that they will experience some of the benefit? Is there private or public funding available? Are there partners who could help reduce some of the cost or implement the solution more efficiently? As with the first scenario, there are deeper questions that need asking than just “is the ROI negative”?
In the third scenario, the implication, obviously, is that this digital health start-up is going to have a hard time convincing a payer to cover their technology if using it produces a negative financial return. But, here, too, the analysis can help explore the nuances of what they observed in order to better inform future activities. Do they need to figure out how to manufacture the device more cheaply? Would economies of scale in a larger roll-out improve the return by spreading the fixed costs over more units and communities? Or, from a business standpoint, is the company willing to offer their units at a reduced price to ensure a positive return for a payer, even though it would mean operating at a loss in the short term? Maybe it’s worth it in order to enter the market and start relationships with rural health providers.
Regardless of the scenario, there is always more to ask and understand than simply the ROI. What a negative ROI indicates depends on the situation and the intent and goals of those involved. Maybe the goal is to simply identify and understand the drivers of cost to inform future activities, or maybe it’s to provide a benchmark for comparison, or maybe “doing nothing” isn’t a viable choice and you’re tasked with finding the least negative option. As I’ve discussed previously (link to the “Why ROI” article) the reasons for calculating ROI are varied, and some are exploratory.
You can’t assume that improvements in care will always produce a positive ROI. Good care has value, but it may not produce a positive ROI. Also remember that ROI is a relative measure, meaning that it quantifies benefits per dollar spent. It is possible to have a low (or negative) ROI but produce massive benefits, and that can sometimes be better than producing a high ROI where the benefits (and the costs) are small.
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