“As emerging value-based payments models intersect with population-based care, healthcare organisations must find ways to increase the quality of care while decreasing costs ensure better outcomes despite caring for large number of patients; and become more efficient at preventing many services, such as readmissions that once contributed to their bottom line.” (Health Catalyst).

Is return on investment the only appropriate measurement of healthcare performance?

In this new environment of care, there is an urgency to improve quality, streamline operations and reduce costs. Health establishments are increasing investments in ‘Business Intelligence’ (BI) technologies and analytic programmes to assist in this transformation. Today, this technology-centric view is giving way to a benefits-driven return on investment (ROI) model to measure business-value.

ROI is a popular business term used to describe the financial return received on any financial investment. This form of calculation is focused on tangible returns as it relates to reduced healthcare costs. It is a ‘hot-topic’ in healthcare especially in healthcare because of financial pressures caused by complex operational efforts. However, there is a lot of misunderstanding or all out confusion concerning the concept of ROI in healthcare.

It is not a concept that most healthcare professionals are comfortable with. Many stakeholders in the healthcare field are wrestling with the concept, its application in healthcare, with alternate measurements and the weighting of ROI when assessing the value of healthcare programmes. Investment in healthcare and well-being should achieve the highest standards attainable other than just financial gains.

The Investment should optimise ROI across the continuum of healthcare including promotion and protection as well as for disease prevention, treatment, rehabilitation, care and support. Because value matters in healthcare, when health programmes are proposed it has become common to ask: “What is the ROI from implementing a particular programme?” Implicit in this question is that the programme should be supported only if it saves money.

Positive ROI means that more money is saved than spent and this has become the standard by which new initiatives are evaluated. Asking about ROI might seem to make sense given concerns about healthcare costs and value. However, asking about ROI is the wrong question when assessing whether a healthcare programme is successful. This question cannot be asked of every healthcare decision that is made.

Beyond childhood vaccination and influence vaccines for the elderly, few healthcare services save money. One will not ask what the ROI for treatment of a cancer patient is. It is a question people would think inappropriate to ask. Some treatment like cancer treatment may have a negative ROI, but it is one that adds social value. The goal of healthcare must be the core of getting the biggest possible improvement in health for the available resources. ROI is generated and viewed through financial targets.

Hard ROI is a profitability ratio that can be calculated by looking at your gains and expenses cumulatively as per investment/initiative/project basis. But you can generate positive ROI through softer indicators that may not have an immediate impact on financial targets; example the benefits of population health or preventive and promotive care. While they are not measured in dollars, the metrics are indirectly connected to a positive financial return down the line and are thus considered important for holistic long-term success.

When one considers soft measures with financial results, soft measures take more time to see a return. Another concept to assess a healthcare programme is the value of investment (VOI). This is popular in the employee wellness space. VOI refers to the overall value received on any financial investment. Basically VOI includes the financial return, but also takes into account more abstract value that was received from that investment. Obviously VOI is not quite tangible or easy to measure as ROI.

VOI assessments are less concrete than ROI metric but are important variables to the employer’s measurement of success. There is an increased use of VOI for wellness programmes because it encompasses the invaluable benefits of employee’s health. In failing to consider the corollary benefits, standard ROI models fail to deliver a holistic view of the value of an organisations investment.

Health Catalyst 2013 discussed the failure to connect clinical/operational versus finances and I quote, “A Key reason why so many healthcare organisations still embrace the old ROI models is the persistent cultural divide between clinicians and finance. Clinicians are intent on improving care of individual patients, not the organisations bottom line. Financial managers are equally concerned with patient welfare but focus on aggregate financial measures such as cost and ROI across the population.”

When financial managers try to improve cost controls or disciplinary measures on care delivery, clinicians may perceive the change as a threat to patient welfare, even when its effect is harmless. Recently managers focused on value-based payment and patient-centred care, with the emphasis on quality within cost frameworks. ROI is an important concept but it can be inappropriately used and if so can other measures be used to measure success?

The problem with using only ROI for healthcare performance is that issues like social gains may be greater or more important than just financial returns. Then there are complex issues like preventive care that results in people living longer (a societal gain), which in turn drives up healthcare costs. The question posed is should the value of financial returns be calculated over a lifetime? It is unclear whether the programme would break even over the participant’s lifetime.

Should the cost effect of potential mortality improvement take precedence to the benefit of improved healthcare? The ROI of preventive measures is a moving target because the healthcare costs of treating a condition changes over time. Therefore, the ROI of a single preventive measure will change as treatment costs change. The question is should we invest in preventive measures only when the ROI is high and not when it is low?

This is seen in the ROI of preventing obesity, which has increased over the past thirty years. Since 1980, expensive new treatments for obesity and its associated medical conditions (such as new drugs to treat diabetes, hypertension, hyperlipidaemia, new surgical procedures such as bariatric surgery) have driven up obesity-related healthcare costs. As a result, reduction of obesity saves more healthcare costs today than in the 1980s.

So the ROI here is high over the long term but is not evident in the short term and may create a dilemma if a decision does not look at the holistic view. Here the evidence on the balance sheet will not support a shortsighted decision. ROI may be a simple calculation in healthcare programmes, but it is not straight forward, especially if the measure includes value end points rather than financial end points.

We need to apply ROI, in terms of what is the value that we are driving for in the healthcare project. Even the application of the actuarial calculated value for diabetes programmes, employer’s savings as a precondition for preventive services had to demonstrate not just that the people are healthier, but that short term savings offset the cost of the programme. Most discussions about people with chronic illness, who often have to be readmitted to hospital, seem to focus on ROI.

Discussions about providing care for patients with cancer or other acute illness, by contrast, we almost never hear of ROI. Instead people talk about clinical gains. With cancer treatment we deliver such small personal and social gains that, were those gains monetised, the ROI would be negative. It is hard to create financial ROI for reducing volume in a system dominated by fee for service payments for delivery of care.

Most healthcare professionals and institutions are largely fixated on their efforts to provide the best patient care they can within given resources. But it is often said that funders and financiers are fixated on ROI as is obvious by the example of private for profit insurers and pharmaceutical firms with their egregiously high profits. Healthcare ROI encompasses more than money saved or earned; both by funders and professionals.

It must consider both qualitative benefits such as improved patient safety, improved healthcare outcomes and streamlined clinical practices and operations. It is important that the quantum of the savings at the end of a balance sheet cannot be the only criteria for successful healthcare delivery. It must be seen in relationship to positive patient healthcare experiences.

AUTHOR: Prof Morgan Chetty, visiting Prof: Health Sciences, DUT chairman, IPAF, CEO: KZNDHC