How Do You Measure ROI in Healthcare?

ROI, or, return on investment, is a basic calculation used by organizations or individuals to determine the value gained from a certain effort. You may be familiar with the term as something relating to the world of business more than healthcare. When does ROI come into play in the complicated system of hospitals, clinics and public health centers? What would you determine as investments and gains to measure against in a health setting? Is ROI an effective tool for healthcare leaders? Read on for our investigation into these questions and more.

What is ROI?

“ROI” is an equation that is expressed in a percentage value. You might have heard someone inquire, “What’s the ROI on this effort?” or declare that a certain purchase has good ROI. The equation behind ROI is the current value of an investment minus the cost of that investment, divided by the initial cost of the investment.¹

ROI is a simple equation making it a popular measure of business success. But it’s simplicity can also limit its applications. For example, ROI alone doesn’t account for the time frame in which you’re measuring an item or project’s value. It also can’t satisfactorily measure the non-monetary payoff of efforts like philanthropy or taking on a bigger investment, like running an environmentally-friendly factory.

How is ROI Measured in Healthcare?

Likely the most common instances of ROI discussion in healthcare settings is through the investment in health IT like electronic health record (EHR) systems, new machinery such as MRI machines or robotic surgical tools. With some of these examples it’s easy to see how one might measure ROI: for example, buying an expensive surgical instrument could have a positive ROI if the hospital is then able to perform a specific in-demand technique that other area hospitals don’t offer. But in many scenarios, measuring ROI in healthcare isn’t so straightforward.

Challenges of Applying ROI to Healthcare

There are several layers of challenges when it comes to measuring success of investments in healthcare but many stem in part from the fluctuating definition of “value.” In business and mathematics, “value” typically refers to a monetary or numerical value. Of course the services at a hospital or clinic cost money whether you or your insurance company are responsible for paying for them, but defining the value of health and healthcare delivery is multifaceted.

While the U.S. healthcare system is undergoing a push for quality-based healthcare payment, many parts of healthcare delivery remain charged on a fee-for-service basis. In a commentary published in the New England Journal of Medicine, authors David A. Asch, MD, Mark V. Pauly, PhD, and Ralph W. Muller, MA, explain, “from the financial perspective of doctors and hospitals, the ROI of treating cancer is favorable. Reimbursements for cancer care are high in part because the political and popular value of cancer care is high, and those values are both revealed and reinforced by a history of largely cost-based fee-for-service pricing explicitly designed to at least meet providers' costs."²

However, other costly patient treatments, like treating chronic illnesses in an effort to reduce emergency room visits, requires intervention and collaboration among many different groups. The efforts put into treating a patient like this requires piecing together several “costs” such as the time of a social worker, on top of putting a value on the medical services provided.

Meaningful Use/MIPS and ROI

The move from fee-for-service to quality also brings complexities of provider penalties into play. In 2011, Centers for Medicare and Medicaid Services (CMS) established the Medicare and Medicaid EHR Incentive Programs (now referred to as the Promoting Interoperability Programs) to encourage eligible professionals, eligible hospitals, and critical access hospitals to adopt, implement, upgrade, and demonstrate meaningful use of certified electronic health record technology (CEHRT).³ The Promoting Interoperability Programs, commonly referred to as meaningful use, were then transitioned to become one of the four components of the new Merit-Based Incentive Payment System (MIPS). If a healthcare provider doesn’t meet certain requirements of CMS then providers are penalized in the form of reduced Medicare reimbursements.⁴ Therefore, your measurement of ROI must also include an assessment of whether adopted technology, specifically an EHR, has contributed to avoidance of penalties.

The Role of Health Informatics in Measuring ROI

Behind all these acronyms and programs is the goal to move toward a healthcare system that prioritizes quality over quantity with the EHR system serving as the backbone for improvements and also often the measurements of efforts. This puts a lot of pressure on the data analysts, EHR managers and others working within health informatics to choose well when it comes to introducing new technology and also to prove the efficacy of their systems. Most likely, demonstrating how your workplace meets meaningful use requirements will play a big role in your health informatics career.

Ready to tackle the everyday challenges of Health IT?

If you’re interested in working in the world of health IT, you should be prepared to use ROI to measure the success of your tools and initiatives. However, it’s also critical to know when success would be better measured another way or requires further analysis. The Master of Science and Postbaccalaureate Certificate programs in Health Informatics at Kent State will help you build a foundation of relevant data science skills including the human factors of health informatics, clinical decision support, project assessment and more. Explore program options and consider applying today.