Return on investment in health care

Asymmetric Thinking about Return on Investment

By David A. Asch, M.D., Mark V. Pauly, Ph.D., and Ralph W. Muller, M.A.
The New England Journal of Medicine, February 18, 2016

Lately, we’ve attended many conferences about providing health care to patients with high medical and social needs — people with chronic illnesses who are frequently readmitted to the hospital. It seems as if every presentation refers to “return on investment” (ROI), which is invariably presented as a constraint — as in “Our program kept people out of the hospital, but we just couldn’t get the ROI to work.” Heads nod understandingly, and then participants move on to other topics.

At conferences about providing care for patients with cancer or other acute illnesses, by contrast, we almost never hear the term ROI. Instead, people talk about clinical gains, using understandable and patient-centered terms like “survival.” Though high drug prices are sometimes mentioned, no one ever says the ROI is prohibitive. No one mentions ROI at all.

There is no obvious reason why ROI is more relevant to some clinical situations than to others. So why do we focus so heavily on ROI when the topic is chronic illness but rarely mention it when the topic is cancer? A huge amount of the cancer care we deliver provides such small personal and social gains that, were those gains monetized, the endeavor’s ROI would be deeply negative. And yet we ask, “What’s the ROI of that program that keeps chronically ill patients out of the hospital?” but not “What’s the ROI of treating advanced lung cancer?”

Providing cancer care and averting hospitalizations are financed differently. It’s hard to create a favorable ROI for reducing volume in a system dominated by fee-for-service payments for delivering care. Sometimes a favorable ROI is achieved passively when, for example, avoiding care frees up capacity for patients whose care is more profitable. More actively, the avoidance of care can be financed by establishing punishments for delivering avoidable care (penalties for readmissions, for example) or by shifting its cost to the providers themselves (e.g., through capitated or bundled payments).

It might seem that we could make the ROI for appropriate care more favorable if we imposed higher penalties on inappropriate care, just as we could make the ROI for treating cancer less favorable by paying less for cancer treatments. Despite that apparent symmetry, the choice of financing mechanisms — payments versus penalties — determines how much a health care goal will be advanced. If the ROI didn’t work for some form of cancer care — because the payment received was lower than the cost incurred — doctors and hospitals would almost certainly argue for higher payments. But when the ROI doesn’t work for keeping challenging patients with chronic disease out of the hospital, it’s implausible that doctors or hospitals will plead for increased readmission penalties. There isn’t any mathematical reason to prefer payment in the form of rewards over payment in the form of avoided penalties, but you can typically generate more advocates for your cause by paying people to follow you than by penalizing them for going the other way.

So when advocates and organizations devoted to keeping people out of the hospital lament their inability to make the ROI work, they should know that the game is rigged against them. In the highly regulated context of health care, the amount and structure of financing are chosen rather than preordained. The ROI is favorable or unfavorable not because of the workings of some invisible hand, but because of choices someone — usually a private or public insurer — has made regarding what amounts will be paid for various types of care and what form payments will take.

What if the financing of cancer care and of efforts to achieve population health goals traded places? Suppose doctors and hospitals were paid for cancer care by capitation or bundles or through penalties for undesired outcomes and were paid directly and adequately to keep people out of the hospital. Oncologists might begin lamenting that although new approaches to cancer care helped patients, they just couldn’t get the ROI to work. And the outlook for population health might become less financially gloomy.

Rewards and penalties have the same ultimate effect on investment income, but they influence thinking in different ways. We might encourage greater effort and innovation in keeping people out of the hospital and coordinating care if we reframed its financing as positive payments for noble work rather than punitive revenue reductions. As U.S. health care financing begins again to shift risks to hospitals and physicians through bundled payments or readmission penalties, the financing of the care for our most challenging patients might be better shifted in the other direction.



By Don McCanne, M.D.

The concept of return on investment (ROI) in health care may represent what is wrong with our system that causes it to be so expensive yet often mediocre by international standards.

Most health care professionals and institutions are largely fixated on their efforts to provide the best patient care they can with the given resources. But much of the medical-industrial complex is fixated on ROI, as is obvious by the examples of the private, for-profit insurers and the pharmaceutical firms with their egregiously high profits.

The authors of this article discuss trying to take care of cancer patients in which ROI standards are not considered since “monetized” gains for cancer patients would be “deeply negative.” They contrast that with readmissions of patients with chronic illnesses in which the ROI is important based on the penalties assessed for failing to prevent the readmissions.

On the one hand, the professionals and institutions are simply paid for providing appropriate care. On the other, attempting to provide appropriate care is complicated by a necessity to consider the potential of a negative ROI because of financial considerations - penalties - which have nothing to do with the actual medical care being provided.

Instead of ROI driving motivation, the authors suggest that we reframe health care financing as “positive payments for noble work rather than punitive revenue reductions.”

They conclude, “As U.S. health care financing begins again to shift risks to hospitals and physicians through bundled payments or readmission penalties, the financing of the care for our most challenging patients might be better shifted in the other direction.”

Noble provision of health care services - a prime goal of a single payer national health program.