Return on Investment (ROI) for Quality Improvement Initiatives, Part 4: ROI in a Value-Based Environment

This is the final part of a series of articles on ROI for Quality Improvement (QI). The previous articles discussed specifics of how to set-up, conduct, and report on your ROI analysis. In this article, we explore how the shifting landscape of healthcare reimbursement to value-based payment will affect how ROI analyses are conducted and used.

The current environment of healthcare is one of change and adjustment. In terms of Medicare reimbursement, the increase in value-based payments (MIPS, Hospital/Physician Compare, etc.) combined with the growing understanding of the importance of the continuity of care across settings and the impact of community-based programs reflects a desire to shift focus away from “services” or “treatment” and towards a more holistic approach to population health. The implications of this shift are far-reaching, and providers and facilities face challenges related to the associated administrative burden and striking a balance between care quality and cost. One could argue that these new takes on healthcare delivery make ROI an even more crucial tool to evaluate the value (however you chose to define it) of QI interventions. However, the new rules of the game also make certain aspects of ROI more challenging.

Reducing Encounters versus More Efficient Encounters

At the most basic level, shifting from fee-for-service (FFS) reimbursement to value-based reimbursement has implications for how to measure fiscal benefits and costs for ROI calculations. Under a FFS model, the costs of a hospitalization could be tallied by summing the individual services provided during the stay, and each would represent a cost to both the hospital and ultimately to the payer. However, when services are bundled or reimbursed based (in whole or part) on quality measure performance, some of those services will represent a cost to the hospital, but not to the payer. There may be circumstances where payers will agree to reimburse a fixed amount for the encounter (assuming it’s not an extended stay or complex diagnosis), regardless of what services the hospital administers. Therefore, reducing unnecessary services or improving efficiency may produce benefits for the hospital, but not for the payer, at least not monetarily. Put more broadly, in the above example, the highest ROI for payers will involve reducing encounters, while the highest ROI for facilities and hospitals will involve reducing services within an encounter. This is a shift and it has the potential to put the interest of payers and providers slightly at odds with one another. Regardless, when designing interventions and estimating the potential ROI, understanding this new paradigm informs how we attempt to demonstrate the merit of a QI intervention to the facility administrators versus to payers.

Benefits Across Care Settings

Along those lines, the initial reaction to the above example might be that in a value-based world it will be more difficult to demonstrate a significant ROI to payers (e.g., CMS) because changes in processes or services may not translate to a change in costs or benefits to the payer. However, as health systems continue to improve the coordination of care across settings, improvements in care quality and the health of patients will facilitate lower health expenditures overall, which does impact payers. So, while improving the discharge process for hospitalized patients, for example, may not result in a monetary benefit for payers for the index hospitalization, studies have shown that good discharge planning results in better patient outcomes going forward and a lower risk of a subsequent encounter (across settings), which likely will result in a monetary benefit for payers. What this means for those applying for funding from a payer is that they will need to be diligent in their efforts to identify and monetize benefits from more than just an index health encounter or a single care setting. While this doesn’t necessarily imply larger or more complex interventions (although it may), it does imply that more thought and research may be needed to understand the impact across the entire spectrum of care and the community so that the appropriate benefit is reflected in the ROI analysis. When relevant, this notion may encourage more system-wide or even community-wide interventions, which will require providers to communicate and collaborate with a variety of services and programs.

Benefits Associated with Quality Monitoring Programs

In the past, hospitals and facilities may have received monetary payouts from risk-pools or local programs related to the quality of care they provide, and these (usually nominal) benefits could be considered when calculating an internal ROI for a QI intervention, but they typically would not significantly move the needle. However, with the explosion of national quality monitoring programs and the ever-increasing percentage of reimbursement tied to performance, the benefits (and penalties) realized from these programs will continue to have larger and larger fiscal implications for facilities and physicians. The good news for providers is that this may help to motivate initiatives that previously were not financially viable because the gains in efficiency or reductions in waste did not translate to a large enough monetary benefit to cover the costs of the intervention. However, going forward, if the added benefit of the increased quality-performance-based payout combined with the financial benefits of increased efficiency now results in a large enough monetary gain for the facility or providers, they may be incentivized to pursue those endeavors. Providers will have to continue to balance QI efforts with the need to remain “high-performing” in other areas. That is, shifting resources away from an area where a provider has previously performed very well could potentially result in a lower performance and subsequently a reduction in reimbursement, and the complexity of resource allocation for QI will need to become an increasingly precise science.

The Impact of Social Media

Like it or not, social media is seeping into the healthcare environment. Beyond the measures of patient experience already contained in quality measures like HCAHPS, social media postings by patients are having a growing impact on how hospitals and providers approach patient care. There have already been several published studies on the association between certain social media trends and hospital ratings or quality measure performance, and facilities are realizing that “customer service” is an important aspect of their financial viability. I think it is likely that gathering data related to the patient experience will become more prevalent in QI interventions across the board, and the benefits associated with an improved experience will become more tangible and measurable – even outside the currently employed formal measures. As the tools to measure and quantify the impact of patient experiences on the bottom line become more precise and accurate, this may encourage and accelerate the acceptance of monetary estimates of these previously-considered “soft” or “indirect” benefits into baseline ROI estimates.

Putting it All Together

Developing and conducting examinations of ROI in the ever-changing environment of healthcare will require vigilance to stay ahead of the challenges and be at the forefront of the positive changes brought about by value-based payment policies. Understanding the implications and taking a larger view of population health management will allow providers, administrators, and organizations to effectively estimate or calculate ROI and leverage those results to demonstrate the merit of QI. In short, interventions with the highest ROI will likely be those that embrace the more holistic approach to population health and incorporate information (if not interventions) across multiple settings and that are specific to the local environment and community.  

A Final Word

This concludes this series on ROI for QI. My hope is that those of you who have taken the time to read these articles have a better understanding of the role of ROI in quality improvement and the challenges and opportunities it allows for. If properly leveraged, it can be an effective tool, and I believe it will become more prevalent as we continue to move towards value-based care. If you have questions or comments, please feel free to reach out either on LinkedIn or directly at: csolid@SolidResearchGroup.com.