Evidence Soup
How to find, use, and explain evidence.

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Tuesday, 05 May 2009

ROI calculator looks at the evidence about health quality improvements.

To reform the U.S. health care system, evidence-based medicine can't just be about clinical findings -- it also needs to be about evidence of cost-effectiveness: Making hard choices to improve quality and get costs under control. The Robert Wood Johnson Foundation has funded an ROI Forecasting Calculator, developed by the Center for Health Care Strategies and intended to help Medicaid agencies & health plans assess quality initiatives.

Evidence Soup's Tiny Soapbox for Medicaid ROI Calculator

What's this? I'm using Tiny Soapbox to summarize key points about the ROI calculator. This is an approach I use in my work, so it's easier for people to quickly assess ideas, findings, and insights. As shown  below, each Tiny Soapbox describes the connection between a specific action or occurrence and an associated outcome or result: Supporting evidence and analysis are transparent, and links to detailed information are provided.

 Evidence Soup's Tiny Soapbox for Medicaid ROI Calculator

To advocate adoption of the ROI calculator, CHCS provides a policy briefing: Maximizing Quality and Value in Medicaid: Using Return on Investment Forecasting to Support Effective Policymaking (10-page pdf here), funded by the Commonwealth Fund -- it says that "Return on investment (ROI) analysis, which has been used in the private sector for decades to inform the allocation of limited resources, is a useful technique for supporting cost-effective policy decisions.  Effective allocation of limited Medicaid resources is a policy imperative, and the use of ROI forecasting can ensure responsible stewardship of taxpayer dollars...."

Continuing the briefing: "There are a number of specific policy decisions in Medicaid that are ripe for ROI analysis. This policy brief describes how Medicaid stakeholders can use return on investment analyses to support value-based purchasing decisions. It outlines a number of specific opportunities where Medicaid stakeholders can apply ROI forecasting, including:

  1. Assessing the relative value of various policy options to efficiently allocate limited resources;
  2. Supporting evidence-based policymaking through the identification of proven interventions and analysis of program data; and
  3. Informing financing reform by identifying opportunities to realign incentives to promote high quality, cost-effective service delivery."

Medicaid ROI & Sensitivity Analysis

Regarding the ROI calculator, CHCS says "Medicaid presents tremendous opportunities to demonstrate the business case for improving health care quality. Of the more than 60 million people served under Medicaid, adults with disabilities and chronic conditions represent only one quarter of the population, while consuming nearly 70 percent of Medicaid’s resources. Investing in programs that more effectively manage the care of these high-risk, high-cost beneficiaries can improve health outcomes, reduce unnecessary utilization, and control Medicaid expenditures."

To help Medicaid stakeholders demonstrate a return on investment (ROI) from quality-improvement projects, CHCS developed the ROI Calculator for Quality Initiatives (chcsroi.org). Besides ROI and NPV, the calculator supports scenario testing and sensitivity analysis. A User's Guide to the ROI Forecasting Calculator: Estimating ROI for Medicaid Quality Improvement Programs is available (24-page pdf here). Here's the information needed to use the calculator:

  • Clinical focus
  • Intervention strategies
  • Timeframe/duration of initiative
  • Target Population
  • Targeted population subgroups
  • Disease prevalence among target groups
  • Expected enrollment rate
  • Risk stratification
  • Utilization
  • Average 12 month baseline costs for intervention group members
  • Trend (expected growth in claims costs)
  • Anticipated utilization changes resulting from initiative
  • Program Costs
  • Estimated costs of launching and operating the initiative
  • Discount Rate
  • Organizational cost of capital
  • They saved the best for last. In the section titled Communicating ROI Analyses, CHCS says "When sharing ROI forecasts with colleagues, managers, government officials, or other stakeholders, it is important to keep a number of considerations in mind.... One of the key benefits to using the ROI Calculator is the transparency it creates for sharing analyses with broader audiences. Accordingly, the ROI Calculator can be used to foster dialogue with multiple stakeholders who may be interested in the prospective financial impact of a given quality initiative. When communicating ROI analyses conducted with the ROI Calculator or elsewhere, users are encouraged to provide maximum transparency including:

    • Description of the methodology used to calculate costs and savings;
    • Justification for key forecast assumptions;
    • Identification of sources of uncertainty in the estimates; and
    • Indication of how such uncertainty may have been accounted for through scenario testing or sensitivity analyses.

    "...For example, conversations could concentrate on expected participation rates in the intervention, or around the anticipated effects of the intervention on emergency department use – instead of on skepticism around methodology and concerns of 'funny math.'" Transparent evidence for Medicaid decision-making? I hope it happens, and soon.


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