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Return on Investment in Healthcare

Return on Investment in Healthcare

Professor William A. Hyman has a good article on ROI over at Hitech Answers…

“The usual meaning of Return on Investment (ROI) in purely financial transactions is how much money do you get back for the amount of money you put in. It is usually desirable for the amount returned to exceed the amount invested, thus achieving a positive ROI. In healthcare this concept requires modification because of who may receive the benefit and whether or not that benefit is monetary. Here our concern is usually investments in IT, although there are many other possibilities such as medical devices. In some hospital “investments” there can be an internal positive return arising from lower costs or higher income. For example, an early patient discharge may directly save the hospital money, especially when the care has a fixed reimbursement regardless of days-of-stay. Investments that increase through-put can also produce direct increases in income, provided the patient que can be kept filled. New services can also increase income which might or might not exceed the cost of providing those services.

This basic ROI concept can become complicated in at least two ways. One is when the person receiving the return is not the person who originally invested. In healthcare this can arise when the hospital invests in new IT and that IT results in patients being treated at lower cost. Depending on the reimbursement model that lower cost may accrue to either the hospital or the patient. If it is the hospital then the reduction in cost is a return on the IT investment. But if the savings is realized by the patient (or a third party such as an insurance company) then the hospital spent money and the patient or third party saved money. In non-medical commerce this would not be a directly positive ROI. However, in healthcare this may be considered as a positive net outcome in the non-fiscal sense, even though the hospital spent money that it didn’t directly get back. It is an irony of healthcare that the more you helped the patient the less likely they are to need your services again. There are few other businesses whose underlying conceptual goal is to keep the paying customers from coming back…”

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