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The ROI of Addressing Social Determinants of Health
January 11, 2018

The ROI of Addressing Social Determinants of Health

Ara is currently a senior executive at Unite US, a collaborative care coordination innovator. After founding and leading 2 successful technology companies as CEO, Ara led an international cloud business as senior vice president of Infor, the third largest B2B applications company in the world. Ara speaks 5 languages, and in his spare time serves as the entrepreneur-in-residence at New York Institute of Technology's center for entrepreneurship.
This article was co-written by Daniel McConnell, MD-MBA candidate at Columbia University. The research analyst was Christian Madrazo, BSN, of the University of South Carolina.

Hospital chief executive officers and chief financial officers (CFOs) are seeing an increasing number of investment requests for social determinant of health (SDoH) solutions. One reason for that may be that the move to value-based care is evolving from diagnosis and treatment to community-based patient engagement. And, while population health executives recognize the wisdom of this evolution, they struggle to prove a tangible return on investment (ROI) for allocating budgets to address the SDoH via innovative technology.

This article proposes an ROI argument for requesting budget from your CFO. Our aim is to demonstrate a measurable ROI by connecting cost avoidance opportunities to the leading medical conditions that drive readmission rates for high utilizers.

Additionally, the authors have developed and included an ROI calculator that outputs the financial cost avoidance opportunity impact for such an investment.

Trend versus reality when addressing SDoH
As population health professionals look for new ways to enhance their stewardship of vulnerable populations, many are actively collaborating with community service providers. This trend is center stage at healthcare conferences, where addressing the SDoH is frequently discussed as a strategy to improve patient care and drive better financial results.  

Unfortunately, reality doesn’t reflect this trend1:
  • More than 72% of hospitals still do not have a dedicated budget to support population health initiatives.
  • Two-thirds of hospital electronic medical records do not screen for patient’s social and behavioral needs.

What’s the problem?
If population healthcare executives realize the importance of addressing SDoH, why is it such a challenge securing budget to act on this realization? The simple answer is competing priorities and limited funding. Because healthcare is in constant state of change, new approaches, innovative technologies, and improved processes continually compete for budget. Consequently, justifying new investments requires a believable ROI. Without a substantial financial argument, promising new solutions will not rise to the top of the list of projects considered for funding.

Common goals, but competing priorities
Senior hospital leaders in finance, operations, and population health share common goals; they want to provide safe, effective, innovative, and patient-centered high-quality services. Nevertheless, they also face competing operational priorities. While physicians and population health executives seek patient care quality improvements, their C-suite counterparts struggle to deliver financial efficiencies.

Instead of competing, these 2 types of leaders need to collaborate to find a logical balance between their drive to continually innovate and the need to remain financially viable. 

Learning to speak the language of finance
According to the Advisory Board, “most financial leaders have, at one time or another, struggled to communicate with physicians about financial issues. Numerous administrators report that sometimes they come away from financial discussions feeling as if they have been speaking a foreign language.”2 No doubt, physicians feel the same, as many are not fluent in the language of finance.

Consequently, population health leaders who seek funds to improve patient care must learn to converse in the language of the financial executive. By doing so, they will translate care quality outcomes into financial benefits their CFO can understand, which may increase their chance of funding.

The first step? Understanding what ROI is and how it can be used to request funding for software that addresses SDoH.   

What is ROI?
Unlike a cost-benefit analysis, which looks at both the financial and non-financial benefits of a new project, ROI is purely a financial exercise to ascertain the financial return of a specific dollar investment.

Typically, the goal is to identify a tangible metric (such as hours saved), and calculate this metric into a precise financial return (such as dollars saved or dollars made).
Example: Let’s assume we wanted to invest $10,000 a year in software that promised to reduce 1000 employee hours per year. If the hourly employee rate was $20, we would reduce annual costs by $20,000 (1000 hours times $20/hour). So, the ROI (as a percentage) would be the projected financial return divided by the initial investment multiplied by 100. In this case, this investment would have yielded an ROI of 200%. ([$20,000/$10,000] x 100 = 200%)

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