Why ROI is not always as applicable as hospital executives might think

By Jeff Rowe
11:19 AM
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ROI, or "Return on Investment," is a term that gets bandied about frequently in healthcare, particularly when it comes to providers assessing whether their new, expensive IT systems are "paying off."

But a new commentary in the New England Journal of Medicine suggests the concept of ROI may not be as applicable as many healthcare stakeholders would like it to be.

For example, authors David A. Asch, MD, Mark V. Pauly, PhD, and Ralph W. Muller, MA, point out, ROI is often mentioned in certain conversations but ommitted from others.

"There is no obvious reason why ROI is more relevant to some clinical situations than to others," they argue. "So why do we focus so heavily on ROI when the topic is chronic illness but rarely mention it when the topic is cancer?"

One reason, they say, "is that from the financial perspective of doctors and hospitals, the ROI of treating cancer is favorable. Reimbursements for cancer care are high in part because the political and popular value of cancer care is high, and those values are both revealed and reinforced by a history of largely cost-based fee-for-service pricing explicitly designed to at least meet providers' costs."

There are other reasons, including the fact "that keeping people out of the hospital is hard -- typically requiring care coordination with multiple services," but the authors' purpose isn't to suggest the cost of cancer care needs to be more closely scrutinized. Rather, it's to point out that "rewards and penalties have the same ultimate effect on investment income, but they influence thinking in different ways."

As policymakers continue to consider how best to structure the nation's system of healthcare reimbursement, they say, "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."