What Do We Mean by Community Health and Community Health Improvement

Elevation A community health practice guide fromCommunity Health Solutions, Inc.

Community Health Solutions, Inc.

Return on Investment in

Community Health

Community health improvement requires substantial investment of resources. Stakeholders are asking challenging questions about return on investment.

The idea of “return on investment” in community health is receiving more attention as program sponsors demand tangible evidence of program costs and impacts.“Return on investment” (ROI) may be viewed not as a single analytical technique, but rather as a general term encompassing a range of economic evaluation methods. ROI may be evaluated in terms of cost-efficiency analysis, cost-effectiveness analysis, cost-benefit analysis, cost-utility analysis, or payback analysis. The choice of analytical method should be selected based on the nature of the activities under study and the strategic and operational concerns of the decision makers.

Economic Evaluation Methods

Economic evaluation is concerned with measuring the costs and consequences of activities as a means of informing choices about where to invest scarce resources. In other words, why should we invest a dollar in one activity vs. another?

Cost analysis. Cost analysis is solely concerned with measuring the cost of an activity, without relating that cost to a consequence or outcome. For example, we could evaluate the cost of home dialysis in terms of staff, equipment, supplies, fuel, insurance, etc. Cost analysis is a starting point for the typical economic evaluation.

Impact analysis. Impact analysis is concerned with measuring the consequences of an activity. Impacts may be defined in terms of individual, organizational, or system outcomes.

Cost-efficiency analysis. This method is concerned with evaluating two or more options that have differential costs but produce the same outcome. Consider a scenario in which we could provide kidney dialysis using either a hospital-based service or home dialysis. Also assume both interventions would provide the same consequence in terms of life-years gained. Cost-efficiency analysis would measure the cost per patient served under each intervention, with an eye toward selecting the least costly method for achieving the same desired outcome.

Cost-effectiveness analysis. This method is concerned with evaluating two or more options that have differential costs and differential outcomes. Consider a scenario in which we could provide either kidney dialysis or kidney transplantation. In this case, the interventions are different and the outcomes might also be different. One dialysis method might be significantly more costly, but it also might significantly increase the number of life years gained. The economic evaluation would compare the cost per life-year gained for each method.

Cost-benefit analysis. This method is concerned with evaluating two or more options in which the costs and impacts are measured in terms of dollars.

Cost benefit analysis may be used to compare two options across multiple impacts. For example, returning to our kidney dialysis vs. transplant example, it would be difficult to conduct a cost-effectiveness analysis if we were to include multiple outcomes (say, total medical costs avoided, lost work days avoided, and life-years gained) in our analysis. Under cost benefit analysis, we would assign dollar values to each of the outcome measures and combine the results, thus allowing a comparison of the two options based on a ratio of costs to dollar benefits.

Cost benefit analysis may be used to evaluate options with different impacts. For example, if a health system had to consider investing in a new hypertension clinic vs. a new prenatal care center, some of the outcomes of interest would differ between the two options (e.g. health costs avoided plus lost work days avoided for hypertension patients, and birth complications avoided for prenatal care). This would make it difficult to conduct a meaningful cost-minimization or cost-effectiveness analysis. By measuring the impacts of each option in terms of dollars (by assigning a dollar value lost work days avoided as well as to each low-weight birth avoided), it would be possible to compare the two options on a similar scale.

Cost utility analysis. In cases where it is impractical or unethical to value benefits in dollar terms, cost utility analysis may be used. In this case we measure and list the various “utility” indicators for each option, and make our comparison qualitatively. Examples of patient-level utility indicators might include patient-rated quality of life, life-years gained, ability to participate in activities, school attendance, work attendance. Examples of organization-level utility indicators might include uncompensated costs avoided, community resources leveraged, and community goodwill generated.

Payback analysis. The economic evaluation methods outlined above are concerned with comparing the total costs and total impacts of a health intervention.It is sometimes necessary to evaluate the costs and impacts as they affect individual sponsor or provider organizations. For example, if a health system contributes funding to a community prenatal care program, it might be interested in knowing how that program will affect the number and types of deliveries that occur at that health system in particular. This kind of economic evaluation is called “payback analysis.”

Economic Evaluation and “Return on Investment?”

As stated in the introduction to this paper, ROI in community health is best viewed not as a single analytical technique, but rather as a general term encompassing a range of economic evaluation methods. Consequently, the scope and substance of an ROI analysis should be determined by the decision makers.

There are five basic steps to setting up an ROI decision model for a community health program. The first step is to decide which activities, programs, or functions will be compared in the model. The second step is to determine exactly what costs and impacts are of interest in the decision model. The third step is to decide which economic evaluation methods are of most interest. The fourth step is to collect the data. The fifth step is to produce and interpret the economic evaluation indicators.

To illustrate, suppose we want to conduct an ROI analysis of a maternity services program for uninsured pregnant women. In Step 1, we choose the programs to be compared – in this case, the option of having no program compared to the organized program of care involving a community hospital, a community health center, and the local health department. In Step 2, we determine which costs and impacts of interest – in this case, early prenatal care rates, low weight birth rates, total health care costs through delivery, and total health care costs through newborn age 1. In Step 3, we select the economic evaluation methods of interest. In this case, we decide to conduct a cost-effectiveness analysis to evaluate the two options on each health indicator (early prenatal care rate, low weight birth rate) and a cost-benefit analysis to evaluate the options in terms of dollar impact. In addition, we decide to conduct a payback analysis to evaluate the options in terms of payback to each of the partner organizations. In Step 4, we collect data on women in the program and on a comparable group of women outside the program. In Step 5, we produce the economic evaluation indicators and make our decision.

False Assumptions, Methodological Hurdles, and the Practical Realities of Payback

ROI analysis in community health is often hindered by certain false assumptions, methodological hurdles, and the practical realities of payback.

One assumption that is often (though not always) false is that health care access programs save health care costs. This is rarely the case for the typical diversified uninsured population. By and large, expanded access is likely to result in additional costs unless we are focused on very high risk pregnant women or a chronically ill, high-utilizing population segment for whom expanded access to ambulatory care might have a significant impact on hospitalization rates. In these cases, it is important to remember that health care access can provide additional benefits in terms of quality of life, school attendance, and work attendance. This suggests that health care access programs should be evaluated in terms of cost-effectiveness and cost-utility in addition to cost-benefit analysis.

A second assumption that is often (though not always) false is that prevention programs save health care costs. Here again, the cost saving potential of a program depends in large part on the scope of the program and the size and health status of the population it serves. If a prevention program is large in scope, focused on very high risk individuals, and effectively implemented, it may indeed help people avoid disease or injury and save money. However, few community-based prevention programs meet these three criteria of scope, focus, and effectiveness. This is not to suggest that the programs are not worthwhile. It is to suggest that prevention programs should be carefully evaluated in terms of program design, and that economic evaluations should include impacts in addition to direct dollar costs and savings.

ROI analysis can also be hindered by methodological hurdles that make detailed analysis difficult or impossible. One hurdle is data availability -- it is sometimes not possible to collect a full range of data on program costs and impacts. A second hurdle is population size – many community health programs do not serve a number of people sufficient to support definitive statistical analysis of program costs and impacts. A third hurdle is “time to outcomes” – many programs (especially prevention programs) do not expect to reap benefits for years, making it difficult and expensive to conduct a definitive evaluation of the program.

In addition to false assumptions and methodological hurdles, a third area of concern about ROI in community health is the practical realities of payback. In many communities, there is real potential for community health improvement and health cost reduction at the community or system level. In some cases, however, the practical reality is that there is no positive economic payback to individual organizations in the community. For example, in the illustration offered earlier, it may be the case that a maternity services program including the community hospital, community health center, and local health department could improve birth outcomes and reduce total health care costs for certain high risk women. However, it might also be the case that the “payback” in terms of dollars saved would not accrue to any individual provider in an amount sufficient to motivate their involvement in the program. In other words, no single organization has sufficient economic incentive to start a program that (as a whole) could greatly benefit the community.

In these situations, three basic approaches might be considered, either individually or in combination. One option might be to expand the economic evaluation to encompass a cost-utility analysis in which some of the impacts include non-financial incentives for each community organization to become involved. For example, a community hospital might not have a direct economic incentive to support a maternity services program, but might choose to provide support in return for improved community relations. A second option might be to pursue external revenues (government grants, philanthropy, and enhanced reimbursement) to help defray costs and rationalize the payback ratio of the project.A third option might be to engage additional community partners to share the service load so that costs are spread across a greater number of contributors. Whatever the approach it is essential to deal directly with the practical realities of payback analysis when designing an ROI decision model for any community health improvement program.

Summary

In this paper we have examined the idea of “Return on Investment” or ROI for community health programs. We have proposed that ROI for community health should be viewed not as one particular analytical method, but as a general term encompassing a range of economic evaluation methods. ROI analyses should be designed with clear strategic guidance from decision makers, taking care to avoid certain false assumptions and methodological hurdles. ROI analysis should also directly address the practical realities of payback analysis – that is, the presence or lack of economic incentives for individual organizations to participate in a community health improvement project. Where clear economic payback does not exist, it is important to articulate additional, non-economic impacts that might persuade stakeholders to contribute to the program. Additional options include acquiring external resources or expanding the range of service partners willing to share the load of the program.

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Questions about this publication may be directed to Stephen Horan, PhD, Community Health Solutions, Inc., 804.673.0166, .