The ROI for Addressing The Social Determinants of Health

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Ara Ohanian

As value-based care moves toward community-based patient engagement, more population health executives are requesting funds for technology to address social determinants of health. However, one thing their proposals often lack is a tangible return on investment (ROI) – something hospital CEOs and CFOs will require before allocating funds to the project.

This article demonstrates how to connect cost avoidance opportunities to leading medical conditions that drive readmission rates for high utilizers, and define and provide the ROI needed for funding a SDoH technology solution.

Define your ROI

ROI is a financial exercise to ascertain the financial return of a specific dollar investment. The ROI in your proposal should:

  • Use metrics with a direct cause and effect relationship. For example, when running a ROI calculation for investing in technology to address SDoH, use an ROI metric such as hospital readmissions, which can directly cut costs. We focused on 30-day readmissions, because this has major Medicare reimbursement implications and is a commonly used metric of hospital performance.
  • Be believable. Aim for a modest ROI that will be easily (and quickly) attainable – so the investment will partially or completely pay for itself.
  • Use multiple variables. That way, even if one variable fluctuates in the wrong direction, your ROI claim will remain intact. For example, to establish that addressing SDoH will reduce the rate of hospital readmissions and lead to cost avoidance, we linked our ROI to six medical conditions that drive readmissions.

Start with a clear hypothesis

For this article, we used the following:

By investing $300,000 per year for a software that addresses patients’ SDoH, we will reduce patient readmission rates by 25% and yield a cost avoidance of $274,000 per year.

Use our ROI calculator

We developed our ROI calculator to prove that by effectively addressing SDoH of vulnerable populations, we can reduce 30-day readmission rates driven by the six medical conditions: mental health, substance abuse, diabetes, chronic obstructive pulmonary disease (COPD), congestive heart failure, and asthma.

The logic behind our calculator

  • We began with an assessment of the total number of admissions per year.
  • From that number, we extrapolated the percentage of Medicaid and uninsured patients.
  • Then we divide the Medicaid readmissions into the six medical conditions and assess the average cost per stay for each.
  • Finally, we apply an estimated readmission avoidance number (26%) that we could attain by addressing SDoH.

Customizing the calculator to your hospital metrics

The first tab (Total Return) is your control center.

  • At the top of the page, you can input your hospital’s metrics: number of patients, number of admissions, percentage of payer type and by medical conditions, readmission reduction by condition, and loss ratio.
  • The National column will remain static, to provide you with a benchmark.
  • Once you’ve input your metrics, the lower portion of the tab will automatically update to show the cost avoidance opportunity by medical condition and will provide a summary of your ROI.
  • Adjusting the inputs at the top will result in a different ROI in the end.

The next four tabs provide detail by specific medical condition, including number of admissions per medical condition, percentage and number of readmissions, and the average cost per stay. They also present the potential cost avoidance from reduced readmissions.

Getting funding for your SDoH initiative

By illustrating the financial impact of a technology investment to address SDoH, you can show your CEO or CFO how that investment can lead to reductions in admissions from leading medical conditions, and ultimately to cost savings for the hospital.

To access our ROI calculator, click here you can also read the full paper published in the American Journal of Managed Care. 

If you are interested in learning more about our ROI model or about or software solution please fill out your information in the comments section below.

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