Quality, positive ROI not mutually exclusive

Medicaid study

Quality, positive ROI not mutually exclusive&

Evidence-based interventions that improve quality are more likely to bring positive return on investment (ROI) if the programs avoid ER and inpatient utilization in high-risk, high-cost patient populations, according to the study “Searching for a Business Case for Quality in Medicaid Managed Care” that appeared in the October–December 2008 Health Care Management Review.

However, to accurately gauge ROI, companies and states must collect claims and financial information and develop tracking systems so financial leaders can measure ROI, the study’s researchers said.

The Center for Health Care Strategies (CHCS) partnered with University of North Carolina (UNC) at Chapel Hill researchers to conduct the three-year Business Case for Quality (BCQ) research of 10 Medicaid managed care entities that featured a wide range of locations, clinical conditions, financing environments, and intervention strategies. (See Figure 15 on p. 16.) The national BCQ initiative was supported by the Robert Wood Johnson Foundation and The Commonwealth Fund.

CHCS selected the 11 interventions (one of the entities conducted two interventions) based on their ability to design and implement an evidence-based quality-enhancing intervention, their focus on chronic illness that is prevalent in Medicaid, and their capability to collect data that could track detailed cost and resource utilization to enable business case analyses.

“Selected entities were broadly representative of the range of managed care environments and clinical needs of Medicaid populations across the United States,” the researchers wrote.

In the study, researchers explored a business case for quality in Medicaid managed care because organizations that receive full-risk capitated payments “have the financial incentives to implement quality improvements that are cost-effective.” Although Medicaid has not been part of previous case studies exploring a business case forimproving healthcare quality, CHCS believes that Medicaid managed care offers “significant opportunities for testing the business case for quality, based on the high prevalence of chronic illness among eligible populations and the powerful financial incentives provided by capitation arrangements.”

Many programs don’t focus on demonstrating a business case—although preventive and chronic care programs can reduce hospitalizations and deaths. By not evaluating downstream financial effects, administrators may be missing an opportunity to justify near-term investments in programs that could save money.

Medicaid, which is the country’s largest health insurer with 55 million beneficiaries and $330 billion in expenditures, is a good example. Given the size of Medicaid’s budget, policymakers have looked at the federal-state program as a place where quality could have a huge influence on patient outcomes and lowering costs.

“By themselves, or potentially in concert with state employee purchasers, Medicaid agencies can exercise considerable leverage in setting standards for the plans and providers with whom they contract. This is especially true under full-risk capitation, where the crux of the business transaction is to transfer the incentives to control unnecessary expenditures from the state to the health plan,” the researchers wrote.

The idea behind the BCQ initiative was to “test the idea that quality improvement can reduce healthcare spending over and above the required investment costs,” CHCS wrote in its brief Demonstrating the Business Case for Quality in Medicaid: Challenges and Opportunities.

Results of BCQ

Of the 11 interventions, only four had a positive ROI:

  • Complex case management program for adults with multiple comorbidities (12.21:1 ROI)
  • Case management for children with high-risk asthma (6.35:1 ROI)
  • Community-based outreach program for high-risk pregnant women (1.26:1 ROI)
  • Care management for adults with diabetes (1.16:1)

The sites with positive returns were more likely to fund case managers, nurse educators, and other clinicalstaff members. The key for programs that were successful was not how much they spent, but what the money funded. “It didn’t seem to matter what the disease was, but what you did to manage those patients,” says study coauthor Sandra B. Greene, DrPH, senior research fellow at the Sheps Center for Human Services Research and research associate professor of health policy and administration at the UNC School of Public Health.

Allison Hamblin, MSPH, senior program officer at CHCS in Hamilton, NJ, says two ways to attain positive ROI and affect healthcare quality are finding the right people to target and using the proper resources for those individuals.

Health plans have two options when using limited resources to improve quality and reduce costs: They can go broad and target a large group of patients for low-intensity interventions, such as with call centers or consumer education materials, or they can target a smaller number of individuals with greater needs and provide more intensive interventions. Hamblin says CHCS prefers the latter option.

“You can do less for more or more for less. Our takeaway from this project and other efforts is that if ROI is one of the goals on the table, you are better off targeting quality improvement resources toward those who need them most,” says Hamblin.

Reasons for success

After analyzing the results, BCQ researchers found that the following intervention characteristics may hold potential for demonstrating short-term financial returns:

  • Focus on risk-stratified target populations. Concentrating on high-risk populations doesn’t guarantee a positive ROI, but it is a first step toward a successful program. “Many payers and purchasers alike are focusing on the subset of their population that is driving a disproportionate share of total healthcare spending. It is for these populations that the business case may be a powerful lever for driving improvements in quality of care,” wrote CHCS.
  • Certain conditions have greater short-term ROI potential than others. Health plans must review their claims and financial data to determine which conditions are affecting patient health and the bottom line. BCQ allowed each site to focus on varied clinical conditions. The study found that high-risk childhood asthma and high-risk pregnancy are two conditions that could demonstrate the best short-term financial returns.
  • Focus on conditions associated with avoidable acute care utilization. BCQ researchers suggest health plans find which conditions account for a large amount of ER visits and hospital claims when determining a target population. CHCS provided two examples from BCQ:
  • Targeted care management interventions for children with high-risk asthma, which can reduce ER visits and hospitalizations
  • Outreach to high-risk pregnant woman, which can reduce neonatal intensive care or postpartum hospital admission rates among infants in their first year

“I really think it goes back to the ones who were successful were the ones who were more likely to be focused and deliberate on what their quality-enhancing initiative was,” says Greene.

There is no magic formula to produce a positive ROI and improve quality outcomes, Hamblin says. There are a range of effective interventions, from self-management education to better use of health information technology, that when combined with a larger program can lower costs and improve quality.

“The key is to have multifaceted interventions operating at different levels of the system in order to have this impact on quality and costs,” Hamblin says.

Health plans, payers, and patients are pursuing healthcare quality improvement, but finding proof of a business case for quality has been elusive, researchers wrote. “Generating a clearer picture of the business case for investments in quality, for the investing organization, and for the broader economic case for other healthcare entities could have significant policy implications,” they wrote. “The potential for the attainment of this broader goal of demonstrating ROI should fuel greater investments in improving quality in healthcare.”

Focus on acute care utilization

Many organizations don’t have financial information about programs because they don’t pull out the right data to gauge ROI, such as detailed claims information to analyze against per member per month data, Greene says.

Organizations need to compare detailed claims and financial information. “I think they’re both important to be able to pull out that kind of data, but some organizations particularly don’t work with their claims data on a routine basis, so it’s not a skill set they normally have in their organizations,” says Greene.

Organizations looking for a business case for quality must focus on conditions that lead to more acute care utilization, Hamblin says.

“Whether it’s asthma or something else, we find that if you are looking for an opportunity to demonstrate true cost savings, you are not going to get it through office visits and pharmacy alone, especially when you’re talking about chronic conditions,” she says. “You are going to get it from reductions in acute care costs.”

Neither private insurers nor public programs, such as Medicaid, perform this level of analysis. “It’s a good business practice to look at your data this way,” says Greene.

The study shows the importance of collecting financial and claims data to determine a business case, which can measure ROI and give program proponents evidence to display financial benefits, Greene says. “I think that helps to sell the programs, particularly to the funding organization and as legislative bodies look for ways to cut money rather than spend money,” she says.

Part of the reason ROI and quality are not usually linked is that there hasn’t been enough research on the topic. But Hamblin says that is changing.

“I think you’re seeing a growing number of studies that are reporting cost outcomes because people really recognize that something needs to be done to control costs,” she says. “Quality improvement is one promising mechanism to do that, especially in chronic disease.”

Another issue is that an 18- or 24-month study often isn’t long enough to determine the effects of interventions. “A longer time horizon is needed to capture the ROI for some of those activities, given the nature of our healthcare system and financing. Whether that longer time frame is meaningful from a policy standpoint is up for debate,” says Hamblin.


CHCS launched a second study, BCQ II, in April 2008 to “test the business case for quality for multiple stakeholders across the healthcare system. In doing so, BCQ II aims to identify financing arrangements that serve as potential disincentives for investments in quality, as well as strategies for correcting those misalignments,” according to CHCS.

The second initiative is designed to provide more robust and actionable results than BCQ through:

  • Focus on a single disease (e.g., high-risk childhood asthma)
  • Rigorous study design
  • Measurement of clinical quality
  • Business case analyses for multiple stakeholders

The three participants in the four-year BCQ II are Alameda Alliance for Health in Oakland, CA, Cincinnati Children’s Hospital Medical Center, and the Monroe Plan for Medical Care in Rochester, NY. Mathematica Policy Research and UNC are conducting the evaluation, with interim results expected in early 2010.

The initial study focused on the payer and investment part for ROI, whereas BCQ II will look to downstream players in the system to see what these programs mean to other stakeholders, such as community hospitals and providers. BCQ II will find the “winners or losers and identify disincentives in the payment systems that may prevent investing in quality initiatives,” says Hamblin.

“By evaluating the potential for care management interventions to improve quality and reduce costs, BCQ II may help determine whether investments in quality are financially sustainable across the healthcare system,” wrote CHCS in its brief. “And by measuring which stakeholders win and lose financially, BCQ II may pave the way for reforms that remove disincentives in the current payment systems to investing in quality.”




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