HDG #012: How to calculate the ROI of SDOH programs
Read time: 8 minutes
Greetings, Gurus! This week we’re continuing to delve into the measurement of ambiguous programs by tackling a very intriguing puzzle: how do we calculate our Return on Investment (ROI) for addressing Social Determinants of Health (SDOH)?
SDOH, as we know, refers to conditions in the environments where people are born, live, learn, work, play, worship, and age. And we’ve heard many times over that up to 80% of a person’s health is dependent on these factors which are completely “outside” of the four walls of the healthcare system and have nothing to do with medical care at all.
A lot of organizations are starting to pay close attention and address these gaps in a major way, e.g. launching a Food Pharmacy or Food as Medicine program, providing non-emergency transportation services (some even partnering with Lyft and the like), providing housing vouchers, and more. No doubt this is super exciting and much needed as a crucial piece of the health equity puzzle.
However, quantifying the cost savings and broader community impact of these initiatives is complex and challenging. Last week, I wrote about how you can start to quantify health equity initiatives across multiple domains, and this week I want to dive deeper into how ROI can be calculated for programs specifically designed to address SDOH factors, like those I mentioned above.
Let’s dig in.
First, what is ROI when it comes to SDOH?
We tend to think about ROI in dollars and cents, which is certainly the most common way to think about it (especially if you are talking to a CFO). But these kinds of programs can also present proxy “ROI” in the form of improved patient outcomes or community health, reduced healthcare costs or patient burden, better preventative health and healthier communities, improved quality metrics scores, etc.
Ideally, these can still tie to dollars in some way because, at the end of the day, cost still rules these conversations—especially given the insane rise of healthcare costs year over year. It also costs money to launch these programs and with fierce internal competition for resources to fund different initiatives, the ones that can show some tangible result is where the money will go when resources are finite and other priorities abound.
But there are ways to tie some of the more abstract outcomes directly to dollars, it just takes a little finesse from a data guru such as yourself. For instance:
Improved patient health means reduced PMPM (read all about PMPM here)
Improved quality measure scores tie to star ratings, which can tie back to incentive or bonus payments, increased capitation payments, or provide leverage for better reimbursement rates
Better preventative care means more access/capacity for providers to work at the top of licensure and focus on the higher acuity services required by patients, lessens extraneous demand on ED/Urgent Cares for non-emergent care, and hopefully shorter wait times. This could increase satisfaction, demand, and ultimately market share.
So on and so forth
Note that these benefits must be measurable and specific to your organization's goals and patient population.
Now, how to calculate it.
Here's a step-by-step guide on how you can start to calculate the ROI for your SDOH initiatives:
Step 1: Identify your outcomes of interest: This is KEY because so many programs are launched before knowing what needle they’re even trying to move or how they’ll consider the program successful. I talked about this in a previous edition about measures, metrics, KPIs, and OKRs. For this purpose, the outcomes of interest could be anything from reduced PMPM, redirection from ER visits to preventative or specialty care, decreased readmission rates, improvement in certain quality measures, better patient satisfaction scores, etc. Choose what resonates most with your mission and strategic operational goals.
Step 2: Quantify the investment: This step involves calculating the total cost of your SDOH initiatives. Include all expenses related to the program like staff salaries, software, training, and program materials.
Step 3: Set up a model to calculate ROI impact: I like to do this before the program is launched because it also helps you run a few “what-if” scenarios up front. Key components of this will depend on what you’re doing, but this should at least include: the size of the population who could be impacted (not to be confused with the subset of that who will actually engage with or use whatever it is you’re launching—could be as few as half or less), and some translation of the outcome into dollars and/or units.
Example: based on the data analysis leading up to this, we suspect that for every person with asthma who we mail inhalers and then text when the air quality is very poor to remind them to use it, we might expect ED visits per 1000 for exacerbated asthma attacks to decrease by XYZ%. And each of those visits, on average, reimburse at $XYZ. This would reduce our PMPM by $XYZ for this condition.
Then you can run a best-case, mid-case, and worst-case to get a range.
Step 4: Track, Trend, and Monitor the Outcomes: Using the model you developed, monitor your outcomes of interest over a specified time frame. This might involve using patient data, survey results, and other sources of information to quantify the impact of your initiatives. Or, it may already be tracked because it was an existing metric of interest (like a Quality Measure), but you could also use your model designed in Step 3 to “track” estimated ROI over time vs. waiting until the program has been active for 3 years and then finally doing Step 5, below, retrospectively.
Step 5: Calculate the ROI: The traditional accounting formula for ROI is (Net Profit / Cost of Investment) * 100. In this case, the 'Net Profit' would be the measurable value of your improved outcomes. The challenge here is going to be assigning a monetary value to these outcomes and, more philosophically, convincing the powers who be that your quantification methods to justify your program were/are sound. Some frameworks, like the ROI Calculator for Partnerships to Address SDOH from The Commonwealth Fund, can provide guidance here. In fact, they have a wonderful ROI Calculation Guide with dozens of equations they use to calculate ROI in the way described here. Here’s an example—notice the “Notes/Significance” column, which says how and why this calculation can be used for ROI calculations.
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Remember, the inherent challenge in measuring the ROI for SDOH initiatives is that it often requires looking at long-term benefits across a number of domains, rather than immediate dollars, and there is often not a clear 1-to-1 relationship between the initiative and the needle you’re trying to move, so it does take some work. This requires patience, perseverance, and the courage to convince others to take a long-term view of success, but it will be worth it. These issues have to be understood, quantified, and addressed—we still have a long way to go, but thinking about ROI like this can hopefully get us a little closer.
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Actionable Idea of the Week—Calculator Tools and Resources!!
This week, put your learning into action! Select one SDOH initiative in your organization that has been going on for awhile, and think about how you could apply these steps to calculate its ROI. Remember, the figures may not be precise, but the aim here is to gain an overall sense of value and understand the trends.
Here’s a semi-silver bullet if you still don’t know where to start.
The Commonwealth Fund published this super helpful interactive calculator:
Return on Investment (ROI) Calculator for Partnerships to Address the Social Determinants of Health
While it is focused on High Need High Cost (HNHC) patients, it lays out a great framework AND has an actual interactive calculator where you can enter actual values (like many of those I mentioned above) and see the calculations in action. “The calculator can help you explore, structure and plan sustainable financial arrangements to support the delivery of social services to HNHC patients.” They also published an accompanying evidence review on the impacts of SDOH interventions.
Try it for yourself and let me know what you think.
And if you simply can’t get enough learning about program design and ROI, I highly highly recommend these two resources:
Why Nobody Believes the Numbers: Distinguishing Fact from Fiction in Population Health Management by Al Lewis, an industry leader in employee health education, vendor outcomes measurement, ER cost reduction, and “shameless self-promotion.” A mentor gifted this book to me very early in my career in Medical Economics. Per Barnes & Noble, the book “explains how to determine if the ROIs are real...and why they usually aren't. You'll learn how to:
Figure out whether you are "moving the needle" or just crediting a program with changes that would have happened anyway
Judge whether the ROIs your vendors report are plausible or even arithmetically possible
Synthesize all these insights into RFPs and contracts that truly hold vendors accountable for results”
The ROI Institute, while not focused exclusively on health and healthcare, has an international presence and specializes in workshops, books, tools, resources, and even certifications dedicated to the concept of evaluating ROI. The founders, Jack & Patti Philips, are considered leading experts in return on investment (ROI).
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Remember, the pursuit of health equity requires us to embrace complexity and continually push the boundaries of traditional measurement. Every bit of data we glean on this journey brings us one step closer to a more equitable future.
What other frameworks have you used? Hit reply and let me know.
See you next week!
-Stefany
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