Common ROI mistakes in healthcare

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The Return of Return On Investment

Last week, Ryan Callahan and I talked about the right way to measure return on investment (ROI) and what good, better, and best looks like. Including our fun lil’ calculator! But Ryan had more bars to spit about this one, so we had to get ‘em back in the booth.

This week, we’ll talk about some of our opinions on ROI targets and common mistakes we’ve seen when calculating ROI after having one or two many RO-IPAs. This is not a joke, Ryan actually got these made for our last OOP Slack retreat.

But first…

CLAIMS DATA 101 ENROLLMENT ENDS THIS WEEK

Two courses end enrollment this week and start next week!!

Our Claims data 101 course will teach you and your data team how to use claims data properly. Yes there is a right and wrong way to do it, and if you don’t know the weird quirks of claims data you’ll make some easily avoidable mistakes. See the curriculum here.

We go through some real-life examples of how you might use claims data for everything from building risk scores to real-world evidence analyses. We do group discounts, just ping sales@outofpocket.health. 

We also have a free course on Automation in the Provider Back-Office with our friends at Assured. We’re going to talk about some of the places they’ve been deploying automation and walk through some of the different parts that happen in the back-office. You can sign up for it here.

Is there…a right ROI you need to hit?

Last week we talked about how you could do increasingly more sophisticated analyses to prove ROI, but not necessarily a different number coming out. It’s entirely possible that the end result of each one of these phases could all be “200% ROI”, just proven out in increasingly more costly and consulting-y ways.

So is there a magic ROI number, anyway?  Is it 200%?  Or 500%, or 1,000%? Situations will vary, but:

• 300% is just a pretty good benchmark to try to hit for relatively risky projects - to put it another way, if all the cost comes from you in a 300% ROI project, you’d be taking a one-third cut of the benefits of the project and taking anything above one-third just starts to feel high. Collections agencies, for example, don’t generally go higher than 30-40% contingency fees. That means 300% should be the minimum floor for ROI in situations where your customer perceives a significant amount of risk.
• Technically, customers should be willing to invest in lower-risk solutions that meet their internal hurdle rate. This is roughly speaking, how much return they feel they could get on their money without working too hard at it. That hurdle rate usually equates to something like 110% to 150% ROI.
• But in practice, there are costs to managing products and vendors and the motivation needed to start something new will probably be higher than the hurdle rate. Hinge Health published data calculating a 200-270% ROI for their programs in 2023 and it worked out pretty well for them! 

• You can go too high, too. A 50,000% ROI might sound great for marketing (and yet low for a stock trading course). However, it could also be that you’re just underpricing or customers don’t think you can actually back that up. Plus a super high ROI could lead some customers to wonder if they couldn’t just do a hacky version themselves if it’s really that golden of an opportunity.

Another aspect to think about is the timeline to prove ROI. A big part of this will be influenced by the current macroeconomic environment + and the micro financial situation your customer is in. In June 2025 for example, hospitals will expect you to demonstrate positive ROI within a fiscal year and employers are way less willing to accept “soft” ROI measures like wellness. Regulatory uncertainty means companies are less willing to take bets on 2+ year ROIs across the board.

There’s a few ways you can approach this. You can use a phased approach where you demonstrate ROI in one area within 12-18 months and then a larger ROI somewhere else. For example, if you help Medicare Advantage plans with supplemental benefits then you can try to demonstrate ROI in the form of getting new enrollees within the next enrollment period while later demonstrating a medical spend ROI or or Stars rating boost for bonus payment ROI in 2-3 years. 

Another way to approach this is to use milestone based payments that align your payment cycle to when ROI is being realized. If you’re demonstrating reduced emergency department usage, then you can share the savings once you prove that out. Just make sure you’re picking milestones that you can attribute to your company specifically and your company will actually survive that long. 

A third way is to give up. We’re all going to be out of jobs in like 4 years anyway when the AI gets good enough, who cares about any of this.

Eight ROI Traps to Avoid

Since most companies will need to make do with Basic and Better ROI through early stages of growth, what’s the best way to go about doing that? Here are eight ways that healthcare companies commonly trip up, and advice on what to do instead.

Assuming that clinical quality will naturally lead to ROI

• Weak example: Selling higher cost antiseptic-infused sutures to hospitals based on reducing the number of surgical site infections; however, these sutures are not separately reimbursable
• How to fix: Find ways to translate clinical quality into financial impact
• Stronger example: Translate reduction in surgical site infections into increased hospital profit by reducing the how long a patient takes up a bed in the hospital and avoiding readmissions that get penalized/reimbursed less (like this!).

Calling something ROI that’s not in fact ROI

• Weak example: Time savings in automated patient registration improves the experience for staff and lower likelihood of a patient crashout, but there’s no savings or increase in patient volume associated
• How to fix: Don’t hesitate to mention other benefits or sources of value, but pair it with a hard financial ROI
• Stronger example: Automating patient registration will enable a 20% reduction in registration staff and avoid 1-2 no-shows per day who leave the line and don’t come back. Here’s an example from Surgimate that walks through how reducing admin time/coordination increases the number of surgeries and reduces the number employees needed. 

Making ROI cookie-cutter

• Weak example: Rolling out a program for musculoskeletal health across an enterprise without taking patient age into consideration in ROI
• Instead: Be sure to critically assess the implementation path and customize ROI according to the likely impact in different subgroups
• Stronger example: Prioritize facilities with older patient populations who will benefit more in the short term from MSK programs and drive ROI faster

Implementation -> ??? -> ROI

• Weak example: A group purchasing organization claims that the main success metric will be improved hospital gross margin. But hospital gross margin is potentially influenced by many other factors.
• How to fix: Feel free to mention this as something you’ll contribute to, but make the main success metric something you own. Control your destiny!!!
• Stronger example: Determine a baseline for cost of goods sold for certain targeted categories that you’ll own completely; for example, aiming to reduce the spend on blood products down from $250 per unit to less than $200 (please don’t ask how!) that will contribute to gross margin improvements

Making ROI your customer’s problem

• Weak example: An AI solution handles the administrative work for registries and quality audits that take up about 5% of the nursing leadership’s time; this will not enable the reduction of salaried nursing leaders, just reallocating their time to “higher value tasks”...but figuring out what that means is the “customer’s problem”.
• How to fix: The customer problem is gonna be YOUR problem when the contract needs to be renewed. Be clear in advance about how the “higher value tasks” will be tracked and ensure that the commitment is in place to free the nursing leaders up to do those tasks. 
• Stronger example: Have a change management plan that includes specific tasks that the nursing leadership will perform (perhaps even unrelated to your solution!) and how the budget will change as a result (e.g., reallocate the 5% of time to implementing efficiency initiatives in staffing schedules)

Only telling one side of the story (include the fees!)

• Weak example: A patient collections solution demonstrates that they can bring in incremental dollars by engaging patients more effectively in billing, pointing to an ROI of “$10,000 in additional payments each week” without mentioning their fees; the customer anchors on the “$10,000” which, after fees, turns out to be–disappointingly–only “$8,000”
• How to fix: Build in both sides of the ROI calculation from the start
• Stronger example: Lead with a more complete framing, like “for every one dollar you give us, we’ll get you four,” or simply, “you’ll have $8,000 more in your bank account each week net of our fees than you would without us” 

Irrational exuberance about ROI

• Weak example: A scheduling software claims patient volumes will increase 20% based on the idea that the customer has 20% of dropped calls currently, and they’ll fix that
• How to fix: Be very careful about assuming 100% reductions in anything, and have case studies of what conversion rates are realistic
• Stronger example: Show existing customer data (anonymized) with candid discussion of why some are at 5% dropped call rates and some are at 1%

Kicking the can down the road on ROI

• Weak example: A diabetes management solution believes that the impact of their solution will only become clear in year 5 or later
• How to fix: Define interim measures that will show value on shorter time horizons
• Stronger example: Determine examples of near-term savings that show some return, even if it’s not positive or comprehensive, to provide short-term motivation; for example, avoiding ED visits due to diabetes-related hyperglycemia or hypoglycemia

Conclusion + parting thoughts

There’s a few things that will come up constantly as you build a healthcare company. 

• Figuring out if a feature is compliant while paying the least amount of money to answer that question
• Deciding whether you should “become the front door to healthcare” alongside all 6000 other front doors
• Understanding how to prove ROI to your customers as your company evolves

Knowing what bar you need to clear for healthcare ROI is not at all straightforward, and many companies need a lot of at-bats to find something durable that’s authentic to their company’s story and also matches up well with the messy health system. 

You don’t have to do everything all at once on day 1, but establishing a culture of Basic, Better, and Best ROI will pay off as you make more decisions that orient toward where your customers find value. Your employees should understand the levers of ROI that your business and customers care about to understand internal prioritization.

Below we have a ballpark breakdown of what kind of evidence you should be building by stage of company.

Pssst…on our How to Contract with Payors and How to Sell to Health Systems courses, we teach you how to find the right champion based on what your ROI story is. Many people that have taken the course have realized that how they frame their product in terms of ROI is bad, and they’ve been targeting the wrong customers all along.

Thinkboiz out,

Nikhil aka. “LeeROI Jenkins.” and Ryan aka. “ROIan”

Twitter: ​@nikillinit​

IG: ​@outofpockethealth​

Other posts: ​outofpocket.health/posts​

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