If you work in business, the letters R, O, and I mean something when they are squeezed together.
Specifically, ROI stands for “return on investment” or how much you get in return if you invest X amount up front. Some call it ROR or Rate of Return. It is the money gained or lost in comparison to what is initially invested.
It is a very well accepted industry norm to determine if something is a worthwhile investment. Was this marketing campaign worth the money? Crunch the numbers and see what you get back in return for your investment in the campaign.
Perhaps you’ve also heard the phrase “an ounce of prevention is worth a pound of cure” which is a quote from Mr. Ben Franklin. As smart a fella as he was, I don’t think he had the foresight to know just how well it applies to our healthcare system today.
As for my note about kelvins in the title…it is a measurement of heat and has nothing to do with this blog other than the fact that I think it’s cool to name a measurement of something after yourself. In fact, I’d pay 100 “Daves” (my name) to be able to create a form of measurement using my name. We can discuss the value of “Daves” later…
So why are we talking about ROI and Ben Franklin?
The healthcare industry is a business. It employs people, it generates profit, it typically responds to market pressures and economic principles. (I say typically because some would argue that healthcare is not consumed the same way as other goods and services in this market so some of the typical market forces may not apply. Humor me on this one). As such, a term like ROI would appear to be pertinent to the healthcare field.
Back to Ben Franklin…
Why did he say this? If he didn’t have Nostradamus-like insight into our future healthcare system, what do you suppose he meant?
Maybe he was referring to another term that we use in business – proactive – meaning to act before something is an issue. The opposite is reactive. As in reacting to the costs of an overweight diabetic in your company rather than encouraging healthy behavior to prevent the medical conditions.
If it makes sense to be proactive instead of reactive, why are we so fixated with measuring the ROI of prevention and wellness? Why are we focusing on the “pound of cure” instead of the invested “ounce of prevention”?
And more importantly, why aren’t we thinking more about being proactive and not reactive? If the investment can save you money in the long-term, it’s a worth-while investment, right?
From a business and financial standpoint, there aren’t free dollars in a company that you can just “invest” – you need to make a case for the dollars to be invested as well as measure the outcome of the investment. So I suppose that’s why we are so fixated with measuring ROI.
The problem is that wellness ROI isn’t always apparent in year 1. It takes time. In fact, communicating the need for wellness and the benefits of wellness programs to a company’s employees is many times the best first step. That alone could take a year and gobble up the year 1 budget for wellness.
Unlike a marketing campaign in business where you can measure a sale generated by that marketing campaign, the ounce of prevention invested in a wellness program may not yield any sort of real “return” in a one year period.
But what about another way to determine if a wellness program is worth the investment? An up-front way to determine if a long-term wellness program will be worth the investment?
Before I dive into this, let me set the stage for a moment through a simple example.
There’s a function of business that is necessary, costs a whole lot of money, and generates nothing in the way of profit (at least not the typical way profit is measured). Yet companies spend a ton on it each and every year.
In short, it is a cost center, not a profit center. It is information technology – aka “IT”.
To put together a solid IT infrastructure that is safe, secure, reliable, scalable and efficient, companies spend…a lot. They don’t look back and say, “OK we spent $250,000 on new servers earlier this year…how much did this investment make for us at the end of the quarter? What’s our ROI on this?
They don’t measure it like this because they know that IT investment is necessary to assure that the company will run efficiently and effectively. It is the backbone of the organization.
This isn’t to say that companies spend blindly on IT. Instead of using ROI on the back end, they have ways of measuring in advance if an IT investment may be a good investment at a particular point in time: time value of money to appraise long-term projects.
If you attended business school, you may know what this is. For thsoe who don’t, below are a few components of it:
(Definitions/links courtesy of Wikipedia.com)
These measures are a way for those holding the budget purse strings to determine which potential investments may yield the most bang for the buck over the long-term.
As stated in the above links, time value of money is the value of money figuring in a given amount of interest earned over a given amount of time, DCF is a standard method for appraising time value of money and measuring long-term projects, and NPV is a standard method for measuring time value of money to appraise long-term projects.
Do you see some themes here? Time…long-term projects…value.
Maybe it’s time we took an IT-like look at prevention and wellness measurement. Maybe it’s time to look at prevention and wellness as the backbone of an organization’s most valuable assets – its people.
Now if you’ll excuse me, I’ve got to see the vending machine guy. I put 5 Daves in the vending machine, pressed the button and nothing came out! (Maybe this is an indication as to the value of Daves??)
(Author’s note: I typically use the term “healthcare” to mean anything related to healthcare including but not limited to providers, payors, employers and employee benefits. Specific to this blog post, however, I’m speaking in terms of employee healthcare and what carriers and employers and wellness companies invest in prevention and wellness programs).