Want to prove DM saves money?
Here's how to work the numbers
You know disease management improves patient care, and improving patient care saves money. Unfortunately, chief financial officers (CFOs) measure success in dollars and cents. If you want to convince your managed care organization to invest in disease management, you have to speak a language your CFO understands, says John Byrnes, MD.
Byrnes, senior vice president of performance improvement and innovation at St. Francis Health System in Tulsa, OK, helped develop the Episodes of Care programs at Lovelace Health System in Albuquerque.
He hired a consultant to help him look at return on investment from disease management programs from a financial rather than clinical outlook. Using figures from the perinatal Episodes of Care program at Lovelace, here's how his financial consultant measured the return on investment:
· Lovelace Health invested $500,000 in the program's first year. Most of those funds were used to upgrade the hospital's neonatal care unit to reduce transfers of low-birth-weight babies from the system hospital to a university medical center.
· Case management of high-risk pregnancies resulted in $123,000 in savings due to reduced inpatient days in the first year and $277,000 in savings by year three.
· Upgrading the neonatal care unit resulted in $1.4 million in savings over three years due to reduced numbers of transfers to the university medical center.
· Hiring midwives to replace the physicians who left the system resulted in a savings of $350,000.
· Increasing outpatient services added $100,000 in costs.
· Hiring one full-time and one part-time case manager added $90,000 in case management costs.
After adding all the gains and subtracting the losses, Lovelace saved about $400,000 a year. By subtracting its initial investment of $500,000, that left a net gain of nearly $800,000 over a three-year period. Next, the financial consultant corrected by 8% for the net present value of cash flow, leaving an internal return on investment of 66%.
"The [consultant] told me most Wall Street investors would be satisfied with a 15% to 20% ROI [return on investment] on their stock portfolios," says Byrnes.
"In fact, all the disease management platforms at Lovelace have shown a positive return on investment, and I'm hopeful that we'll have the same experience at St. Francis."
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