Founder of ACLP’s new Quality & Safety SIG, David Kroll, MD, director of quality and safety for the Psychiatry Department at Brigham and Women’s Hospital, leads new thinking on business issues in occasional articles for ACLP News.

Getting a Return on Your Investment

My last column was a cliffhanger! We were talking about how to calculate the cost of allocating staff to new service lines, and I came up with the idea that I wanted to start a new interdisciplinary consultation service for highly complex inpatients.

David Kroll, MD

I decided that each new consult on this service would require two hours of psychiatrist time, 1.5 hours of social worker time, and 15 minutes of administrative assistant time, and I expected to deliver this service to three new patients per week on average.

Based on the hourly cost of each participating staff member, I calculated the yearly staffing cost of this service to be $55,815 per year.

I know that this service is going to be really great because the patients who benefit typically use more hospital resources and often achieve worse health outcomes than average. However, I don’t control the purse strings in the hospital, nor in my department. That means I need to convince someone who does control purse strings to fund this project.

As you look for funding sources, you must keep this rule in mind: an outcome that is important only to you, is only important if you can fund it yourself.

Yes, you will be more motivated to succeed if you feel passionately about what your project can achieve, and internal motivation is a desirable thing. However, if you expect to ask someone else to pay for your project, you’ll need to figure out what’s in it for them.

I find that the most effective way to convince someone else that a particular outcome is important to them is to choose an outcome that actually is important to them.

Most people will not dispute that running the psychiatry service more efficiently and achieving better psychiatric outcomes for patients are worthy goals, but outside of the psychiatry department these are usually not top priorities.

Other good things that go along with delivering better psychiatric care may be more immediately relevant to the people who oversee hospital operations. Innovative consultation models often shorten inpatient length of stay (LOS), for example. If you can shorten LOS, or reduce readmissions, go with that.

When you pitch a new service or project, prospective funders are looking for an ROI, or return on investment. ROI is calculated as follows:

ROI = (expected benefits – costs)/costs

This is usually reported as a percentage, and anything over 0 is considered a positive ROI. If I decide to measure LOS reduction, and I project that my new service will reduce LOS by four hours per patient on average, and I learn that my hospital system delivers inpatient care at an average hourly cost of $200, I can say that my project can expect to result in savings of:

$200/inpatient hour * 4 hours per patient * 3 patients per week * 52 weeks per year = $124,800 per year.

Therefore, my ROI is:

($124,800-$55,815)/$55,815 = 124% in the first year

That’s actually pretty good. Whether it’s good enough to earn funding is up to your prospective funder, of course. Most institutions have something called a “hurdle rate,” which is the minimum ROI they will consider eligible for funding. You may also be competing with other teams for a specific funding stream.

It is not a rule that your outcome has to be a financial benchmark, even though this makes for an easier calculation. Maybe your project will, in fact, result in a measurable health benefit for some patients. If that’s the case, be prepared to prove that your project can deliver either a better health outcome at the same cost, or the same outcome at a lower cost, compared to the existing system.

Otherwise, why bother?