resources from my career
This is an example of how to calculate a return-on-investment using an economic benefit model.
Creating a Return on Investment model for a Disease Management is complicated because it falls on the concept of actually trying to measure utilization (namely hospitalizations and ER visits) that didn’t happen. Thus, an unconventional approach was called for. Due to my training in Economics and after a month or so of research, I found a risk management model and adapted it for my needs. I also contacted the original author of the model (Ian Duncan, FSA, FIA, FCIA, MAAA) in order to get some insight.
(A download is below of the ROI Model I created.)
Here is an excerpt from Mr. Duncan's paper.
The Risk Management Economic Model
Risk Management Economic Model, which we discuss next, was developed to help
program sponsors and vendors of programs understand the interaction between risk level,
program cost and potential savings. The model aims to achieve several practical goals. It
has been successfully used in a number of practical client situations to understand the
economics of DM programs, develop a common framework for use in discussions of
programs and their economics, understand contribution of different factors that influence
economic outcomes, as well as to plan the scope of a program. In addition, the Risk
Management Economic Model helps to facilitate discussion of the distribution of
Table 3 below shows an application of the Risk Management Economic Model. This
model applies the population risk ranking, in combination with various assumptions
about the expected event rate, cost per event, and program effectiveness (events avoided)
achieved by the DM program, at different penetration levels. The DM economic model
provides a systematic way of quantifying the potential for gross and net savings at
different points in the risk distribution.
This example includes both fixed and variable costs. Because of the fixed costs, ROI
initially rises, and then falls, as the marginal cost of additional interventions is greater
than the marginal savings achievable from those interventions. A graphical example of
the effect of penetration of a population by risk-rank on savings is shown in Figure 1.
The key to the accuracy of the model I created was using as much true information as possible and limiting assumptions.
Here is my version. (I like colorful!)
I will break down each column of the model.
I am more than pleased to discuss this model and methodology with you! Feel free to email me at email@example.com.