Regardless of how particular HM providers charge and clients pay, the relative attractiveness of different providers and their programs can be easily compared in the same key terms, the net economic impact of the HM program(s) involved.  This can only be done, however, after the client knows or has a credible estimate of the percentages of its population who will be eligible/logical targets for each HM intervention program under consideration.  The key factor that makes all methods comparable is the “success rate” or net positive impact per participant for each HM provider.  Once this is known, comparative prices and ROI expectations can be calculated for all charge/payment types.

For example, if an employer has 1000 employees, and the HM provider charges a flat fee, such as $10,000, this amounts to $10 per employee.  If 25% or 250 employees are known or discovered to be obese and eligible for a weight management HM program, the effective charges amount to $10,000  divided by 250 eligibles = $40.00 per eligible.  If the predicted net positive economic impact, per HM participant, is $200 – it will take $10,000 divided by $200/participant = 50 participants to yield a breakeven level in terms of net impact.  Since 50/250 = 20% participation just to break even, and 40% will be needed to yield a $2:1 ROI, the use of incentives may well be likely, adding to the clients’ or HM providers’ costs, and complicating prediction of net impact.

For any number of employees and eligibles, the necessary participation rate needed for any particular flat fee or charge per population member can be calculated as follows:

•  Calculate the numbers of participants needed to pay for the HM costs, i.e. total costs divided by the average positive dollar impact per participant – e.g. $10,000 divided by $200 in the above illustration = 50 participants needed, then the percentage this represents or 50 divided by 1000 = 5% of the total population.
•  Calculate the percentage of participation needed by dividing the percentage of the total population by the percentage of eligibles found or predicted – 5% divided by 25% = 20% in the above illustration to yield the breakeven participation rate.
•  Once the breakeven participation rate is calculated, the participation rate needed to achieve any ROI level above $1:1 can be determined by multiplying the breakeven rate by the ROI ratio desired – e.g. 2:1 means doubling the breakeven rate to 40%; $3:1 would require 60%, etc.

This simplified calculation can be used for any population size, once the savings per participant is predicted or guaranteed by the HM provider.  (The guaranteed or risk/reward approach to pricing will be discussed in the fifth posting in this series.)  For example, if the population size were 50,000, more likely with an insurer, the fixed fee for the population $30,000, and the savings per participant were $100 (since only sickness cost reductions would be counted), the participation rate needed would be calculated as follows:

• $30,000 divided by $100 = 300 participants needed, which translates into 300 divided by 50,000 = 6% of the population needed
• If the percentage of members in this population eligible for this HM participation were 20%, then the percentage of participation needed to break even would be 6% divided by 20% = 30%.
•  Since this is only breakeven, a 2:1 ROI ratio could only be achieved through 60% participation, which would no doubt require incentives.
• If incentives amounted to even $50 per participant, this would change the calculations since the net impact per participant would fall to $100 minus $50 = $50
• $30,000 divided by $50 = 600 divided by 50,000 = 12% of the population.
• With 20% of the population eligible, a participation rate of 12% divided by 20% = 60% would be required to break even, and 120%, which is mathematically impossible, to achieve $2:1 ROI.

Flat/per member fees are the simplest payment approach, and make budgeting easier because costs to clients and revenue for providers can be predicted before purchase.  And fortunately, as the above examples illustrate, fixed fee/per population member charges can be translated into charges per eligible and participation needed to breakeven or better, just as charges per eligible (in the next posting on the subject) and per participant (the one after that).

Because flat fee/per population charges tend to be used by lower-priced, lower-cost HM interventions, the only reason for looking at other charging or payment methods is to obtain higher impact per participant impact, so that the total economic impact will be greater and ROI amounts greater.  The ROI ratio should never be the sole basis for choosing among different HM providers or programs.

As long as the ROI ratio is admirable, i.e. well above breakeven, it is the combination of the number of participants and the net impact per participant, after fees and incentive or other enrollment and overhead costs, that determines the best investment.  This should always be the net economic impact expressed as an amount, as long as the ROI ratio is good enough, not the highest available.

Whenever up front calculations indicate that high levels of eligible target participation rates would be needed to achieve desired ROI levels, chances are that incentives may be needed to achieve high levels.  When that is the case, the net ROI from HM interventions cannot be predicted based on charges alone, but will require at least estimates of incentive costs.  If the HRA has already been completed, the numbers of population members eligible for specific HM interventions will be known, but the number who will participate will not.  Since participation can only be predicted based on incentives, the participation rate prediction, as well as the costs per participant, will vary together, based on whatever decision is made regarding incentives.

Predicting reductions in health-related costs, regardless of type, also is based on per participant results, so , and new business revenue – requires the same information.

The fixed/per member fee approach may be preferred for initial HM trials, but one of the other options may make more sense to at least some prospects, and particularly to clients once they know more about their members, and about the effectiveness of the interventions.  On the other hand, this approach often comes with the lowest fees around, so may be preferred by even “veteran” clients.