I have been informed that it is “standard practice” among population health management (PHM) vendors to report their results and ROI ratios in terms of only their clients’ gross savings compared to the vendors’ charges/fees. Since vendors will often have no control over whether the client incurs added costs during a PHM campaign — for incentives, in communicating with prospects about why they should participate, etc. — this is perhaps an understandable practice. But it is also at high risk of misinforming prospective and current clients, if added investments by clients are not considered at all.

If client-incurred expenses, i.e. those that are not charges by the PHM provider, were the same regardless of vendor, then the standard practice approach of reporting only gross savings and gross charges would be a perfectly sensible approach. It would not reflect total ROI results, but it would enable vendors to be compared on an equal basis. But if vendors differ, not only in charges, but in the numbers of targets, participants, and successes they will achieve, with or without incentives, then the costs incurred by clients can make a big difference to whether they should invest in PHM in the first place, and which provider they should choose in the second.

For example, some PHM providers may use a claims-based method for identifying prospects. This method, by itself, will tend to identify fewer eligible targets than will a comprehensive survey or screening program, since it would look for outlier levels of sickness care expense, usually limited to a small percent of the total population. With fewer eligible targets, participation would be smaller as a percent of the population, and probably results would be smaller as well.

When the PHM intervention method used by one provider requires a major time and effort investment by participants, such as relying on visits to a physician, or interacting with a nurse coach by phone, the numbers of targets who choose to participate may be lower than when the intervention involves e-mail communications and website visits totally under the control of the participant. Of course, the more convenient communications method may attract more participants, but not achieve as high a success rate. Moreover, when the PHM goal is determined by the provider, participation and success rates may be lower than when it is chosen by the participant, but the savings per success may be higher.

In a few cases, employer clients may impose a fee on members of their populations who do not participate, meaning they could actually generate cost savings or revenue from employees that are totally unconnected to the PHM campaign’s ability to achieve health and productivity/performance improvements. This can clearly be counted as part of the benefit that the client achieves, though not part of what the vendor delivers.

Whenever the proportions — of targets as a percent of the population, participants as a percent of targets, as well as “succeeders” as a percent of all participants – vary by PHM provider, this becomes a significant concern for clients. And when these differences cause clients to invest more of their own time and resources in a given PHM campaign, this will alter the industry-practice-based predictions of ROI. Even if the providers’ average rates of all such portions are reliable, they may not make any one a clear “winner”, when different amounts of incentives or client efforts would be required for different vendors’ programs.

Certainly, when the results that PHM providers achieve are based only on gross savings vs. provider fees, they could be accurate reflections of real saving achieved, as long as the gross savings clients achieve have taken into account their added costs due to effort, incentives, etc. It will certainly make no difference where these costs are applied, i.e. to calculating savings, or calculating costs, in terms of what the net economic benefit to the client is. But it will make a big difference to the ROI ratio clients determine they get.

If the clients’ own costs are not treated as part of their investment, along with the PHM fees they pay, but merely applied to reducing the net savings they calculate, this will automatically tend to inflate the ROI ratio, even with the same net savings or ROI amount. For a simple illustration, let us say that the client offers an incentive of $1000 for every participant who succeeds. Let us say that the PHM provider’s program yielded a gross benefit of $5000 per success in reduced healthcare and disability costs, together with productivity and performance improvement.

If the PHM providers fees amount to $2000 per participant, and the $1000 incentive were applied to reducing the gross benefit, from $5000 to $4000, then the ROI ratio would be $4000 divided by $2000 = $2.00 for every dollar invested. But if the $1000 incentive were applied to the client’s total investment, making it $2000 for PHM fees plus the $1000 incentive = $3000, then the ROI would be $5000 gross savings divided by $3000 total invested = only $1.67:1. The net economic benefit or ROI amount would be $2000 in both cases, but the higher ROI ratio could make one proposed investment look more attractive on the basis of the higher ratio alone, unless the same approach to predicting and calculating ROI were used by all.

It would be wrong not to look at PHM investments from the perspective of the client’s total investment and total return. The fact that some of the client’s investment comes from charges by the PHM vendor with whom the client contracts does not make only the vendor’s charges of concern and significance in predicting or calculating ROI. It may be time to change the usual practice of PHM vendors to better reflect the real benefit their clients get.