“The Business Case for Diabetes Education”. American Association of Diabetes Educators. Donald Fetterolf, MD, MBA, FACP Executive Vice President, Health Intelligence Matria Healthcare, Inc. Outline. Overview Introduction Basic business principles Presenting your ideas
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Donald Fetterolf, MD, MBA, FACP
Executive Vice President, Health Intelligence
Matria Healthcare, Inc.
The CEO/CMO of your company has made friends with the Vice President of marketing of a national company that claims that it can provide diabetes education effectively using a cool web based tool his company has designed. The two have gone golfing, have had dinner together, and have had several “high-level” discussions about having the vendor replace your program staff with the vendor's web site. Two of your organization’s senior vice presidents, in totally unrelated areas and who have no knowledge of clinical issues, think the proposal might be a viable option. The vendor claims that he can give your company an “8 to1 return on investment,” and will ”guarantee” it.
You are now approached by the CEO/CMO, who admits that he might dissolve your area, but offers to give you 20 minutes to talk him out of it. He is interested in the value/return that you get now.
What do you tell him? Your answer should address both an analytic approach and recognition of the various political factors that may influence your choices.
Paraphrased and restated from Fetterolf, AJMQ Jan/Feb 2003.
What they Say
What they Do
“Maximize profit, minimize loss.”
Typical Forms of Financial Information
Source: Academy for Healthcare Management. Health Plan Finance and Risk Management. 1999.
Form of a Regular Income Statement
Revenues $ 100
Variable Expenses $ 60
Fixed Expenses $ 20
Profit (Loss) $ 20
Important: Are you a profit center or a cost center? How are costs assigned to you?
Patient Revenues $ 1,575,000
Consulting Income 85,000
Investment Income 2,000
Total Revenues $ 1,662,000
Salary of Partners 853,347
Staff Wages 235,645
Laboratory Fees 32,583
Administrative Expenses 75,495
Interest Expense 3,453
Total Expenses $ 1,223,976
Net Income $ 438,024
Revenue means a bigger organization and more visibility for your boss.
Form of a Contribution Income Statement
Members Affected 50,000
Variable Revenues $ 7 $350,000
Variable Expenses/Unit$ -5 $250,000
Contribution Margin $ 2 $100,000
Fixed Expenses $46,000
Profit (Loss) $54,000
*PMPY = Per member per year.
Note also the relationship with a “breakeven analysis” – you need at least 23,000 members. Why?
Example of activity-based cost accounting.
Product A B C Total
Revenue $50 $50 $20 $120
Expense $30 $ 5 $ 5 $ 40
Fixed Expense $15 $30 $ 5 $ 50
Profit (Loss) $ 5 $15 $10 $ 30
Presentation Advice From the Experts a few paragraphs, include:
Fetterolf, D.. "Commentary: Presenting the Value of Medical Quality to Nonclinical Senior Management and Boards of Directors.." American Journal of Medical Quality. (18)1. Jan/Feb 2003. pp. 10-14.
Operational a few paragraphs, include:
Intangible and Social
Productivity and workforce impacts
AnecdotalDeveloping the Value Proposition
Create a multidimensional approach to economic return.
Immediate Outcomes systematic way
Long Term Outcomes
Improved Health Status
DSME Outcomes MeasuresHealth Care Outcomes Continuum
Diabetes - COHORT - Risk Profile -- Edington model systematic way
Taking the number of individuals in each risk group, and multiplying times the PMPM for that group, costs are lower when compared to what might have happened if the group had stayed at the original risk level and incurred costs at that risk level in the new period.
P = Probability of Outcome
$$$ Profitability/Impact of the Initiative
--Academy for Healthcare Management. Health Plan Finance and Risk Management. Atlanta, GA. Academy for Healthcare Management. 1999.
--Baker, Judith. Activity-Based Costing and Activity-Based Management for Health Care. Aspen Publishers. 1998.
--Berwick, D. Curing Health Care. New Strategies for Quality Improvement. San Francisco. Jossey-Bass. 1990.
--Blissenbach, H. "Use of Cost-Consequence Models in Managed Care." Pharmacotherapy. (15)5. 1995. pp. 59s-61s.
--Brigham, E. and Gapenski, L. Financial Management. Theory and Practice. 6th Ed. Chicago. The Dreyden Press. 1991.
--Carey, R. and Lloyd, R. Measuring Quality Improvement in Healthcare. New York. Quality Resources. 1995.
--Centers for Medicare and Medicaid Services. Health Care Industry Market Update. Managed Care. Washington, DC. Centers for Medicare and Medicaid Services. March 24, 2003.
--Clancy, C. and Kamerow, D. "Evidence-Based Medicine Meets Cost-effectiveness Analysis." JAMA. (276)4. July 24/31, 1996. pp. 329-330.
--Corrigan, J.; Greiner, A.; and Erickson, S. "Fostering Rapid Advances in Health Care: Learning from System Demonstrations." 2002.
--Coddington, D. Making Integrated Health Care Work. Center for Research in Ambulatory Health Care Administration. Englewood, CO. 1996.
--Couch, JB. Health Care Quality Management for the 21st Century. Tampa, FL. Hillsboro Printing Co for the American College of Physician Executives. 1991.
--Crosby, P. Quality is Free. New York. New American Library. 1979.
--Crosby, P. Quality Without Tears. New York. McGraw Hill Book Company. 1984.
--Donabedian, A. Explorations in Quality Assessment and Monitoring. Volume II. The Criteria and Standards of Quality. Health Administration Press. Ann Arbor. 1982.
--Dornbursch, R. and Fischer, S. Macroeconomics, Fifth Ed. New York. McGraw Hill. 1990.
--Drummond, M. and McGuire, A. Economic Evaluation in Health Care. Merging Theory with Practice. Oxford University Press. 2001.
--Drummond, M., O'Brien, B., Stoddart, G. and Torrance, G. Methods for the Evaluation of Health Care Programmes, 2nd Ed.. New York. Oxford Medical Publications. 1998.
--Eisenberg, J "Clinical Economics. A Guide to the Economic Analysis of Clinical Practices." JAMA. (262)20. November 24, 1989.. pp. 2879-2886.
--Fetterolf, D. "Commentary: Presenting the Value of Medical Quality to Nonclinical Senior Management and Boards of Directors." American Journal of Medical Quality. (18)1. Jan/Feb 2003. pp. 10-14.
--Fetterolf, D. Costs from a Third Party Payer Perspective, Chapter 20 in Quality and Cost in Neurological Surgery. Philadelphia. Lippincott, Williams and Wilkins. 2001.
--Fetterolf, D. and West, R. “The Business Case for Quality: Combining Medical Literature Research with Health Plan Data to Establish Value for Non-Clinical Managers.” American Journal of Medical Quality. (19)2. March/April 2004. pp. 48-55.
--Gafni, A. "Willingness to Pay in the Context of an Economic Evaluation of Healthcare Programs: Theory and Practice." Am. J. Man. Care. (3(suppl))S21-S32. 1997.
--Galvin, R. "The Business Case for Quality. Developing a business case for quality will require a deliberate approach, with all economic parties at the table.." Health Affairs.Nov/Dec 2001. pp. 57-58.
--Gladowski,P., Fetterolf, D, Beals, S., Holleran, MK, and Reich, S. “Analysis of a Large Cohort of HMO Patients with Congestive Heart Failure.” American Journal of Medical Quality. (18)2 April 2003.
--Gold, M. et. al. Cost Effectiveness in Health and Medicine. (Report of the U.S. Public Health Service Panel on Cost Effectiveness in Health and Medicine.). Oxford University Press. 1996.
--Haddix, A., Teutsch, S., Shaffer, P. et al. Prevention Effectiveness: A Guide to Decision Analysis and Economic Evaluation. New York/Oxford. Oxford University Press. 1996.
--Hubbell, W. "Combining Economic Value Added and Activity Based Management." Journal of Cost Management. Spring 1996. pp. 18-29.
--Jacobs, P. The Economics of Health and Medical Care. Gaithersburg, MD. Aspen. 1996.
--Kaplan, R. and Cooper, R. Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Harvard Business School Press. 1998.
--Kohn, L., Corrigan, J., and Donaldson, M.. To Err Is Human - Building a Safer Health System. Washington, DC. National Academy Press. 1999. pp. 1-13.
--Langley, P. "Is Cost Effectiveness Modeling Useful?." The American Journal of Managed Care. (6)2. February 2000. pp. 250-1.
--Litvak, E., Long, M., and Schwartz, S. "Cost-Effectiveness Analysis Under Managed Care: Not Yet Ready for Prime Time?" The American Journal of Managed Care. (6)2. February 2000. pp. 254-6.
--Luehrman, T. "What’s It Worth? A General Manager’s Guide to Valuation." Harvard
Business Review. May-June 1997. pp. 132-142.
--Mansfield, E.. Economics, 6th Ed. New York. WW Norton. 1989.
--McCulloch, David "Managing Diabetes for Improved Health and Economic
Outcomes." American Journal of Managed Care. (6)21, sup.. November 2000. pp. S1089.
--McLaughlin, C. and Kaluzny, A. "Continuous Quality Improvement in Healthcare." 1999.
--Millenson, M. America's Health Care Challenge: Rising Costs. A report commissioned by the American Association of Health Plans. Washington, DC. AAHP. 1/22/2002.
--Montgomery, D. Introduction to Statistical Quality Control, Third Ed. John Wiley and Sons, New York. 1997.
--National Academy of Sciences "Priority Areas for National Action: Transforming Health Care Quality 2003." 2003.
--National Committee for Quality Assurance. HEDIS 3.0. National Committee for Quality Assurance. January 1997.
--NCQA. The Business Case for Health Care Quality. 2002.
--Phelps, C. Health Economics. New York. Addison Wesley. 1997.
--Plocher, D. and Brody, R. "Chapter 31, Disease Management and Return on Investment. In Best Practices in Medical Management." 1998. pp. 397-406.Santerre, R. and Neun, S. Health Economics: Theories, Insights, and Industry Studies. Chicago. Irwin. 1996.
-- Santerre, R. and Neun, S. Health Economics: Theories, Insights, and Industry Studies. Irwin. Chicago. 1996.
--Scherer, F. M., and Ross, D. "Industrial Market Structure and Economic Performance. Third Edition." Dallas. Houghton Mifflin. 1990.
--Stephens, K. et al. "What is Economic Value Added? A practitioner's view. (corporate performance measure)." Business Credit. (99)4. pp. 39(4).
--Taylor, T. "Economics (Part I and Part II) Audio Tape Course". 1996.
--Torrance, G. "Preferences for Health Outcomes and Cost-Utility Analysis." The American Journal of Managed Care. (3(Suppl)). 1997. pp. S8-S20.
--Walton, M. The Deming Management Method. New York, NY. Perigee Books. 1986.
--Weinstein, M., Siegel, J., et al. "Recommendations of the Panel on Cost-Effectiveness in Health and Medicine." JAMA. (276)15. October 16, 1996. pp. 1253-1258.Wessels, WJ. Economics. Second Edition 1993.
--Wessels, WJ. Economics. Barron’s Business Review Series. New York. 1993.