Funder: The Commonwealth Fund

Author: Allison Hamblin and Chad Shearer, Center for Health Care Strategies

April 2009 | Brief


Return on investment (ROI) analysis, which has been used in the private sector for decades to inform the allocation of limited resources, is a useful technique for supporting cost-effective policy decisions. Effective allocation of limited Medicaid resources is a policy imperative, and the use of ROI forecasting can ensure responsible stewardship of taxpayer dollars in all economic climates.

There are a number of specific policy decisions in Medicaid that are ripe for ROI analysis. This policy brief describes how Medicaid stakeholders can use return on investment analyses to support value-based purchasing decisions. It outlines a number of specific opportunities where Medicaid stakeholders can apply ROI forecasting, including:

  1. Assessing the relative value of various policy options to efficiently allocate limited resources;
  2. Supporting evidence-based policymaking through the identification of proven interventions and analysis of program data; and
  3. Informing financing reform by identifying opportunities to realign incentives to promote high quality, cost-effective service delivery.

The brief includes specific examples of how states are using ROI forecasts to support quality improvement efforts as well as resources for policymakers interested in using ROI forecasting, including CHCS’ web-based ROI Forecasting Calculator for Quality Initiatives. It also outlines specific examples of states that used the calculator to implement and support quality improvement efforts such as pay-for-performance initiatives and medical home and chronic disease management programs in Medicaid.

For hands-on information to guide Medicaid stakeholders in developing ROI forecasts, see User’s Guide to the ROI Forecasting Calculator: Estimating ROI for Medicaid Quality Improvement Programs, a how-to guide for using the web-based ROI Calculator to generate forecasts for quality improvement programs