The ROI of Patient Engagement: Readmissions Reduction

How do you measure the impact of patient engagement? Specifically, when a health system offers mobile patient engagement tools to its patient community, how do measure the return on the investment of launching and maintaining the app? This post will examine the impact a patient engagement program can have on a readmissions reduction program.

The CMS Readmissions Reduction Program was legislated in Section 3025 of the Affordable Care Act. The program officially started on October 1st of 2012 -- two months after the final program details were published. In total, 2,217 hospitals will receive penalties that range from .01% to 1% of their Medicare revenue generated during FY13 - spanning October 2012 to September 2013. 


Penalty Example

The readmissions penalty formula is complex. We've found that it is easier to understand the essence of the formula through a sample scenario:

Sample General Hospital

  • Beds: 500
  • Annual total admissions: 30,000 
  • Annual Medicare admissions: 10,000
  • AMI, Heart Failure, and Pneumonia Medicare admissions: 1,000
  • [Actual] AMI, Heart Failure, and Pneumonia Medicare 30-day readmissions: 230 
  • [Expected] AMI, Heart Failure, and Pneumonia Medicare expected 30-day readmissions: 200
  • Payment rate per admission: $10,000
  • Cost related to excess readmissions: $300,000 
  • Penalty multiplier (1 / national readmission rate): 5 
  • Readmissions penalty: $1,500,000


Real Money

2,217 hospitals have been assessed roughly $280 million this year. Keep in mind that there will be even more teeth to this program in FY14 and FY15 as the diagnosis related groups expand beyond AMI, CHF, and Pneumonia and the maximum penalties eventually reach 3% of Medicare revenue. So how can mobile health help?


The Value of Mobile Health on Readmissions Reduction

The first thing we need to realize is that whatever we put in place now will hit during the FY16-FY18 penalty periods, at which time the number of diagnoses will likely also include COPD, cardiac bypass surgery, cardiac stenting, and most vascular procedures.

Using our sample hospital, we should assume that more than 2,000 annual admissions will be subject to the penalty. When considering mobile, we must first determine how many users will have a mobile device and how that might grow through 2015. In this case, the recent adoption rates might provide some insight into what the next three years might look like. 

Percentage of USA adults who own a tablet or eReader: 

2009: 2%

2012: 29%

source: Pew Research Center, January 2012

Mobile traffic as a percentage of global internet traffic:

2009: 1%

2012: 13%

source: StatCounter Global Stats November 2012

But we're talking about the Medicare population. How many people >65 years old have smartphones? The answer is surprising. 1 out of 6 of seniors in the lowest income category have smartphones. The figure is close to 4 out of 10 for seniors making more than $100K per year. Further, 43% of seniors with smartphones got them within the last three months. And the next age group down (55 to 64 year olds) are adopting smartphones faster than any other age group. Keep in mind that this doesn't include seniors whose adult children and caregivers have smartphones. Well over 50% of young adults now have smartphones. 

Reducing Readmissions within the Smartphone Population

To use round numbers, let's assume that 25% of our 2,000 target Medicare admissions have smartphones. We want to improve the readmission rate for this group from 22% to 17%. That means that we want to reduce readmissions for the smartphone population from 110 to 85. To that end, the smartphone will help with patient education, medication planning, and post-discharge appointment organization.

Educating Patients throughout the Stay

National statistics suggest that at discharge only 42% of patients are able to state their diagnosis and only 37% are able to state the purpose of their medications. In order to take control of their health and well-being, patients must have a baseline of health literacy. A visit to the hospital is an ideal time to begin the process by asking core questions such as these: Why have you been admitted? What is happening to your body? How can you recognize future symptoms? What should you do when complications arise?

The answers to those questions should literally be in the patient's pocket:


A mobile app that has an onboard medical library can be a key teaching tool for the providers and a reference resource for the patients.


This content can be the basis of a discussion on heart failure - its causes, symptoms, and risk factors - between the care providers and the patient. After the providers leave, the patient has access to all the clinical content - right in their pocket. The most effective apps take this engagement a step further and provide patients with a means of managing their recovery and ongoing wellness. Here are trackers for cholesterol and glucose monitoring that are within the app:


Confirming the Medication Plan

Unlike scrawled prescription details on a discharge form, tablet and mobile displays can include actual photos of pills, along with doses, instructions on how and when to take the pills, and other information. Providing this in an easy to use graphical format makes certain those with different language or literacy levels can follow along.

When it comes to medicine reconciliation, a patient is not always the most reliable source of information. A phone, however, never forgets. A mobile app is a natural home for medication information. Use the opportunity to help a patient put their medicine information into their phones and set reminders for usage. Here is how it works in Axial's mobile app:


Organizing Follow-up Appointments

Patients who lack an outpatient appointment at the time of discharge represent 50% of readmitted cases nationwide. Relying on patients to make this initial appointment when they return home increases the risk that the appointment setting will not happen.

A simple way to help them take this step -- that doesn't require complicated calendar integration software -- is to simply give them easy access to their physicians' contact info. A typical scenario might include a PCP and a specialist. With a click-to-call directory of everyone in the health system, their mobile phone becomes a resource for setting appointments -- and adding the providers' numbers to their contacts with one touch. Here's an example from our app:



Estimating the Financial Return

By educating the patient throughout the stay, confirming the medication plan, and organizing post-discharge services, we've been able to keep 25 people healthy and out of the hospital. How much value did we create? It depends on how the rest of patients did. To illustrate, we'll assume the base case 22% readmission rate.

The hospital realizes the full value of all 15 avoided readmissions from the smartphone population.

Base case

2,000 patients * 22% = 440 (vs. 400 expected readmissions)

Smartphone Intervention

1,500 non-smartphone users * 22% = 330  + 500 smartphone users * 17% = 85

330 + 85 = 415 (vs. 400 expected readmissions)

Value created: $1,250,000 or [25 * $10,000 *5]


The ROI Calculation

Now that we've determined the "R" in in ROI calculation. It is time to determine the "I" or cost of the investment. ROI is calculated by subtracting the cost of the investment from the gain from the investment and dividing by the cost of the investment. Note that a more complex ROI model might forecast all future returns and costs and discount them back to present value based on cost and risk. This post uses the first year ROI as a proxy for future years.

ROI = (Gain from investment - Cost of investment) / Cost of Investment.

What is the cost of launching and managing a smartphone app? That depends on how you build and manage it.


Here are two scenarios:

1. You build and manage the app via your in-house technology team.

1/4 marketing person

1 iOS developer

1 Android developer

1 HTML5/CSS/Javascript developer

1/2 designer

1/4 QA engineer

While salaries vary depending on where you live, a range for the annual fully-loaded cost (including benefits, etc.) for this scenario might be $300,000 to $600,000. Note that some teams could easily be 2-3X this large depending on the scope of the app. This also assumes that existing "back-end" technical resources can be used for maintaining the app. This is the permanent team that will manage the app on an ongoing basis. With this scenario, we can estimate our ROI.


2. You use an outside firm that specializes in mobile health apps.

Design and development fee + ongoing updates and enhancements. 

Depending on which firm you use, the cost and quality can range widely. If we include the one-time design and set up fees and add them to the ongoing enhancement fees, we'd get a annual average fee of around $150,000 with the first year being higher and the out years lower. 

Let's assume that the health system chooses option #2 based on the lower cost. 

ROI = 733% 

Note that this return is for readmissions improvements alone. See how to generate the full 1,560% return here.



Mobile devices are quickly making an impact on how patients manage their health. For a health system, not having a mobile engagement offering in 2013 may be similar to not having a corporate website in 2003. That said, investments should be scrutinized for their potential to create quantifiable value for the organization. Next, we'll look at the patient engagement ROI from an HCAHPS and Value-Based Purchasing perspective.