Better tools, analysis needed to make smart healthcare capital investment decisions, report says
Benchmarks for expected returns are also needed, it says, as well as a deeper understanding of how investment mechanisms can improve healthcare.
More sophisticated analysis is needed when it comes to capital investment decisions in healthcare, including better tools to ensure that the money is invested wisely, according to a new report published in the Journal of the American Medical Association,
Detailed models to forecast future population health needs should be established. Benchmarks for expected returns are also needed, it said, as well as a deeper understanding of how investment mechanisms, such as bonds and social finance, can help improve healthcare.
That's especially important for investment decisions regarding technology, the authors said, as well as the push to shift healthcare's focus from individuals to whole populations.
[Also: Reinvest savings to improve performance, lower costs for regional health systems over time]
Since capital spending shapes operating budgets over the long term, it's essential that the use of capital achieves value, researchers said. An example of that would be investing in better communication technology and transportation for patients and healthcare personnel, rather than more hospitals and imaging machines -- a decision which could potentially lead to better care coordination and less imaging overall.
The nature of the organization making the investments, whether it be a for-profit, nonprofit, the private sector or the government, can substantially affect capital financing decisions, the authors said. In some ways, they claim, state and federal governments are well suited for financing healthcare capital because they typically have high credit ratings and low risk of insolvency, which allows them to borrow money at lower interest rates.
Yet governments are limited when it comes to financing healthcare capital. Election cycles are short, political priorities differ, and central bureaucracies may find it difficult to match financing to local needs. Governments' access to low-cost borrowing may be tempered by the lack of accountability for the long-term results of capital decisions, especially when politicians leave office before the impact of their decisions can be evaluated.
[Also: Healthcare startup investments spike at $10.5 billion in 2015]
The discipline of the private sector, on the other hand, may encourage faster decision-making and better accountability, according to the analysis. Private groups can be more creative in their decision-making, and they typically fare better than the government at managing risks. But whether they're nonprofit or for-profit, they demand financial returns, which may offset those benefits.
Social finance is a newer concept, they said. The goal of this approach, which is a hybrid of philanthropy and investment, is to use a societal "good" as a metric to evaluate an investment in the form of a social impact bond. The bank UBS, for example, made a $5 million investment with the National Insurance Institute to reduce the incidence of type 2 diabetes in 2,250 people in Israel through a number of diet and lifestyle modification programs. If the health outcome is achieved, the government repays the investors from the savings resulting from lower diabetes rates. It's a bond that's rarely used in U.S. healthcare, the authors said.
They made the case that the most important step is to develop ways to be more explicit about the goals of investments, and report progress against these goals. The public reporting of performance against targets, they said, is an effective means of ensuring that capital investments are both efficient and effective.
Twitter: @JELagasse
