Health Economics Metrics

Topic 26 of 76 · Economic analysis types

Return on Investment (ROI)

ROI is the ratio of net gain to money invested. It is the metric engineering and finance already share — health economics adds the discipline that makes an ROI claim survive scrutiny: declared perspective, comparator, horizon, and benefit categories.

Why it matters

ROI is the lingua franca of budget holders, and public health uses it too: the landmark Masters et al. review found a median ROI of 14.3:1 for public health interventions (every £1 returns ~£14 to the wider economy and health system) — a number widely used to argue prevention spending. But that 14:1 is a societal, long-horizon figure; a hospital CFO's ROI is payer-perspective and 1–3 years. Most ROI fights are actually undeclared-perspective fights.

The math

ROI = (Benefits − Costs) / Costs      (often × 100%)

Payback period = Costs / annual net benefit

An ROI claim is under-specified without four declarations:

  1. Perspective — whose benefits count? (see analysis perspective)
  2. Comparator — versus what alternative? (see opportunity cost)
  3. Horizon — over how long, and discounted?
  4. Benefit class — cash-releasing, capacity, or qualitative? (see cash-releasing vs non-cash-releasing)

Worked example

E-rostering system, cost £500,000 over 3 years.

Cash-releasing:  agency shift reduction        £450,000
Capacity:        ward-manager admin time freed £600,000 (valued, not banked)
Qualitative:     staff satisfaction, safety    not monetized

Strict financial ROI  = (450,000 − 500,000)/500,000 = −10%
Economic ROI          = (1,050,000 − 500,000)/500,000 = +110%

Both numbers are true. A vendor quoting "+110% ROI" to a CFO who can only bank £450k will lose trust; presenting both, labeled, wins it. The same split protects an internal champion when finance audits the benefits two years later.

Software engineering connection

Every tooling proposal has an ROI slide; almost none declare the four parameters. The most common failure is category-blending: capacity gains (developer minutes) presented as financial return. Structure AI/platform ROI as the worked example above — cash line, capacity line, qualitative line — and add sensitivity analysis on the soft numbers. For the P&L reality check on AI ROI specifically, see AI return on investment.

Pitfalls

  • Perspective laundering: societal benefits over a decade quoted to a budget holder with a 12-month horizon.
  • Gross instead of net: "returns £3M" on £2M spend is 50% ROI, not 300%.
  • Ratio maximization: tiny denominators produce spectacular ROIs on trivial investments; rank portfolios by NPV or net monetary benefit, use ROI as a screen.
  • No benefits audit: forecast ROI without benefits realization tracking is a promise, not a result.

Sources