An analysis of economic quantification as an outcomes-based evaluation tool for health grantmakers. Economic quantification, which calculates economic impact and return on investment through the vernacular of the business community, is said to be useful for grantmakers who seek partnerships with policymakers and businesses

Rene Cabral-Daniels

English

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J U L Y 1 4 ,  2 0 0 8F r o m  T h e  F i e l dEvaluating Programs: Can We Measure the Value of Health Grantmaking?   R E N E  C A B R A L - D A N I E L S ,  J . D . ,  M . P . H .  Vice President, Grant Programs, Williamsburg Community Health FoundationPartnering with policymakers and members of thebusiness community is an effective way to increase the impact of health grantmaking by working cross-sectorally, and evaluating the effectiveness of thesepartnerships will help sustain interest in such collaborations. A useful type of evaluation in this regard, referred to asoutcome or outcomes-basedevaluation, focuses on theshort- and long-term results ofa program and its effect on acommunity. The results ofoutcome evaluations provideinsight to community leadersinto the value of health grant-making. This essay considers the utility of a specificoutcomes-based evaluation – economic quantification – as anevaluation tool for health grantmakers interested in partneringwith policymakers and members of the business communityon important health issues.Business leaders and health policymakers are most comfort-able considering a program’s value when it can be translatedinto terms with which they have the greatest familiarity.Business vernacular considers returns on investments,economic value factors such as cost/benefit analyses, andeconomic impact and other economic-based indicators. Whilethese terms are in fact familiar to health grantmakers, they are most often used by those concerned with a foundation’sfinancial investments and not those responsible for grantmak-ing. The integration of economic variables and modelingapproaches to describe and quantify programmatic outcomesmay appear at first blush daunting, but in reality the terms are easily transferable and the formulaic-approach is easilyunderstood once adequately explained. More importantly,identifying the value of health programs in the vernacular of the business community provides unlimited potential forfuture, meaningful collaboration.In 2005 the Virginia Department of Health’s Office ofHealth Policy and Planning (OHPP) engaged in an economicquantification project to describe the value of its rural healthgrant programs. This project paved the way for the office toengage in an evaluation exercise that resulted in many benefits,one of which was to build sustainable, future partnerships withthe business community.Like a private grantmaker, the OHPP was interested inadvocating for the value of its funding, educating legislatorsand others of the broad economic impacts related to state andfederal funding investments and broadening the dialogue withmembers of the business community. However, OHPP, likeother private grantmakers, was more comfortable expressingthe social value, not the economic value, of its programs. This significant shortcoming limited its ability to sustain thebusiness community’s interest in partnership development.Like many funders, the office often unintentionally underval-ued the economic value of its programs by listing merely the dollar amount provided to a specific entity and not theeconomic benefit to the community that it expected to bring. USING THE ECONOMIC QUANTIFICATIONAPPROACHCalculating economic impact and return on investment takesseveral steps. First the direct economic value of an initiative(grant) is multiplied by the estimated percentage of the resultsthat are attributable to the grantmaker’s actions, also referredto as a causality factor. An economic multiplier is then appliedto estimate the likely comprehensive economic impacts.Economic multipliers are well known to economic develop-ment organizations, and they demonstrate not only directimpact, but the indirect or “downstream” impact on totalexpenditures and jobs as money ripples through the economyof expenditures. Modeling forecasts have determined that forhealth-related programs a multiplier of 1.5 is useful to estimateThe integration of economic variables and modeling approaches to describeand quantify programmatic outcomes may appear at first blush daunting, but in reality the terms are easily transferable and the formulaic-approach is easily understood once adequately explained.community impacts, and a multiplier of 2.2 is useful to showthe impacts that benefit an entire state. The resulting economic impact aggregate (“numerator”) is then divided by the grantmaker’s cost (or investment) toachieve the gain. This figure equals the return on investment(ROI), which is measured as “gain in economic value per $1 of health grantor cost.” (See box above.)EXAMPLESOne example of the Virginia OHPP’s results involvedworking with five, small rural hospitals called Critical AccessHospitals. This partnership resulted in acquiring $352,000 infederal grant funds that would otherwise not have been avail-able to the state. The direct economic value was $352,000;the causality factor was 100 percent; the economic multiplierwas 2.2; and the OHPP’s cost of achieving this result was$6,416. While the return per grant dollar spent was 2.2 timesthe direct funding, the return on investment of the OHPP’sdirect expenses (its cost) was $120.70 of economic gain foreach dollar OHPP spent to achieve these results.The OHPP also obtained $150,000 in primary care loanguarantee payment funds from the federal government.When these funds were applied in Virginia the economicimpact was approximately $330,000. The total return oninvestment ($330,000) based on the OHPP’s costs ($649)was approximately $508.50/$1.00 of cost.An additional example, although not strictly a grantprogram, was an assessment of the effects of OHPP programsdesigned to improve access to care for medically underservedpopulations in Virginia. The OHPP looked at one strategy,which involved the recruitment of physicians and nursepractitioners to medically underserved areas. To calculate the value of introducing a new physician to an area, the first step was to consider the direct revenue generated by thephysician’s office practice. The core model was then extendedto calculate the financial impact on hospitals from adding aphysician to the community. For this calculation, factors toconsider included the type of physician and hospital revenuegenerated by the physician through inpatient and outpatientutilization other than the physician’s office practice. Forexample, an internist could be expected to generate $750,000to $1,000,000 per year of hospital revenue, whereas anorthopedic surgeon might generate $1,000,000-$2,000,000annually. Economic multipliers are also applied to theanticipated revenue, which can be derived from alreadyavailable data. Additional economic impacts came fromcommunity-avoided spending associated with OHPP-fundedrecruitment processes.  OHPP’s calculation of the economic value of its physicianrecruitment initiatives demonstrated a $607 of statewideeconomic impact for every dollar of OHPP funds. Although precision is helpful in any analysis, the fact thateconomic quantification strategies are not precision economicsdoes not negate their utility. It does, however, mean that there are several limitations. For example, when using thesemodeling techniques some input variables can be measured or derived from quantitative studies, and others will requireestimation and subjectivejudgments. These shortcomingsshould be noted when explain-ing results, although theultimate results are verydefensible. It is important torecognize that estimates must be defensible to be credible. BENEFITS OF ECONOMIC QUANTIFICATIONAn important benefit of using economic quantification as an evaluation technique is that the results not only allowgrantmakers to better understand the value of their fundingdecisions, but they also enable grantmakers to communicatethis value in a manner familiar to the business community and other quantitatively minded partners. Of course, healthgrantmakers should recognize that while many of their activi-ties can be economically quantified, others cannot. Examplesof popular health grantmaker activities for which quantifica-tion may be difficult include: facilitating multi-organizationprocess and dialogue, education and issue awareness building,brokering relationships, prevention programs, and partnershipdevelopment. Beyond these limitations, however, the compre-hensive applicability of this approach gives health grantmakersthe important ability to leverage the benefits of evaluation to agreater number of community members.Views from the Field is offered by GIH as a forum for health grantmakers to share insights and experiences. If you areinterested in participating, please contact Faith Mitchell at202.452.8331 or fmitchell@gih.org.CORE MODEL FORMULAEconomic Gain ($)  x  Results Attributed to the OHPP’s Actions (%)  x  Economic Multiplier  Health Grantor Costs = ROIAn important benefit of using economic quantification as an evaluationtechnique is that the results not only allow grantmakers to better understand the value of their funding decisions, but they also enablegrantmakers to communicate this value in a manner familiar to the business community and other quantitatively minded partners.

Evaluating Programs: Can We Measure the Value of Health Grantmaking?

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Evaluating Programs: Can We Measure the Value of Health Grantmaking?

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