The ROI of healthcare quality: Understanding and explaining the cost-savings benefit of higher quality

For so many mission and humanitarian reasons, let's all take it as a given that everyone in healthcare sees value in improving healthcare quality. And that, therefore, tools, services, resources, or process changes that improve quality will also be perceived as valuable and worth investing in. This is true enough; however, in the real world, it often happens that a more detailed quality ROI case has to be made. Both on the buyer (provider, payer) side and on the vendor (tech, services) side, one must be prepared for some due diligence, assessing or explaining a real ROI case around quality. So in this post, let's dig into a few different dimensions.

By the way, this is one of many topics that we covered in our recent Strategy Boot Camp on "How to Speak Quality"—a recording and slides are available to members now, so enjoy a 60-minute crash course! .

Start at the beginning: Quality is not one thing

Quality is not monolithic. There are many respected frameworks, each of which conceptualize quality slightly differently. A seemingly simple word, “quality," which is basically shorthand for “better,” actually cuts across so many disciplines and departments. These start with the obvious clinical ones but extend far wider (for example, to legal and HR elements of a healthcare organization).

Bringing it back to the ROI of healthcare quality, the good news about the cross-cutting nature of quality is that there are multiple kinds of goals and different forms of ROI that quality can yield. The more challenging news is that the case for quality ROI can be complex and diffuse, making the connection hard to quantify.

Thee buckets for building a real-world ROI case for healthcare quality

Taking a step back, we think it's helpful to sort the connection between quality and ROI into three basic buckets.

Direct/performance-based ROI is quality-specific incentives and penalties. These are the most straightforward to show/model. The challenge? Sometimes the incentives/penalties themselves don't amount to enough in dollars to really paint the picture of the ROI of quality.

Efficiency/cost savings can be modeled along a few lines and represents probably the most common element of quality ROI in healthcare; there's a standing, long-supported link between efficiency and cost savings. Plus, big healthcare purchasers (hospitals, health systems, insurers) have massive costs. Therefore, being able to show a quality-related investment making even a small dent in cost can translate into an impressive total ROI for that product, service, or resource.

Indirect/halo benefits of improved quality include the real—but basically impossible to quantify—benefits to domains such as reputation, and positive patient and staff experience. A higher-quality organization or service enjoys many benefits, from attracting/retaining staff members to attracting more patients and expanding market share. These benefits hold true for many healthcare players (not only providers). Take, for example, the massive impact star ratings have on a plan's ability to enroll more patients in a given market.

Direct/performance-based ROI of healthcare quality

The first port of call when making the case for the ROI of assuring quality care is the direct financial incentive for outcomes. At the federal level (read: CMS), there are multiple quality incentive payment programs (e.g., penalties for scoring in the bottom quartile of hospitals for hospital-acquired conditions; payments to incentivize reporting on outpatient and psychiatric facility quality), many of which healthcare organizations are required to participate in if they want to continue being eligible for Medicare payments. We’ll discuss a few of the major ones in detail in this post. There are other quality incentive programs out there, some of which are run by state governments, and others of which are optional care model pilots coordinated by a government agency or nonprofit organization.

• The Hospital Readmissions Reduction Program calculates an excess readmission ratio for six different procedures: heart attack, COPD, heart failure, pneumonia, coronary artery bypass graft surgery, and elective total hip or knee replacement. Reimbursements are adjusted based on a hospital’s average performance on the readmissions measure relative to their peers, with a maximum payment reduction of 3 percent. In 2021, nearly 2,500 hospitals (82% of those participating) saw some penalties, with the average payment cut coming to 0.64%. 

• The Hospital Value-Based Purchasing Program withholds 2% of each hospital’s Medicare revenue and then redistributes those funds as bonuses or penalties based on quality performance benchmarks (general categories include mortality and complications, healthcare-associated infections, patient safety, patient experience, efficiency and cost reduction). This program can reward effort—not just performance at a moment in time. Hospitals get two scores for each measure: one score for achievement and another for improvement. The higher score for each measure is the one granted to the hospitals.

• The Merit-Based Incentive Payment System (MIPS) program sets clinicians (and group practices) up for incentive payments for performance. In short, it’s a value-based payment program for clinicians. Not all providers are required to participate in MIPS (in contrast to the Medicare-led efforts that affect all hospitals taking inpatient prospective payments). Instead, only providers that serve a minimum patient volume and fit one of the specified clinician types (which encompass a broad range of provider types, including all MDs) are required to participate.. Those participating in the program need to report on four performance categories: quality, promoting interoperability, improvement activities, and cost. Providers have a plethora of measures they can choose to report to satisfy the quality requirement (six quality measures total), and they need to report on two improvement activities (activities lasting at least 90 days to improve clinical processes and outcomes). Each performance category has its own weight. Once the math is complete, providers are left with a final score of 0-100; the highest scores (75+) see a positive payment adjustment, while those that score 75 points exactly receive a neutral payment adjustment, and those below 75 points see a negative adjustment. The 2024 payment adjustments (based on scores from 2022) ranged from -9% to a positive adjustment on a sliding scale that protects budget neutrality.

• The Medicare Advantage (MA) Quality Bonus program rewards plans for their star rating, which is assigned based on care quality measures (readmissions, cancer screening, chronic disease management) along with measures of beneficiary experience and administrative effectiveness. The bonus program provides 5% bonus payment to MA contracts rated at least four stars in addition to larger rebates that plans can use to improve the benefits they offer. In 2025, the bonus payments totaled $12.7 billion. 

  It is perhaps worth noting the controversy surrounding the star ratings program. It’s costly for the government and requires reporting on many measures that might still miss experiences of key populations (e.g., persons with dementia). Plus, there isn’t clear evidence that the bonus payments are contributing to plan quality improvement when they receive additional funds. Still, at this stage it’s a way of directly seeing ROI for meeting quality benchmarks.

The below table lists the CMS-level quality reporting and value-based payment programs to illustrate the range of activities in this space and the level of specialization.

Efficiency/cost savings ROI of healthcare quality

In quality circles, the conventional wisdom is that, by improving quality, you improve efficiency and reliability, effectively reducing waste and the risk of harm, both of which are costly. Perhaps the most widely recognized conceptual quality framework, an early inroad into making an explicit connection between quality improvement and cost savings, is The Triple Aim. The Triple Aim was developed by the Institute for Healthcare Improvement in 2008 and recommends that health systems pursue multiple quality objectives at the same time: improving population health, enhancing the patient experience of care (quality and satisfaction), and reducing per capita costs. This model underscores the quality-cost connection by suggesting that, by (responsibly) improving on one dimension, you can improve on others. This framework is sometimes also called the Quadruple or Quintuple Aim as workforce well-being and health equity have been added in recent years.

As stated above, it is very common to see cost-linked ROI cases for healthcare quality-improving products, services, or resources. One often sees avoided readmissions as a savings source (especially for payers/ risk-bearing providers).

Quality is not just about cost savings overall but also reducing low-value and otherwise avoidable spending. Initiatives like Choosing Wisely advocate reducing overtreatment in support of care effectiveness, one of the domains of quality (offering evidence-based services to patients likely to benefit and not providing the services to those unlikely to benefit).  

Shorter LOS is generally accepted as a cost-savings or efficiency measure, though the most "bang for your buck" of shorter LOS would come from cases where the provider is able to backfill those discharged patients with new cases, meaning that this 'cost savings' measure is actually translating into higher revenue as well. (Note that shorter LOS can not suggest higher quality, it can also improve quality in itself, because the less time patients are exposed to fall and infection risk in inpatient settings, the better!)

Finally, there are studies to indicate a relationship between high-quality care and lower premiums and/or fewer, less costly malpractice suits. Evidence is mixed on whether avoiding malpractice-related costs is sufficient to motivate organizations ,to raise quality, at least in nursing homes). However, anecdotally we would say most (at least inpatient) providers believe strongly in the link between higher quality and lower malpractice-related costs. It may not be strong enough to be the ONLY component in an ROI case, but it can certainly help to add to the list of potential benefits if, in fact, the resource/service/process change would lower premiums or mitigate risk of costly damages from suits.

Halo/indirect benefit ROI of healthcare quality

What about revenue--don't higher-quality providers/plans (etc.,) in healthcare attract greater market share? Now we are getting into halo/ indirect benefits of healthcare quality. This is a real form of ROI, however financial payoff is harder to directly quantify. So let's go through them but understand that often these elements are left out of assessments of the ROI of any given quality-linked investment.

Organizational reputation

Quality data are often reported publicly. Think CMS star ratings for hospitals, nursing homes, and health plans, though each of those rating systems is distinct. (Check out our How to Speak Quality bootcamp to understand the differences!) With public reporting comes an invitation for public scrutiny—and more importantly, reputational risk. Hospitals that excel on these metrics earn visibility and trust, both of which are invaluable in competitive healthcare markets.

Employee engagement

A better reputation has knock-on effects for employee engagement. Employees prefer to work for high-quality organizations, and employee engagement and an organizational safety culture is correlated with higher performance vis-a-vis lower staff burnout and improved patient outcomes, such as fewer hospital-acquired infections, falls, and medication errors. Employee engagement is also linked with patient experience—the higher the workforce engagement percentile, the more likely inpatients are to recommend the hospital—further reinforcing the link between quality and reputation. So, the more highly engaged employees are, the more satisfied patients are, and the more likely employees are to stay and avert costs associated with turnover.

Closing thoughts

Improving healthcare quality is a strategic imperative as well as a moral one: Proving the ROI might not be easy, but it is worthwhile. While the shared mission across providers, payers, and vendors makes quality feel like an obvious investment area, the reality is that every initiative must withstand the rigor of ROI scrutiny. Demonstrating measurable impact, whether through patient outcomes, operational efficiency, or financial sustainability, is what builds confidence in a tool or intervention and accelerates adoption. Those reviewing the quality business case will want to ensure that they are putting their scarce resources where they can be most impactful, while those offering tools or resources (explicitly geared to quality or not) should be prepared the quantify and present the quality benefits so that their tools can end up employed in a manner that benefits patients.

Thank you to Amanda Berra for collaborating on the quality SBC.