We are very interested in your “Business Outcomes”
research, showing the connections between investing in
quality and the bottom line.  Could you help us understand and
explain what the key terms mean (ROI, ROE, ROA, and Operating Margin)?   

Response: 

To truly understand the benefits of investing in quality, one first needs to understand the language:

Return on Investment (ROI):

Return on Investment is calculated by measuring the difference between the amount of money invested and the amount of money made or saved.  For example, if every $1.00 in research results in $1.05 in savings, the ROI of that research would be 5%.

Return on Equity (ROE):

Return on Equity is calculated by taking the fiscal year’s earnings and dividing them by the average shareholder's equity for that year.  It is used as a general indication of how much profit a company is able to generate given the investment provided by its shareholders.  For example, if a company has a 5% ROE, the shareholders make $0.05 for every dollar invested.

Return on Assets (ROA):

Return on Assets is equal to a fiscal year's earnings divided by total assets.  This number tells you how much profit they can achieve for each dollar of assets they utilize.  For example, if a company has a 5% ROA, the company makes $0.05 for every dollar in assets. 

Operating Margin:

Operating Margin is the ratio of operating income to sales.  Operating margin shows how much a company makes from each dollar of sales (before interest and taxes).  For example, if a company has an operating margin of 5%, the company makes $0.05 (before interest and taxes) for every dollar of sales.

In studies performed by HealthStream Research, it was discovered that from every angle, every financial metric, every way of looking at it, measuring and investing in quality brought a quantifiable return on the investment.  For example, in a study of Return on Equity by Overall Employee Satisfaction, the lowest scores in employee satisfaction saw a 3.3% return, but as employee satisfaction and engagement grows, the return on equity grows up to a 6.1% return for the top scores. The top performing hospitals in Overall Employee Satisfaction enjoyed a return that almost doubled the return seen in the lowest scoring hospitals.  The patient satisfaction scores are even more telling:  the lowest ranking hospitals had an average patient satisfaction score of 4.16 and lost on their return on equity (-1%), whereas the hospitals that averaged 4.44 (the highest average score) enjoyed a 10% return.

Understanding these connections makes patient, physician and employee satisfaction a much more strategic tool within your hospital when the results of your investment can be tied to lower nurse turnover, increased admissions and referrals, improved operating margins, and higher quality care.  Not only does quality care affect the patient’s financial contribution to the hospital, but the level of turnover affects patient satisfaction, which, in turn, directly affects the hospital’s bottom line.  In our study of Patient Satisfaction by Nurse Turnover, the lowest scoring group in Patient Satisfaction (averaging a score of 4.15) had a turnover rate of 21%, while the highest scoring hospital (with an average patient satisfaction score of 4.41) had a turnover rate of only 10%!