A simple method to justify occupational health cost effectiveness

Measuring cost-effectiveness

Occupational health practitioners are now regularly being asked to demonstrate the cost-effectiveness of the service they provide. Practitioner Sarah Jane Mogford outlines how straightforward this can be.

Sickness absence is a key business issue, not only because of the immediate impact of direct and indirect costs, but also as an indicator of how well an organisation is managed. Although the CIPD’s annual Absence Management Survey 2012 demonstrated a small dip in the average number of sick days across all sectors, sickness absence and work-relation health issues are still a significant cost for business. Where occupational health (OH) services are provided, sickness absence is usually one of the key functions within the service provision contract.

In addition to requiring the skills and expertise to improve employee wellbeing, prevent workplace ill health and detect workplace disease early through health surveillance, OH professionals need to be knowledgeable regarding business drivers. Bidding for budgets and resources has increasingly been part of an OH professional’s skill base (Thornbury and Farnley, 2007). With companies searching for ways to control costs and improve outcomes in today’s tough economic climate, OH professionals have had to demonstrate their ability to be a key player in achieving these business and strategic goals. This article presents a case study demonstrating a simple method of providing cost justification for an OH service.

Making the case for occupational health

OH suppliers have to justify the benefits and costs of their service, often using the immediate tangible elements that result. Such tangible elements include reduced absence costs, reduced overtime/agency staff costs, increased productivity, reduced insurance costs and reduced staff turnover. Less tangible benefits include improved quality of workplace experience, improved wellbeing, increased staff morale and engagement.

Providing specific information to a purchasing client is very different from the generalist information that exists regarding OH services. OH is often “self-monitoring” – for example, by using a quality audit – with regard to quality of service and professional standards, which are measured against standard benchmarks, professional standards or legal requirements (Thornbury, 2013). Client expectations and standards may be very different with regards to service, despite the use of key performance indicators (KPIs) in contracts. Very specific costing to measure effectiveness can be difficult, but not impossible, to provide.

Deciding how to undertake analysis

When unexpectedly asked by a client to demonstrate cost effectiveness of the OH service provided over a nine-month period at short notice, the OH service provider in our case study decided to use a simple method. The request had come from the central management hub of the business, rather than the site where the OH service had been provided.

The short amount of time available to produce the data was only one of the limiting factors. The OH service ran one clinic on the client site per month, with a specialist OH nurse providing the services. Only nine months’ service had been supplied, limiting the available period and data. Typically, seven individuals were seen per clinic for a variety of reasons ranging from forklift truck medical assessments, to sickness absence referrals and reviews, to fitness for disciplinary action, to display screen equipment assessments.

Providing specific cost effectiveness for preventive interventions, especially with so few examples and over such a short period, was never going to stand up to scrutiny as being valid or reliable. Therefore, data using actual costs had to be examined.

Method

As at least one individual was seen each session who had a long-term sickness absence referral – classed as more than four weeks – the OH provider looked at the sickness absence of one individual from each session to calculate the effect of the OH advice. Each individual was considered for the length of time they would have typically had off sick for their condition using a mix of data obtained from HR from previous cases prior to OH being involved, indications from the GP and the assessment from the OH specialist.

Example of OH effectiveness

An employee was referred to OH two weeks after minor surgery, following GP advice that they would not be able to return to work for eight weeks. The individual was assessed by OH as being able to undertake modified work functions with a phased return to full function. The GP was contacted by OH with a proposed return-to-work plan, which was agreed. The individual returned to modified duties after three-and-a-half weeks, thus saving the company at least four weeks’ full pay to an absent employee. Previously, the GP opinion would not have been challenged.

The length of time for the individual returning to work – even on amended duties or requiring a redeployment – or leaving employment following OH advice was compared with the comparative length of time without advice. The length of time was taken from first OH appointment until date of return, or redeployment, or leaving the organisation. Prior to contracting a regular OH service, absences had regularly remained “unmanaged” for between 12 and 18 months before further advice was sought by managers and HR.

In each case, the “time saved”‘ was calculated conservatively using the individual’s salary – whether they were on full or half pay – and the cost specifically justified in an appendix to the report.

All clients remained anonymous, although a background basic narrative – including time off sick, when they had been referred and the basic reason for their absence – was given for each case. This allowed business scrutiny of the cases and lessons could be learned without compromising medical confidentiality or any identification of the individuals. Only the HR manager could identify the individuals from the sickness absence records held in the department. Any further business scrutiny by business managers off site would not identify individual employees. It was agreed that the report generated would be viewed by the local HR department initially and any queries checked before being shared with the wider national management audience.

Findings

For each of the individual cases examined, an average saving of 10 times the cost of the OH service for that day’s clinic was achieved. One case involved an employee proceeding to tribunal proceedings, where on the evidence of OH advice, the company’s legal team decided to settle well before the case was due to be heard for under £2,000. Had the case gone to a tribunal hearing, the company’s legal costs and the cost of paying the personnel attending would have been far higher. The settlement agreement also saved time and lightened the psychological effects on the people dealing with the case.

In total, with conservative amounts attributed to costs if OH had not intervened, the savings were 12 times more than the total costs of the OH service for the nine sessions. It was noted in the report that only employee salary costs were used and that shift enhancements were not included. As the report was only considering the savings on one client seen per OH session – one-seventh of the total seen – the savings could not be said to apply to every client seen. Although it is likely that savings had been made and benefits gained from the other OH activities that had been undertaken, this was not covered in the analysis.

The report was presented as a “snapshot” of direct savings made as a result of OH advice. However, it was only the direct savings made on sickness absence costs on nine individuals. Indirect costs had not been considered, so the overall savings would actually have been greater.

Additional information given to the client

Although this method demonstrated significant cost effectiveness for the OH provider, it only explored part of the real cost. Listing examples of indirect costs is useful, but to engage the client further and emphasise the point, the report suggested a simple cost calculator, below, to more accurately cost just one example. Feedback received later indicated this had been done as a “back of an envelope” five-minute exercise and so did not cover all the costs involved.

Examples of business costs Cost (£)
Salary while individual off work
Admin time to deal with sick pay
Shift manager time to deal with cover and return-to-work issues
Salary cost of replacement workers
Lost time (for example, productivity, effects on others’ productivity, quality)
Overtime costs
Increase in insurance premiums
Recruitment of new/temp staff
Contract penalties
Cancelled/lost orders
Actions to safeguard customers (for example, providing alternative supply or service)
Compensation claim costs
Union rep time to deal with issues
Total £

As the business had previously experienced challenges from their actions following 18 months of unmanaged sickness absence, the report also highlighted the benefits of OH in engaging and involving the employee in the process. Previously, returning to work after a long time, employees had some feelings of fear and hostility. Early engagement with OH is obviously not a panacea for all employer-employee relationship problems, but it can help establish expectations about what can realistically be achieved with a specific health problem.

Challenges to management decisions are also easier for company legal advisers to defend if the company can prove that it has taken timely and appropriate specialist advice, and considered any recommendations made. The previous example of a case being settled relatively inexpensively before reaching tribunal helped to demonstrate the benefits of appropriate specialist OH advice to the company’s legal team.

The cost-effectiveness report referred to existing company policy and procedure and commented that achievements had not been made by OH in isolation. Although OH advice had been used, the good communication between HR, managers and OH allowed for effective advice to be given and acted on. For example, OH had been made aware of specific functional demands of roles and what the company perceived as barriers to return. This meant that OH was able to address these issues with managers and HR, who had been open in considering ways of temporarily adjusting roles, allowing early or phased return to work and often approaching OH with suggestions of their own. It was important to emphasise the role of timely, appropriate communication in this case, as many of the employees would have taken longer to return to work without it.

This case study had the advantage of being compared with a period where OH services had not been used, so the impact of OH involvement was more dramatic than it might otherwise have been.

Simple but effective

Although very simple, this was an effective tool for the purpose required. However, there are many other more proactive OH activities that it is useful to be able to justify in quantifiable terms. A frequently used method is to create and use generic units to compare health outcomes – for example, the quality adjusted life years that are gained through any health intervention. There are various methods that can then transform these findings into actual cost (Kankaanpaa et al, 2008).

Other methods for demonstrating a return on investment can be found in Karen Mastroianni’s article on applying cost-analysis techniques to evaluate the effectiveness of consulting services (2013). The advantage of being able to quantify activities in cost terms puts OH on an equal footing with other services that compete for business budget, and are in a format and language that are understandable by those managers and accountants who make the final decision on allocation of funds.

In this small exercise, the return on investment was fortunately proved to be very beneficial, even with the limitations of relying on findings over the data period. The initial request for the information had stemmed from the “new” cost of OH on a budget sheet in the company’s head office. As return on investment or cost effectiveness could be proved, the value of this “new” service was accepted and the contract was extended rather than being reduced or even cancelled.

Lessons to be learned

Although this was a localised, small analysis with limitations measuring just one reactive OH activity, it does emphasise how easy it is even for independent OH providers to provide data for benchmarking. This can be used to justify not just the use of OH, but also methods used and activities undertaken (Denniston and Whelan, 2005). There are more complex methods to measure some of the less tangible proactive OH activities, which would be more appropriate in a project with a wider data spread and longer timescale.

It is essential that OH professionals are business-minded in their approach to their everyday activities. It is not only important to ensure that practice meets professional and statutory requirements, but that results of this practice are translated into the business language of quantifiable cost benefits.

References

Denniston Pl Jr, Whelan P (2005). “Benchmarking medical absence: measuring the impact of occupational health nursing”. American Association of Occupational Health Nurses Journal; vol.53, issue 2, pp.84-93.

Kankaanpaa E, van Tulder M, Aaltonen M, De Greef M (2008). “Economics for occupational safety and health”. Scandinavian Journal of Work, Environment & Health; vol.5, pp.9-13.

Mastroianni K (2013). “What are consulting services worth? Applying cost analysis techniques to evaluate effectiveness”. Workplace Health & Safety; vol.61, issue 1, pp.31-41.

NHS Employers. Occupational health services.

Thornbury G, Farley L (2007). “Budget basics”. Occupational Health; vol.59, issue 8, pp.20-21.

Thornbury G (2013). “Chapter 10”. In: Contemporary Occupational Health Nursing – A Guide for Practitioners. Oxon; Routledge.

About Sarah Jane Mogford

Sarah Jane Mogford RGN, BSc(Hons), MSc, CMIOSH, is a specialist practitioner in occupational health
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