As a follow up to our earlier post on Health Impact Bonds℠, here’s an example focused on reducing asthma-related emergencies among children in Fresno, CA (see illustration: Asthma Value Model)…

Fresno County has an estimated 200,000 individuals living with asthma, who each year account for more than 6,000 emergency room visits and 1,100 hospitalizations, plus follow-up care and doctor office visits. When lost worker productivity is included, the annual cost of asthma in Fresno totals $87 million.

Yet despite the staggering impact of asthma-related emergencies, less than half of those with asthma have been taught how to avoid asthma triggers, and almost half of those who have been taught do not follow most of this advice. Many of these asthma triggers include indoor air quality issues (dust, mold, pest infestation and other allergens) that can be addressed by adding an environmental assessment and remediation in the home.

The linked diagram shows the four process steps for using a Health Impact Bond℠ to reduce asthma-related emergencies in Fresno:

  1. Identify: The cost of asthma among a target group of 1,100 children in Fresno includes $17.1 million in health care costs for emergency department services, hospitalizations and follow-up care. This assumes average cost of $15,567 per person, based on service utilization and unit cost data for the county. Additional costs related to missed school days, missed work days, and other medical and non-medical costs are not included in this total. Of the $17.1 million, Medi-Cal alone pays $8.1 million (47%) annually. However, an evidence-based intervention aimed at reducing home-based asthma triggers may save $6.3 million in reduced medical costs for these targeted service areas—$3 million of that savings for Medi-Cal alone.
  2. Invest: A $1.1 million investment ($1,000 per individual) required for this intervention will be raised through a Health Impact Bond℠. The bond investors—individuals and institutions among a growing market of impact investors—provide upfront capital based on an anticipated share of medical cost savings to be generated by the intervention. The bond term sheet specifies rate of return and timing—in this case, 5% return in 18 months.
  3. Improve: The $6.3 million savings projection noted above is based on evidence from a series of studies on home-based asthma interventions reviewed by the Centers for Disease Control and Prevention “Guide to Community Preventive Services”. In these studies, best practice interventions were able to significantly reduce annual medical costs for emergency room visits and hospitalizations within 18 months. The intervention is delivered by local service providers that are sourced based on efficacy and efficiency metrics, and are accountable to measurable results.
  4. Return: The financial benefits of these savings would accrue through reduced medical claims to Medi-Cal ($3 million) and local employers with self-funded insurance plans ($2.3 million), and also to local health care providers in capitated payment arrangements, accountable care organizations (ACOs), and similar incentive structures ($1 million). A portion of validated savings are used to repay principal and interest to the bondholders. Additional savings can be used as re-investment capital in expanding the approach to other populations and health conditions.

While we are using an asthma example here (and in our related paper on health impact investing), this approach can be used to finance any evidence-based intervention that reduces health care utilization/costs within a reasonable time frame (1-5 years).

What are the best interventions for diabetes, obesity, heart disease, and other chronic/acute illnesses? We’d like to hear your ideas!