Health Care System


A report released by the Institute of Medicine last month recommends a new tax on medical care to generate more funding for public health initiatives to prevent disease (coverage). The proposal aims to address two disconnects in the current system:

  • First, the vast majority of our nation’s $2.6 trillion annual health spending focuses on downstream treatment of illness rather than on upstream prevention and health promotion achieved through public health (which accounts for just 3% of spending).
  • Second, health care financing structures and incentives are mis-aligned in a way that perpetuates this disconnect; it’s a vicious cycle.

But are taxes the best lever to re-align the system?

Instead, imagine a market-driven approach that leverages future health care cost savings to pay for proven health interventions today. For example, a “health impact bond” could generate upfront cash needed to pay for evidence-based chronic disease prevention programs; bond investors would receive a return based on a share of savings (costs avoided) that accrue to health insurers and other risk-bearing entities.

This model taps into a growing movement toward impact investing and pay-for-success contracting; it is based on carrots (incentives) not sticks (taxes); and it has the potential to capture ongoing savings streams for reinvestment, creating a virtuous cycle of health.

As a recent Fast Company article notes, the idea is gaining traction.

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! rick@collectivehealth.net

The US spends $2.6 trillion a year on a health care system that…

  • Fails to address primary sources of health and health risk; and
  • Misaligns incentives with the treatment of illness rather than prevention and health promotion.

An alternative strategy is presented in “Impact Investing in Sources of Health,” a paper commissioned by the California Endowment and co-authored by the University of California Berkeley and Collective Health. The authors, including noted social epidemiologist Dr. Len Syme, contend that “impact investment in upstream sources of health represents a substantial opportunity to improve downstream health outcomes and costs in a meaningful and sustainable way.”

The paper examines the growing movement toward impact investing, the launch of social impact bonds (also known as Pay for Success initiatives), and application of this strategy to address causes of asthma-related emergencies among children in Fresno, California. The approach generates investment capital in evidence-based interventions that reduce health care utilization and costs for financial stakeholders like public and private insurers, employers and health care providers; a share of the savings achieved is returned to impact investors to cover principal plus interest.

“Pay for Success initiatives are beginning to move forward in the US,” note the authors. “We believe this effort can be greatly expanded and accelerated with a market-based approach that engages private investor support.” Collective Health has created a number of innovative financing vehicles, such as the Health Impact Bond℠, to drive this market-based approach. Read the white paper here.

There’s a lot of hope bundled up in “bundled payments.” The approach, which was made possible by the Affordable Care Act and is being supported through Medicare pilots, is defined as the reimbursement of health care providers (such as hospitals and physicians) “on the basis of expected costs for clinically-defined episodes of care.”

So, for example, a complicated episode of care like a knee replacement, which entails a host of clinical procedures delivered by a dizzying array of medical professionals (perhaps not always well coordinated end-to-end), would be reimbursed through a single “bundled” payment, with the intention of creating greater efficiencies and less waste.

Considering the vast inefficiencies in the health care system, bundled payments seem to be a step forward. One study found that reducing complications during and after a total knee replacement would save an estimated 20% of total care costs for Medicare and 10% for commercial payers.

Still, a few questions come to mind:

  1. How can this new payment approach be extended to cover non-clinical health factors? We know that social and environmental contexts (housing conditions/safety, social connections/caretakers) play important roles in recovery; these factors can either support or jeopardize a successful knee replacement outside the hospital. If we don’t consider non-clinical factors as part of the “episode of care” we miss an essential opportunity to reinforce what happens in the clinical setting.
  2. How can bundled payments – or other innovative health financing strategies – be used to move care upstream to prevention? The best way to reduce the cost of joint replacement (or any treatment) is to make sure it is not needed in the first place.
  3. How can innovative payment strategies support population-based approaches (vs. individual treatment)? Imagine here that we are addressing clinical and non-clinical conditions that support healthier populations (prevention) and recovery environments.

As the knee replacement study indicates: “when case costs are higher than average, that excess is almost exclusively caused by (potentially avoidable complications).”

So, what are the sources of those complications? This might reveal opportunities for a bigger bundle – and a more sustainable impact.

The Affordable Care Act (ACA) encourages care coordination and payment structures — accountable care organizations (ACOs), patient-centered medical homes (PCMH) and medical neighborhoods — that promise more efficiency and integration of clinical services. But these models will have limited impact if they fail to address non-clinical factors that account for more than half of what makes us healthy or sick in the first place.

After all, what good is a ‘health home’ if it’s in the middle of an unhealthy neighborhood?

The Prevention Institute has created a framework for Community-Centered Health Homes that integrates clinical care and community prevention “in order to reduce demand for resources and services; improve health, safety, and equity outcomes; and”  — here’s the really cool part — “provide medical providers with skills and strategies to change the social circumstances that shape the health of their patients.”

Download the report PDF here.

What’s leading to worse health in America? According to a physician survey conducted by Harris Interactive on behalf of the Robert Wood Johnson Foundation in December:

  • Four in five physicians surveyed (85%) say unmet social needs are directly leading to worse health for all Americans.
  • Four in five physicians surveyed (85%) say patients’ social needs are as important to address as their medical conditions. This is especially true for physicians (over 9 in 10, or 95%) serving patients in low-income, urban communities.
  • Three in four physicians surveyed (76%) wish the health care system would cover the costs associated with connecting patients to services that meet their social needs if a physician deems it important for their overall health.
  • Only one in five of physicians surveyed (20%) feel confident or very confident in their ability to address their patients’ unmet social needs.
  • Physicians surveyed reported that if they had the power to write prescriptions to address social needs, these would represent one out of every seven prescriptions they write — or an average of 26 additional prescriptions per week.

The Rx for a better health system goes beyond the clinic and into the community — the people, places, choices and conditions that account for more than half of what makes us healthy or sick. We’re working with a few health plans, employers and providers who see this as the path forward.

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