Insight

Health equity: Three steps to proving the financial value

By Morissa Schochet, G Tharp, Chris Plance

Jan 11, 2023

Over the last two decades, health technology and clinical standards of care have developed exponentially, providing incredible opportunities to improve efficiency in healthcare delivery. However, these opportunities do not address the limited ability of existing healthcare financial models to tangibly improve health and prevent disease in all populations.

Improving health equity, which provides equal access to care regardless of social factors, has significant financial benefits for payers, providers, and communities. These benefits can be observed with an improved financial model and are possible thanks to advances in health technology and clinical standards.

Understanding the full breadth and impacts of health equity

Population health interventions often fall under the umbrella of health equity, which is impacted by factors including gender, geography, race, and environmental factors such as access to shade, green space, and affordable housing. The moral imperative to improve health equity is clear; however, justifying the financial imperative is key to achieving measurable progress.

The actuarial certainty of many medical interventions provides a quantitative understanding of future medical cost and outcomes – enabling new healthcare payment models to incentivise healthcare providers for their performance in meeting these outcomes. Actuarial certainty becomes a foundation in these models, re-aligning incentives between providers and payers as their shared activities have the same underlying risks and potential to provide a financial return as a reward for improving health equity.

While there is evidence suggesting that these medical interventions have the potential to be successful at reducing cost over time, the use of Alternate Payment Models (APMs), like the Medicare Shared Saving Program and Accountable Care Organizations in the US, has not been enough to move the needle on health equity at scale. This is due to four distinct barriers:

  1. The lack of financial models that reward improved population health outcomes as much as they reward increased efficiency of care. Existing models reward those who manage disease, not those who prevent disease.
  2. Actuarial certainty is an outcome of statistical models over years, though the financial outcomes must be captured in months. This presents a problem in understanding how the cost savings of an intervention with actuarial certainty over three years can be represented in monthly operating statements.
  3. The length of time between an intervention and financial outcome can be many months to years. For example, the results of interventions to reduce surgery rates for musculoskeletal conditions, are not measurable for at least six months at best. This is much too slow to improve the delivery of the intervention.
  4. Clinicians lack incentives under existing models to drive improvements to population health. When Alternate Payment Models reward clinicians for shifting site of care and improving outcomes instead of volume, these clinicians require new tools to be successful.

What’s at stake for general populations?

One example of a common health equity challenge is the proliferation of food deserts, areas with limited access to fresh, healthy food options. Limited access to nutritious foods, lack of time to prepare food, and poor understanding of how nutrition impacts health all contribute to worse health outcomes. Food deserts do not exist in isolation but alongside other contributing factors such as poor water quality, access to preventative care, and other lifestyle factors that compound impact and create populations more susceptible to chronic disease. The combination of these factors is often correlated with increased chronic conditions such as diabetes. The resulting burden on care delivery systems increases cost for payers, decreases worker availability, and needlessly reduces quality of life for many individuals.

To put the financial opportunity into perspective, around 37.3 million Americans are currently diagnosed with the chronic condition of diabetes and 96 million American adults have prediabetes. Diagnosed diabetes costs an estimated $327 billion in medical expenses in the US, in addition to lost productivity, reduced quality of life, and premature mortality.

Demonstrating the financial value of health equity

In the case of diabetes, intervention programs demonstrate a strong potential application of the health equity framework. For example, in a population of 10,000 people at risk for developing diabetes, with no intervention there is a $9,601 treatment cost, per person, per year, if they develop the condition. That’s a potential $96 million cost added to the healthcare system every single year once that population develops diabetes. The interventions for this are well studied, often simple in nature, and actuarially certain. They also require an increase in medical cost to deploy, for a condition that does not yet exist, and no concrete proof of exactly when a diagnosis of diabetes was avoided.

The Return on Health Equity Model we developed allows for an assumption that, by incentivising early interventions, preventable chronic conditions can be reduced. In our example case of diabetes, disease is reduced by a minimum of 40 percent. Early interventions, including nutritionists and other evidence-based lifestyle supports, can be standardised to achieve the 40 percent reduction in diabetes diagnoses with actuarial certainty. Thus, a predictable potential medical cost savings opportunity of at least $38 million annually can be achieved, and most importantly quantified, with a total time to return, and risk to that return.

Advances in medical research, data collection, computing, and data science create an opportunity to take what has been learned in the treatment of these chronic diseases and create a model where investments can be made into health equity for the type of returns in our diabetes example. The application of technology allows us to identify who can benefit most from interventions, driving efficiency, and providing powerful computational capabilities to evaluate the financial impact of actuarial certainty in months instead of years.

Improved alignment of incentives between payers and providers through APMs enables a shift away from understanding healthcare expenses via outdated models, like the medical loss (or cost) ratios, that measure how much of insurance premiums are spent on delivering care. These models are excellent for improving the efficiency of care delivery but provide no mechanism for evaluating long-term investments into health beyond 12-18 months.

Adopting new financial models, such as Return on Health Equity, that encourage long-term investments to accrue future medical expense savings, creates balance sheet assets that behave similarly to a positive cash flow, as actuarially certain interventions prevent future chronic disease. Once several actuarily certain interventions are in place, this creates a financial buffer to experiment with bundling additional health equity interventions that have less research behind them, enabling payers to mix interventions with varying risk. This becomes an accelerator to interventions with great potential that are unlikely to be tested thoroughly on their own.

Three steps to implement a financial model to improve health equity

Healthcare providers looking to build financial modelling around health equity should:

  1. Build a framework that quantifies different risks and different timeframes to achieve a return for interventions. Existing models, such as medical loss ratio (MLR), should not be abandoned. The focus on efficiency found in MLR is still a core component that can now balance the challenges of improving health with good stewardship of healthcare spend.
  2. Convert actuarial projections with long-term certainty to measurable short-term financial impacts via analytics and benchmarking. The explosion in cheap computing, storage, and advances in data science allows for benchmarking at a level granular enough to quantify when these projections are contributing to an income statement.
  3. Operationalise interventions by focusing on improving processes of delivery instead of the outcomes. When the outcome of an intervention is actuarially certain, there is no need to measure the outcome. Effort can be focused on improving the processes that sit between intervention and outcome. Outcomes often aren’t measurable for many months, or years. This is hard to improve, but the processes related to deploying the intervention are much shorter and can be improved in two-to-three-week intervals.

These three components work together to clearly show the financial rewards from improvements to health equity, both to payers and providers as well community stakeholders who now have an opportunity to become partners in accelerating health equity.

Unlocking long term health care investment activities

When organisations have financial models revealing the opportunities in improving heath equity they unlock long term health care investment activities, such as preventative health costs, as well as an understanding of the incremental milestones of success pointing to long-term outcomes. As a result, US healthcare leaders will have the confidence to show that operational performance is being driven by the accrual of long-term medical expense savings from these investments.

Crucially, this provides leaders the tools needed to replace numerous and difficult moral discussions focused around dividing a small funding pie for populations in need with opportunities that significantly grow the funding pie.

About the authors

Morissa Schochet PA health and life sciences expert
G Tharp PA healthcare management expert
Chris Plance PA healthcare expert Chris specializes in strategy and operations for mid- to large-sized organizations.

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