How to Share the Financial Risks and Rewards of Upstream Care

First, health economist Victor Tabbush helped prove the business case for upstream care. Now he’s designing the business model.

Health economist and HealthBegins Senior Fellow Victor Tabbush has a simple, powerful message for health care, plus the statistics to back it up: The right thing to do for the people we serve can also be right for business. And it’s much more likely to get done if it is.


Victor, emeritus professor at the UCLA Anderson School of Management, has empowered upstreamists in medicine to make their case quantitatively by creating a return-on-investment calculator. The free tool enables healthcare systems to estimate how much money they could save over time by investing in person-centered care. Since its release in 2016, the tool has been downloaded at least 500 times.


Now, as HealthBegins’ senior fellow, Victor is taking this work to its critical next step, from business case to business model. By now many people in medicine are believers in the value of treating patients as three-dimensional individuals with important needs beyond the exam room, he says. But by and large they haven’t yet thought enough about how to make this important work financially feasible for the diverse organizations (some of which have not traditionally been involved in health care) that must play a role.


Here Victor explains why healthcare and community partners need to devise sustainable payment systems to support the complexity of upstream care — and how the next tool he’s developing will enable them to do so.


Q: You’re committed to person-centered care, both professionally and personally. Why?


The individual is a patient only when they are in the medical facility, but they are a person 365 days a year. They’re living in their home and their community, and their health is being impacted by what happens during that period. The idea with person-centered care is to integrate into the usual medical care other complementary services that complete the needs of the individual.


My mother, for example, died last year at 102, and her needs were not medical. It didn’t make any difference if her lipids were soaring. What she needed at times was simple companionship, help with the needs of daily living, modifications of her home so that she wasn’t at risk of falling. These were things that made a difference in her life and my life.


Q: Your ROI Calculator helps demonstrate that addressing these social needs (a.k.a. the social determinants of health) can bring substantial savings to healthcare systems. So why isn’t delivering integrated care automatically a good deal for everyone involved?


​Anytime a partnership is formed there’s two kinds of risk. One form of risk is cost risk, that the cost of the service turns out to be higher than anticipated. The other is performance risk, that the service that is being delivered is not as effective as might have been anticipated.


In other words, risk stems from uncertainty about what services ultimately are going to cost and how effective they’re going to be. You can’t avoid it, the question is who’s going to bear it, and what’s the most efficient form of a payment system.


For example, here in LA a community-based organization signed a memorandum of understanding with a hospital to provide discharge services with patients who need supportive services on their return home. They did it on a fee-for-service basis and ended up taking a significant loss. The reason is that costs are volume dependent. If you don’t get the requisite volume, you don’t have the revenue to spread over the significant fixed expenses of setting up the program.


Q: If risk is unavoidable, how can partners fairly share it?


Increasingly provider organizations are assuming financial risk for the whole person and whatever happens. Community-based social-service organizations have demonstrated the capability to reduce the total cost of care. So there’s an obvious marriage between provider organizations and CBOs. But the marriage has to be one in which the CBOs get some compensation, otherwise the marriage won’t last.


The question is how should they get paid: on a case basis, a per capita basis, a per service basis, a per dollar cost basis? For example, if the CBO receives payment after service is delivered that’s equal to the demonstrated cost of the service, there’s no cost risk to the CBO there, but the risk now is on the partner, as the cost is open ended. If the CBO provides services for a fixed dollar amount per beneficiary per month, now the health partner knows exactly what it’s going to pay for the services, and the CBO is at risk for the service intensity.


The tool I am building encodes five different risk-sharing models in a calculator that shows the degree of risk and the potential return. It will allow partners to design a payment system that is best for both parties.


Q: Rather than paying directly for services or cases, you advocate for a new model of payment based on value (and your tool will help partners design such a system). How does that work?


This is a third system that we need to be thinking about in this realm — an extreme system whereby both cost and performance risk are shared, where the amount paid to the social service organization for its services is predicated on the value that that service creates for the healthcare partner. Now there is perfect alignment: the lower the cost of delivering the services, the better the net gains, which are passed to the social service provider. It reduces performance risk because now they have an incentive to deliver the service as well as possible.


Q: So in this model, the community-based organization is financially rewarded for keeping costs low and effectiveness high.


That is correct. But CBOs probably are not ready to be reimbursed strictly on that basis. For now, a share of their compensation could be predicated on value creation. Probably what has to happen is a hybrid system where they get guaranteed a minimal payment and then a fraction of any value created.


Q: When can upstreamists start using your payment-modeling tool?


The new tool will be introduced by the end of March 2018.


Q: What convinces you that the moment has come for this innovation?


The medical payment system is moving to value-based payment, paying for value rather than volume. We all recognize the sense of payment on value, so why don’t we think about the same types of innovations for the payment of social services?


These kinds of services have true intrinsic value, the value of providing better lives for vulnerable populations. But the social organizations can’t do it without funding.


Posted by Grace Rubenstein

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