Two important trends in health care reform are converging and driving toward a new way of allocating resources for more effective — and efficient — population health. The first is the growing recognition of the link between social spending and health outcomes: states with higher levels of social spending relative to health spending have significantly better health outcomes across diverse conditions. This has spurred a deeper examination of the balance of public investments between social and health services so that they are more upstream and outside of the health care system. By investing early in housing stability, food security, robust education, and safe recreation opportunities for everyone, we may be able to avoid later hospitalizations and vastly improve the health of our population. While the aggregate public expenditures could remain the same under this approach, we end up with a much healthier (and presumably happier) population to show for it.

This rebalancing would be no small feat, and clearly the health care sector would have an important role to play. This is where the second key trend comes into play: the shift away from volume-driven fee-for-service (FFS) payments toward value-based payment (VBP) models. These reward health care providers for improving quality while reducing the total cost of care across a wide spectrum of health services. VBP or alternative payment models (APMs) are expanding how health care providers think about the drivers of poor health and the strategies that can most effectively address these drivers. Providers have long known that what happens outside the clinic can often have a much greater impact on their patients’ health, than the care they deliver. Under FFS, however, there is no financial incentive to address these social determinants. Providers operating under APMs, particularly shared savings/risk and global payment models, now have a business case for investing in services, including non-medical services, which will reduce consumers’ unnecessary or avoidable use of the health care system and improve their health.

At the Center for Health Care Strategies, we are working with Medicaid agencies, health plans, and providers that are investing in non-medical, population health strategies in tandem with payment reform. Early evidence indicates that health care payment reform can drive measurable improvements in population health. But payment reform may not be sufficient to achieve an optimal and efficient balance of investments between social and health services for two reasons: ROI and patient populations. First, APMs ultimately incentivize spending on services or interventions that yield a near term (6-12 month) return on investment (ROI). Second, as noted in Karen Hacker’s earlier blog, APMs rely upon patient assignment at the individual patient level rather than the population level, which skews provider attention away from populations at the community level (which are relatively stable) toward populations subdivided by types of insurance coverage (which are subject to greater turnover).

These two attributes of APMs can create a clear business case for investments in things like housing, food, and transportation that at the individual patient level have a near term impact on health, but less so for upstream investments in early childhood or safe neighborhoods. Consequently, payment reform as currently constructed limits the types of population health investment that health care providers have strong incentives to invest in.

In light of these limitations, policy makers may need to consider ways of supplementing payment reform efforts to create the right incentives for population health investments that produce a longer-term ROI and whose benefits are spread across a broad population within a community. At the most practical level, mechanisms could be developed to give providers financial “credits” for contributing to such investments, credit that otherwise is unlikely to be measureable under shared risk or global payment arrangements.  At the policy level, states, counties, and cities can leverage financing approaches used in early childhood and community development programs to blend funding streams across health care and social services and filter that funding down to entities with joint governance and accountability spanning health care, human service, and community development leaders.  Newly emerging entities such as Accountable Communities of Health hold promise in bridging this gulf between health care and community development, if presented with the right type of financial incentives that are linked to important (and measureable) population health outcomes.

There is clearly an opportunity for continued innovation within APM methodologies to create appropriate incentives for population health. For example, Maryland’s and Pennsylvania’s global payments to hospitals are worth watching and building upon. But we must be clear-eyed about the inherent limitations of pure APMs and look for lessons in other sectors that can help pave a viable financial path toward a more effective balance among public investments in population health and wellbeing.

This blog post is part of AcademyHealth’s Payment Reform for Population Health blog series that is exploring the limitations in payment reform and ideas for the creation of the right incentives for population health investments. The blog series is made possible through support from the Robert Wood Johnson Foundation; view all the posts on AcademyHealth’s blog.

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