JAMA Forum: “Loose Change” for Population Health

Joshua M. Sharfstein, MD

Joshua M. Sharfstein, MD

At last, there’s a growing recognition that the long-term sustainability of the US health care system depends on improving the health of populations. Unfortunately, this recognition is not yet accompanied by sustainable sources of funding to achieve this goal, such as support for such initiatives as community-based tobacco control, antiviolence programs, comprehensive home visiting programs, and environmental changes that help improve diet and promote exercise. These efforts can have benefits for health at far lower cost than medical interventions.

Although many take credit for investing in “population health,” the vast majority of such spending is directed to traditional quality improvement and care coordination efforts within the health care system. Many people running successful public health programs are losing sleep thinking about options to keep the doors open after grant funding has gone away.

Option A is a dedicated funding stream. The Prevention and Public Health Fund under the Affordable Care Act is authorized to provide up to $2 billion each year for such projects. Unfortunately, Congress is already diverting about half of the funding to other uses. Massachusetts developed a promising model of a Prevention and Wellness Trust Fund, investing $60 million over 4 years, although what happens when the fund is depleted is not clear.

Option B is to align payment incentives in health care with public health investments, so that accountable care organizations, medical homes, and hospitals with global budgets put some of their savings directly into community efforts. Such partnerships are happening, but slowly, as health care executives focus first on transforming their own systems, reluctant to send resources beyond their walls. Another complicating factor is that institutions may not have the incentive to make investments in areas where local residents go elsewhere for care.

Option C is to look around for possible savings in the health care system that are attributable to improved population health. Such savings can and should be reinvested in public health programs that work.

These options are not mutually exclusive—and every possible Option C strategy is worth exploring.

The “Loose Change” Approach

I recently found myself reading the new proposed rule from the Centers for Medicare & Medicaid Services (CMS) on managed care organizations in the Medicaid program (a terrific summary is online). More than 70 million people now receive health care through Medicaid, about 3 in 4 through managed care. As a result, total spending in Medicaid managed care exceeds $100 billion each year.

Here’s how this funding works: state Medicaid programs make per capita payments to managed care organizations based on the expected use of medical services by enrollees. If the costs turn out to be greater than the advance payments, the managed care organizations are responsible for the difference. If the costs come in less than the advance payments, then the organizations can make a profit (in the case of a nonprofit, the organization improves its financial margin).

Expectations for expected use of health services by enrollees are generally based on data about past use. As a result, public health efforts that reduce preventable hospitalizations, avoidable complications, or readmissions directly improve the balance sheet of Medicaid managed care organizations. These organizations, however, see the resulting revenues as theirs to keep.

Finding a way for managed care organizations to help support effective preventive, population-based programs could lead to a leap forward for better health at lower costs.

Under the new rule, CMS has proposed a target for managed care organizations to spend 85 cents of every dollar received on clinical care or related activities. The remaining 15 cents is more flexible, and can cover organizational costs as well as profit. The rule thus has the effect of dividing all managed care activities into 2 buckets: those that count as part of the 85 cents and everything else.

Under the proposed CMS rule, as part of the 85 cents, managed care organizations are allowed to take a few creative steps, including supporting certain kinds of public health programs. But there are a couple of catches. For one, the programs cannot cost more because it assists non-Medicaid enrollees. This is a very difficult standard to meet for many effective public health efforts, which work by helping everyone. For another, the programs may have to track Medicaid eligibility, which may prove impractical or impossible.

Managed care organizations are permitted to donate to other collaborative population health efforts using part of their flexible 15 cents of every dollar, but such an investment would compete directly with their financial margin (or profit). So asking them to do so is likely to be met with considerable resistance.

Yet that’s not quite the end of the story.

Sometimes there’s some “loose change,” money that becomes available only when managed care companies spend less than the target 85 cents per dollar on clinical and related care. In the commercial market, where the 85% rule already exists (and is known as the minimum loss ratio requirement), $332 million was refunded to consumers and employers in 2013.

Under the proposed Medicaid rule, states have 2 options when managed care organizations fail to meet the target: (1) They can allow the managed care organizations to keep the funding, but adjust the rates lower for the next year, or (2) they can take the money back and send the federal share back to the federal government. Because the Medicaid expansion is largely paid with federal funds, the latter option means sending substantially more than half of the recovered amount to Washington, DC. It also involves some complex accounting.

I propose that if CMS is willing to just let managed care organizations keep the difference, the agency should also allow states a third option: to recover the one-time extra money from managed care organizations and spend it on meaningful population health activities under a plan approved by the Innovation Center at the agency in coordination with the Centers for Disease Control and Prevention. States should be able to establish a continuing fund for the investments to smooth out the likely year-to-year unpredictability of when deposits will be made.

A Virtuous Circle

From a policy perspective, this third option is a wise choice. A state’s population health program helps to generate savings to lower medical expenditures, so it is appropriate for the state to have the option to reinvest those savings in such programs. In this virtuous cycle, the Medicaid program will then see lower costs as a result of the supported activities over time, benefiting both state and federal taxpayers.

From a political standpoint, states might or might not make use of such an option. Some states may take the path of least resistance and allow managed care companies to simply keep the money and enjoy additional profits or margin. Others may respond to budget politics and take back whatever money they can find, even if it means sending 4 in 5 dollars back to Washington, DC.

Yet if CMS permits this third option, broad coalitions will form to recover these resources to save lives, improve health, control costs, and indirectly support many health care organizations working to take advantage of new value-based financial incentives. It’s a win-win-win-win.

Comments to the proposed rule are due July 27.


About the author: Joshua M. Sharfstein, MD, is Associate Dean for Public Health Practice and Training at the Johns Hopkins Bloomberg School of Public Health. He previously served as Secretary of the Maryland Department of Health and Mental Hygiene, as the Principal Deputy Commissioner of the US Food and Drug Administration, and as Commissioner of Health for Baltimore. He is a consultant for Audacious Inquiry, a company that has provided technology services and other support to Maryland’s Health Information Exchange. A pediatrician, he lives with his family in Baltimore.

About The JAMA Forum: JAMA has assembled a team of leading scholars, including health economists, health policy experts, and legal scholars, to provide expert commentary and insight into news that involves the intersection of health policy and politics, economics, and the law. Each JAMA Forum entry expresses the opinions of the author but does not necessarily reflect the views or opinions of JAMA, the editorial staff, or the American Medical Association. More information is available here and here.

Categories: Caring for the Uninsured and Underinsured, Health Policy, The JAMA Forum

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