By Ruth Ducret
Opportunity awaits for nonprofit hospitals that can tap into investors’ needs for greater ESG disclosure.
The health care industry is buzzing about social determinants of health (SDOH) – the conditions in which people are born, grow, live, work and age that ultimately drive a variety of health outcomes.
Hospitals are increasingly incentivized monetarily to lower costs by reducing hospital visits, and a healthier population can help accomplish this goal. We believe hospitals that effectively tackle SDOH in their communities can improve health care outcomes while reducing costs, which can enhance operating results and bolster credit quality over time. However, despite potential savings and improved health results, the industry is still in the early stages of meaningfully addressing SDOH due to a host of complex challenges.
Health care industry research quantifies the favorable impact of SDOH initiatives. The Centers for Medicare & Medicaid Services (CMS) view addressing SDOH such as housing, transportation, education and social isolation as a means to achieve health equity and reduce costs. The CMS reports that U.S. health care spending grew by 3.9 percent in 2017, reaching $3.5 trillion or $10,740 per person, and accounted for 17.9 percent of the nation’s gross domestic product.1 Much of that spending is related to preventable disease tied to SDOH. The National Academy of Medicine reports that SDOH account for more than 80 percent of modifiable contributors to healthy outcomes for a population.2 County Health Rankings & Roadmaps found that up to 90 percent of health outcomes are a result of social, behavioral and economic factors.3 Health care providers also consider SDOH progress as complementary to a nonprofit organization’s mission and a source of positive publicity.
While discussions of the health care industry’s SDOH efforts are common, the industry is still in the beginning stages of taking meaningful action. Given the size, scope and complexity of the underlying social issues that impact health outcomes, gaining comprehensive knowledge of the needs of the communities that hospitals serve can be challenging. Further state- and federal-level alignment in policies promoting improved population health outcomes may be necessary to enable further SDOH progress locally.
Other headwinds confronting hospitals as they seek to advance their SDOH strategies include:
The increased SDOH focus is in line with the ongoing shift in the industry to value-based payer reimbursements and away from traditional fee-for-service reimbursements. The 2010 Affordable Care Act (ACA) seeks to shift to pay-for-value reimbursements that pay health care providers based on the quality of care they provide rather than the quantity. Historically, providers were paid based on the tests they ordered, or the procedures they performed – pay-for-service. After the ACA, hospitals and doctors more frequently are paid based on value as indicated by measures including quality of care, efficiency, cost and positive patient experience.4
The variety and complexity of value models is somewhat daunting. The CMS, which provides Medicare and Medicaid reimbursements, employ several value-based programs addressing a number of metrics intended to support its three-part aim of achieving better care for individuals, better health for populations and lower costs.5 Increasingly, private insurance companies are following the lead of government payers by contracting with providers based on value.
While a trend away from traditional fee-for-service models is underway, payment practices that are not linked to quality still make up most public- and private-payer health care reimbursements. Reimbursements made through value-based models grew from 29 percent in 2016 to 34 percent in 2017. Various forms of fee-for-service models accounted for 66 percent of reimbursements in 2017, down from 71 percent in 2016.6
Further challenging hospitals and health care providers in addressing SDOH is how to collect complete and accurate data on overall populations in order to identify patients in need of services. For example, identifying patients who need utility assistance programs, struggle with housing insecurity or face transportation hurdles that keep them from their appointments can be difficult.
According to a study published in JAMA, the Journal of the American Medical Association, only 24 percent of hospitals and 15.6 percent of physician practices currently screen patients for the five social determinants of health identified by the CMS. The study found that practices serving more-economically disadvantaged populations reported higher rates of screening and that academic medical centers are more likely than other hospitals to screen.7 Instituting the framework and technology systems for tracking SDOH that are outside of a hospital or provider’s traditional purview can be costly, particularly if reimbursement models are not fully aligned and the long-term impact is challenging to quantify.
Even when support by physicians and hospital groups is in place and the alignment with the pay-for-value reimbursement model exists, little is known about the extent to which tracking and addressing SDOH have influenced and changed care delivery.8 Establishing the direct link between revenues spent by a hospital to address SDOH and better health outcomes is difficult to prove beyond anecdotal evidence and isolated cases.
There are instances of a relatively small number of specific, targeted programs implemented by a handful of hospital systems where cost savings can be calculated. Throughout the country, however, these programs are more the exception rather than the rule. Given that the focus on SDOH by the health care industry is new, broad-based and comprehensive data does not currently exist.
Nonprofit hospitals exist to benefit the communities they serve, which underpins their tax-exempt status and their eligibility to receive charitable donations. In the early 19th century, hospitals were viewed by their communities as welfare institutions and in many cases served as a haven for the elderly, unemployed, disabled and ill. In the early 20th century, resources to address the social needs of the community shifted largely to outside organizations and the government. Given the size, scope and complexity of SDOH, hospitals and providers cannot and do not operate in a vacuum. Some in the health care industry urge additional resources on the federal and state level to encourage health care providers in promoting improved population health outcomes, specifically by addressing SDOH.9
While the U.S. government far outpaces the rest of the world in terms of health spending, its outcomes per capita are far worse. For example, a U.S. citizen will consume approximately $848,000 in health care and live an average of 79 years while a German citizen will use approximately half that amount (or $464,000 over a lifetime) and live an average of two years longer.10 However, when comparing total net social expenditures of industrialized nations, including health care costs, the U.S. is roughly in line with other nations. Total social spending (including health and other social services) was 29 percent of gross domestic product in the U.S. in 2013 compared to 25 percent on average in other comparable countries.11 Some argue that a comprehensive strategy in the U.S. to address SDOH could help shift that imbalance.
The scope and complexity of the various underlying social needs that impact health outcomes are enormous and the data used to identify and track these challenges are not fully developed. The ongoing shift in payment reimbursement models will continue to motivate the industry to address SDOH strategies by aligning payment incentives. Over the long term, as pay-for-value reimbursements become the norm as a payment model, we view nonprofit hospitals that are better able to control costs, including by addressing SDOH, as more-sound investments.
 CMS: Historical Statistics: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html
 “Social Determinants of Health 101 for Health Care: Five Plus Five,” National Academy of Medicine, October 9, 2017, https://nam.edu/social-determinants-of-health-101-for-health-care-five-plus-five/
 C.M. Hood, K.P. Gennuso, G.R. Swain and B.B. Catlin, “County Health Rankings: Relationships Between Determinant Factors and Health Outcomes,” American Journal of Preventive Medicine, February 2016.
 Fred Pennic, “6 Most Common Value-Based Payment Models,” HIT Consultant, May 29, 2014, https://hitconsultant.net/2014/05/29/6-most-common-value-based-payment-models/#.XZykRkZKiUl
 Centers for Medicare and Medicaid, “What are the value-based programs,” https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/Value-Based-Programs.html#targetText=What%20are%20the%20value%2Dbased,is%20delivered%20and%20paid%20for.
 Health Care Payment Learning & Action Network (LAN): https://hcp-lan.org/2018-apm-measurement/; https://hcp-lan.org/about-us/#
 Taressa K. Fraze, PhD, Amanda L. Brewster, PhD and Valerie A. Lewis, PhD, et al., “Prevalence of Screening for Food Insecurity, Housing Instability, Utility Needs, Transportation Needs, and Interpersonal Violence by US Physician Practices and Hospitals,” JAMA Network, September 18, 2019, https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2751390?widget=personalizedcontent&previousarticle=2751385
 Hannah Sullivan, “Hospitals’ Obligations to Address Social Determinants of Health," AMA Journal of Ethics, March 2019, https://journalofethics.ama-assn.org/article/hospitals-obligations-address-social-determinants-health/2019-03
 Breckinridge calculation based on World Bank data on average life expectancy (https://data.worldbank.org/indicator/sp.dyn.le00.in) and the Peterson-Kaiser Health System Tracker, Country Comparison: Health consumption expenditures per capita, U.S. Dollars, PPP adjusted 2017: https://www.healthsystemtracker.org/indicator/spending/per-capita-spending/
 S&P Global Ratings Research and Kaiser Family Foundation analysis of data from OECD, 2017; “Health expenditure and financing: Health expenditure indicators,” OECD Health Statistics database and OECD, 2017, Social spending indicator (Accessed by S&P on 12 November 2017).
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By Ruth Ducret
Opportunity awaits for nonprofit hospitals that can tap into investors’ needs for greater ESG disclosure.
By Adam Stern
Yesterday, the U.S. House passed the American Health Care Act (AHCA). Now, as the bill moves to the Senate for approval, municipal investors should keep the following in mind as this legislation moves forward.