Investing in Population Health Capabilities

Healthcare providers are finding financially sustainable ways to spend big dollars on improving the health of their patient populations.

This article first appeared in the October 2016 issue of HealthLeaders magazine.

While a universally accepted definition of population health is elusive, David Kindig, MD, PhD, and Greg Stoddart, PhD, took this scholarly stab at characterizing the concept in a 2003 issue of the American Journal of Public Health: "The health outcomes of a group of individuals, including the distribution of such outcomes within the group."

Kindig and Stoddart also asserted that "the field of population health includes health outcomes, patterns of health determinants, and policies and interventions that link these two."

Healthcare providers are collectively investing billions of dollars to support the "policies and interventions" deemed necessary to help boost the collective health of their patient populations, says Robert Massenburg, senior vice president and healthcare industry manager at SunTrust Bank, a corporate and investment bank based in Atlanta. "There are two areas where hospitals, health systems, and physician practices are investing in population health. One is information technology, and the other is infrastructure."

Electronic medical records dominate the information technology sphere of investments in population health, he says. "If you look at a single-site hospital with 200 to 500 beds, you're going to spend somewhere between $30 million and $75 million on an EMR system, which includes all the hardware, software, and the increased staff. You're not just buying hardware and software and using the same staff that you had—you're creating a new information group at the hospital.

"If you look at multisite hospitals, with between five and 10 hospitals, you're looking at exceeding $200 million in investment. If you're looking at a large academic medical center, with a large faculty practice, I have seen investments over a half-billion dollars. Those are sizeable investments, and most of the time, those investments are paid for over the first two or three years. … You're looking at somewhere between $50,000 for a single-physician practice, and for a group, in the low hundreds of thousands," Massenburg says.

"Hospitals and health systems are looking at decompressing their campus—moving certain levels of care and services off of their campus closer to where their patients are living and working."

He says infrastructure spending at healthcare providers that is designed to support population health goals focuses on two areas: brick-and-mortar investments in outpatient facilities off hospital campuses, such as urgent care centers, and revolutionary staffing changes that the healthcare finance consultant calls "the human element."

"Hospitals and health systems are looking at decompressing their campus—moving certain levels of care and services off of their campus closer to where their patients are living and working," Massenburg says of brick-and-mortar investments in population health capabilities.

"The human element" is a diverse collection of new or expanded healthcare staffing roles, he says. "When you're thinking about the patient's care team, it's going to be quarterbacked by the primary care physician and you're also going to have nonclinicians including financially minded members. Their roles will include data analytics for clinical protocols and pathways, assisting the team on the most effective and efficient means to deliver healthcare to the patient. In addition, caseworkers will continue to work with the uninsured and underinsured patients to either qualify them for government assistance and/or navigate the healthcare exchanges. You'll have others on the care team who will conduct door-to-door assessments, actually visiting patients in their homes. They will work with patients to make sure they are taking their medications, provide guidance on better nutrition, and encourage daily exercise.

"While this will add incremental cost to the delivery of care, in the long run it is expected to reap financial benefits by reducing readmission of patients including those with chronic illnesses such as diabetes, hypertension, and COPD. The expectation is that this team approach will promote a health-and-wellness concept, thereby reducing their overall need for healthcare services."

For health systems and hospitals, self-funding is the financing method of choice for investments in population health capabilities, Massenburg says. "We have worked closely with our clients to vet all of the funding options, including public debt, bank debt, leasing options, and self-funding. … Given the size and resulting net operating cash-flow levels along with the internal liquid reserves of most of the health systems, the majority have ultimately decided to self-fund."

Physician practices generally do not have the resources to self-fund investments in population health capabilities, he says. "Most of it is bank financing. Most of these physicians don't just have $50,000 sitting in a bank."

Pleasant population health surprise for rural providers
In rural areas, the federal Centers for Medicare & Medicaid Services has invested more than $100 million to help physician practices fund investments in population health, says Lynn Barr, MPH, CEO of Caravan Health and chief transformation officer of the National Rural Accountable Care Consortium based in Austin, Texas. But that investment of taxpayer dollars has not been sufficient to finance population health investments at rural practices, particularly regarding care coordinators, she says.

"Rural practices are having to come up with some of the money themselves. Ultimately, when a care coordinator builds a full panel, which we tag at about 200 chronically ill Medicare patients, then that care coordinator generates about $100,000 per year of revenue for the practice, and their costs are about $75,000."

The ability of care coordinators to drive new revenue from outpatient services that boost population health such as wellness exams, mammography, colonoscopies, and other preventive care services has been a revelation at rural accountable care organizations, Barr says. This is especially true for hospital CFOs who have been bracing for lower inpatient service and emergency department utilization as the overall health of their patient population improves, she says.

"What we are finding—and this was not expected because what we feared is that if you started coordinating care and the rural hospital started losing business, the whole thing would fall apart—is that we are hearing from the CFOs that even though their total inpatient utilization for their population went down and their total costs decreased, the local spending on healthcare services increased."

Digital retinal exams help control total cost of care
At safety-net healthcare providers such as Harris Health System, which includes 23 community health centers, five school-based clinics, a rehabilitation and specialty hospital, and two full-service hospitals, cost control is the prime financial benefit of investing in population health capabilities, says Jennifer Small, AuD, MBA, CCC-A, vice president of ambulatory care services at the Houston–based organization. Over the past three years, she says Harris has launched several population health initiatives aimed at improving clinical outcomes for patients with diabetes, including group diabetic visits and digital retinal imaging exams.

In 2012, Small proposed purchasing three digital retinal imaging camera systems at a cost of about $18,000 each along with a full-time technician to run each camera at an annual salary of about $35,000, she says, adding that the COO at Harris liked the idea so much he gave the nod when she suggested more than doubling the proposed purchase. That COO, George Masi, is now Harris Health System CEO. "George Masi asked how many cameras we would feel comfortable with. I said eight, and he approved it. Even with the financial constraints with the payer mix that we have, he saw the value and agreed that this was something that needed to be done," Small says, noting about two-thirds of the health system's patient population is uninsured.

The cameras have been deployed at primary care clinics.

"We are functioning on the assumption that the financial impact will eventually become net neutral. Certainly, with the retinal camera, it is identifying more patients that have retinopathy, and that means these patients will need to see more advanced ophthalmologists or other specialists. When you look at the costs of managing a patient who has a severe condition and it's caught early versus being later in the process and the condition exacerbates, it really makes sense to detect these things earlier. … There is the initial investment, but avoiding the downstream costs of care certainly warrants moving forward with the program."

Harris is planning to purchase five more of the cameras, so that most primary care clinics in the health system can be equipped with the devices, which are superior to traditional retinal exams because the cameras capture images of nearly the entire retina in seconds and store the data digitally for comparison to future annual exams. In addition to helping the health system reduce total cost of care for about 50,000 diabetics in its patient population, the digital retinal cameras are boosting patient access to retinal exams. Under the Healthcare Effectiveness Data and Information Set (HEDIS) measures developed by the National Committee for Quality Assurance, retina exams are a quality-of-care metric for patients with diabetes.

"Our providers and primary care physicians were doing an excellent job. About 96% of them were ordering an eye exam for their diabetic patients. The problem for us was access," Small said of the retinal exam challenge before Harris purchased and deployed the digital cameras in 2013. "We determined that the best way to improve our outcomes was to have a retinal camera because 96% of our physicians were ordering retinal exams for their patients, but only about 60% were getting the exams."

Now, about 72% of the health system's diabetes patients are getting the digital retinal exams, she says.

Urgent care centers playing a role in population health
Urgent care centers have become a powerful and profitable part of the population health strategy at the Our Lady of the Lake health system based in Baton Rouge, Louisiana, that includes a private, not-for-profit 800-bed Regional Medical Center, dedicated Children's Hospital, and 350-provider physician group and primary care network, says CEO K. Scott Wester.

"We have a clinically integrated health network called Health Leaders Network, and we are managing almost 100,000 lives. When you think about the population health aspects of it, the urgent care fits very nicely into the overall capabilities of managing a large patient population. … It gives another access point for those who have an urgent condition to seek care at a very affordable location—rather than to be seen in a very expensive location—then be able to have a quick follow-up visit with a specialist if that is needed."

Our Lady of the Lake has a dozen urgent care centers in a joint venture partnership with Premier Health, which is also based in Baton Rouge and manages the facilities. The cost of building and equipping each clinic was about $600,000, Wester says. "Being a joint venture company, we try to make sure that our urgent cares stand on their own two feet. Like any organization, we review typical financial metrics as well as patient service and clinical outcomes. Today, all of our urgent care centers have been very profitable—more profitable than running a hospital today, with hospital margins usually ranging less than 5%."

Urgent care centers not only support a health system's population health strategy but also generate a healthy return on investment, says Steve Sellars, MBA, Premier Health's CEO. "The contribution our joint-venture urgent cares can make to a health system's population health strategy maximizes ROI across the board. It starts by helping our health system partner reduce emergency room costs. … Up to 40% of patients treated in the ED could have been seen in an urgent care setting. When you consider the Center for Improving Value in Healthcare estimates the average cost of an ED visit is seven times what it would cost to treat in an outpatient setting, the potential for downstream savings is tremendous," he says.