Where will the money come from?

How Medicare is taking into account factors beyond the doctor’s office

By Catherine Stapleton and Brendan O’Connor, Quantified Ventures


Health is increasingly recognized as the product of many social, economic, and environmental factors (i.e., social determinants) that extend far beyond the four walls of the doctor’s office. For Medicaid Managed Care Organizations (MCOs), this recognition has meant big strides in payment reforms through Value-Based Purchasing (VBP) initiatives like pay-for-performance, bundled payments, shared savings/risk, and capitated/global payments. Several states that have launched Medicaid ACO programs are requiring or encouraging ACOs to tackle these social determinants through interventions targeted at homelessness, food insecurity, transportation, and screening for social needs.

Legally, until now, Medicare Advantage has been allowed little flexibility to pay for services provided through community organizations addressing social determinants of health. Most services were considered non-medical and, therefore, non-allowable — thus presenting very little impetus for healthcare providers to partner with human and social service organizations.

This spring, two monumental updates radically changed that calculus, allowing for greater flexibility and innovation for those addressing social determinants. The Bipartisan Budget Act of 2018, specifically the CHRONIC Care Act, expanded the definition of “primarily health-related supplemental benefits” to include services that are expected to improve or maintain the health and function of chronically ill Medicare Advantage enrollees, including expanded telemedicine benefits and in-home modifications. While these provisions will not be implemented until 2020, the 2019 Medicare Advantage and Part D Final Rate Notice and Call Letter made the Centers for Medicare and Medicaid Services’ (CMS) interpretation of supplemental benefits effective in 2019. Specifically, the Final Rate Notice expanded the definition to include benefits that may diagnose, prevent or treat an illness or injury, compensate for physical impairments, lessen the functional or psychological impact of health conditions, or reduce avoidable emergency care utilization. In other words, there is now opportunity to experiment in a way never seen before.

While that’s exciting, there’s still a lot left to figure out. For Medicare Advantage plans seeking to partner with community-based organizations, determining the type and frequency of services that fall under this expanded supplemental benefits definition will be key. And, while the current rule does not require supplemental services to be ordered by a licensed provider, the new rule does. Complementary and alternative medicine services or in-home safety modifications, like grab bars for example, could only be covered if ordered by a licensed provider who deems them medically necessary.

Moreover, today’s supplemental benefits definition excludes services used for daily maintenance, like dressing, bathing, and other personal care activities. The revised definition takes into account recent evidence indicating the importance and value of these services in avoiding emergency care. This aspect is particularly exciting given the potential for non-skilled in-home care to promote successful aging-in-place and quality post-acute care.

Yet another opportunity has to do with the potential for scale. Right now, these changes are limited to a subset of beneficiaries (i.e., Medicare Advantage enrollees, which account for roughly 35% of all Medicare coverage). It’s only a matter of time before other plans adopt similar, forward thinking provisions.

As we’re starting to wrap our collective heads around some of these answers, a very big question remains; how do these services, many of which may be new and untested by health plans, get funded? For some benefits that are tried and true (such as home-delivered meals) where the new guidance will allow for flexibility, the answer will be easy: direct payment for services. But for a host of other interventions and services that MA plans are eager to test as part of a supplemental benefit package, the associated costs and risks may be too high to justify deployment at scale — even if a sound argument exists that the solution will lower expenditures and improve quality and outcomes.

We see this far too often in healthcare; the burden of proof is high, yet the means for generating credible evidence in real-world settings are scarce. This catch 22 predicament hasn’t seemed tractable — until now.

Enter impact investors. Worldwide, impact investors, those seeking to deploy mission-aligned, patient capital, are looking for opportunities to support innovative solutions to persistent health, environmental, and social challenges, while simultaneously generating financial returns. With this capital hitting $114B in the U.S. alone in 2017, health plans have an immediate opportunity to tap into this new and growing pool of capital, while shifting the up-front risk of funding supplemental benefits (which might seem too risky or costly to fund in-house) to parties with a higher tolerance for risk.

We see this far too often in healthcare; the burden of proof is high, yet the means for generating credible evidence in real-world settings are scarce. This catch 22 predicament hasn’t seemed tractable — until now.

Through new outcomes-based financing models like Pay for Success (PFS), also referred to as Social Impact Bonds, health plans can tie payment to the achievement of commonly valued health outcomes, such as reduced social isolation, improved medication adherence, or reductions in non-emergent ED visits. In effect, models like PFS can enable scale and financial sustainability for supplemental benefits that plan leaders would like to deploy — absent capital constraints and insufficient evidence.

For plans weighing the viability of models like PFS, the essential question becomes: is there a compelling intervention or service for which I would potentially pay, if and only if valued outcomes (such as reduced utilization) could be demonstrated with my members? This is not, however, the only consideration; for some well understood and/or commonly deployed interventions, the premium paid (in the form of investor return) may not be worthwhile. For other interventions, this premium payment is well worth the risk — offering both an on-ramp to value-based purchasing and an opportunity to test new collaborations. At Quantified Ventures, we help plans find this sweet spot, and then navigate the journey of developing their first several PFS projects — all the while building their internal capacity to confidently identify and pursue these opportunities.