Focusing on small populations may yield large returns

Banker Commentary by Ted Kaehler, July 2022

<p>Focusing on small populations may yield large returns</p>

The transition to value-based care has been on the top of mind to healthcare providers for many years, but the evolution has been slow. However, hospitals and provider groups that operated exclusively under the traditional fee-for-service arrangement were exposed during the pandemic when utilization suddenly and unexpectedly declined or in some cases went to zero. As providers look back and assess, population health management (PHM) must become an area of focus for the future. PHM has many definitions but is commonly defined as the following:

“Population health is the health outcomes of a defined group of people, including the distribution of such outcomes within the group.”1

Managing a population or a group of people and their health requires different capabilities than delivering care to sick patients. Healthcare providers should be investing in capabilities that are required to successfully manage this transition. They include:

  1. Data analytics and predictive capabilities
  2. Technology infrastructure that enables close coordination of the patients’ healthcare journeys
  3. Broad network of continuum partners to ensure that a patient is in the right setting for the care they are receiving

Finally, PHM will require a complete change in thinking and full buy-in from the care providers. Namely, the goal of population health management is to keep patients out of the hospital or office. The implications of this approach, holding all else equal, is a reduction in utilization; but, there are ways for providers to build these capabilities without destroying the core business, and the key is to start small.

The very foundation of a successful population health platform requires that the population first be defined; there are many ways to do this with a small population, such as an employer group, a rural community, or an at-risk population, such as the recently incarcerated. These are a few examples. Successfully managing a small group will generate attractive economics and diversify the traditional core fee-for-service model.

For example, the average Medicare Advantage plan yields approximately $800–$1,200 per member per month, while the average Managed Medicaid plan yields approximately $450–$650 per member per month. A relatively small population of say 5,000 Medicare members yields upwards of $48–$72 million in annual revenue to the entity that carries the risk.2 Since 85%+ of this revenue is spent on patient care, physician groups and hospitals, particularly those with primary care physicians, may structure arrangements to take the patient risk for the attributed population.

As the capabilities are developed and perfected, the providers will have a playbook to manage larger populations, take on more risk or even full global risk, invest in other determinants of health, creating a virtuous cycle of patient health, and have a business model that is fully aligned with the needs of the patient.

Start small. The first step is to define a population, invest in the capabilities needed to manage the population, and build the expertise to support the growth in members and ability to take on more risk. This is an exercise that will take time, require patience, and demand coordination with partners. However, there is tremendous value in patient attribution and capturing a portion of the premium dollar, and organizations that are able to successfully manage this risk will find success in the years ahead.

1

Kindig, D. and G. Stoddart. 2003. What is population health? American Journal of Public Health 93(3):380-383

2

LEK and Kaiser Family Foundation

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