The Stew BLOG

By How Much Do Costs Need to Be Reduced to Leverage True Health Transformation?

Bobby Milstein, Director, System Strategy | 08/08/2016

Proposals abound for improving regional health: some call for initiatives to enhance clinical care and reduce costs, some focus on payment reform, others combine clinical and population-level interventions, and many more. In this increasingly complicated environment, it is challenging to determine which interventions will have the greatest impact and how to finance them over time.

While there is broad agreement that we need to reduce clinical care costs and expand investments in population health, many leaders struggle to answer a practical, economic question: by how much would we have to reduce costs to have enough financial resources to invest in longer-term strategies that drive population health? Because this question is so central to advancing health transformation (not simply health improvement), my colleagues Jack Homer, Gary Hirsch, Elliott Fisher and I set out to see if we could generate some concrete answers using our ReThink Health Dynamics Model, which simulates a regional health system.

Some specific insights are published in this month’s issue of Health Affairs. In one featured scenario, for example, we found that if costs were reduced by 14 percent and half were reinvested in a wider portfolio of initiatives, that combination could drive significant shifts in health, equity, and economic productivity over the next 25 years. These results suggest that it is not necessary to slash budgets or to raise vast amounts of up-front capital to shift toward a positive, long-term health trajectory.

The main scenario in this new article demonstrates that select, combined investments in clinical and population-level initiatives, coupled with affordable long-term financing strategies, have the potential to reduce costs by as much as 14 percent and chronic illness by as much as 20 percent, and increase workforce productivity by approximately 9 percent by 2040. While model outcomes are not predictive, they are a solid reference point because they are consistent with current trends and expected population changes.

This scenario demonstrates that health transformation is possible and affordable. In my experience, it is common for leaders to address one or two problems, yet it is rare for them to combine initiatives and funding in a manner that changes the course of the entire health system, which this analysis suggests has the greatest promise for dramatic advancement. The integration of healthcare cost reduction, along with the commitment to reinvest a fraction of those savings, is critical to make this scenario practically affordable, and to having a real, lasting impact on the health system.

The particular elements in this combined strategy involve investments in: delivering higher-value care (e.g., eliminating unnecessary services, and enhancing quality and capacity); enabling healthy behaviors; and increasing socio-economic opportunities (e.g., living wage laws, tax credits, childcare subsidies, and vouchers for housing). These initiatives are funded through financial agreements that reduce incentives for costly care (shifting from fee-for-service to global payment) and also reinvest a share of savings to ensure adequate long-term financing.

Are you ready to propel your region into a promising new phase of health transformation?

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