- The U.S. spends considerably more on health care than any other country, both per capita and as a share of GDP, but its residents' life expectancy is below average.
- According to the CDC, factors such as a person's social and physical environment--broadly referred to as the social determinants of health--affect one's overall health more than clinical health care services do.
- There has been increased recognition that improving health while better controlling costs will require a broader approach that addresses these social factors, which now have a part in determining reimbursement.
- Developing policies around social determinants and incorporating them into the larger shift toward value-based care requires capturing nonmedical information in a consistent, predictable way.
- As the public and private sectors continue to focus on nonclinical care to improve medical outcomes, we expect new kinds of companies to emerge that incorporate these factors into their basic business models.
- We believe traditional health care providers, which are adapting to value-based care models, will have to incorporate these factors to defend their competitive positions.
Social determinants of health (SDOH) are the conditions under which people live and work that affect their health and health risks. They are increasingly reshaping how the U.S. provides and pays for health care. Indeed, both the private and public sectors are recognizing that SDOH will help society achieve a better relationship between health care costs and quality.
Over the past couple of decades, the U.S.'s attempts to provide quality health care to its population and control costs--broadly referred to as health care reform--have had very mixed results. However, the recognition of SDOH has brought a new and broader meaning to health care reform, given the transformational trends in care delivery and payment methodologies. This requires companies to revise their growth strategies, including new ways of investing capital. Given that our credit analysis continues to incorporate these factors, we believe SDOH will increasingly influence credit ratings.
S&P Global Ratings believes that in the context of ESG (environmental, social, and governance), social factors are highly relevant within health care. ESG factors are considerations in our analysis, including a company's level of reimbursement risk and reputation with stakeholders such as legislators, patients, doctors, payors, and employees, which we categorize as social factors. Health care is also often considered a social service, and in some populations, the availability of other social services (or lack thereof) can affect personal health. The industry's effort to recognize the role that SDOH plays gives it an opportunity to improve care and reshape the common view that the quality of care delivered by U.S. industry does not justify the level of spending.
Linking costs to outcomes fundamentally incorporates the concepts of SDOH. According to the CDC, five main factors contribute to a person's health:
- Individual behavior (alcohol use, smoking, drug use, unprotected sex);
- Social environment (gender, income, discrimination factors);
- Physical environment (where one lives and living conditions); and
- Access to health services and health insurance.
In fact, these factors account for more of a patient's health care outcome than do clinical services, the CDC says. Addressing these factors, which in essence emphasizes acknowledging the underlying societal issues, is at the very core of the industry's current transformation, as is a focus on preemptive care and prevention rather than the traditional focus on episodic care. Incorporating ever-expanding incentives now embedded in reimbursement methodology, the focus will increasingly be more on cost-effective prevention as opposed to the expensive episodic treatment for a disease stemming from--or exacerbated by--one or more of the five factors.
The COVID-19 pandemic has demonstrated how SDOH have had a significant impact on the virus' spread, severity, and outcomes. For example, homeless families are at higher risk of viral transmission because of crowded living spaces and scarce access to COVID-19 screening and testing facilities. Similarly, adults with low incomes have a higher risk of serious illness if infected with coronavirus, as they are more likely to have chronic conditions. As such, we expect renewed attention from the private sector on nonmedical care as part of a better health care strategy, and the public sector has begun to acknowledge it as well.
Higher Health Care Spending Does Not Lead To Better Outcomes
The U.S. spends more on health care than any other nation. According to the OECD's "2019 Health At A Glance" report, the U.S. spends considerably more on health care than any other country--both per capita and as a share of GDP. In 2018, the U.S. spent 16.9% of its GDP on health care, which was well above that of the next-highest country, Switzerland, at 12.2%. (According to a different source, the Centers for Medicare & Medicaid Services, health expenditures accounted for 17.7% of the U.S.'s GDP in 2018 and are projected to continue increasing.) While there is a positive association between health spending per capita and life expectancy, eight countries spend less than average but achieve higher life expectancy. The only country with both much higher spending than all other OECD countries and lower life expectancy than the OECD average is the U.S.
Overall life expectancy is just one statistic for measuring the effectiveness of health care spending. Comparing the mortality rates of various diseases, the U.S. still lags behind, which once again makes it hard to justify the higher spending. The Health System Tracker (a partnership between the Peterson Center on Healthcare and the Kaiser Family Foundation) compares age-adjusted mortality per 100,000 members of the population for most leading causes of death. The report showed that overall mortality for the U.S. and similarly large, developed peers declined over 1980-2015, but the pace of improvement for the U.S. was slower. Cancer is the only major cause of death where the U.S. has had better outcomes than comparable countries.
The U.S. Rethinks Its Approach To Lowering Health Care Costs
The U.S.'s poor health outcomes relative to those of peers demonstrate that a new approach to health care reform is necessary. Until recently, efforts to lower costs have focused on drug pricing, patients' clinical needs, new payment models, and pharmacy benefit managers. However, there has been increased recognition that improving health while better controlling costs will require a broader approach that addresses SDOH. According to CMS, "unmet health-related social needs, such as food insecurity and inadequate or unstable housing, may increase the risk of developing chronic conditions, reduce an individual's ability to manage these conditions, increase health care costs, and lead to avoidable health care utilization."
The Public Sector Is Recognizing That Better Health Will Mean Addressing Issues Outside Of Medical Care
At both the federal and state levels, the public sector is recognizing the power of SDOH, as the numerous program initiatives so far demonstrate. At the federal level, the Department of Health and Human Services (HHS) included "creat[ing] social and physical environments that promote good health for all" as one of only four overarching goals in "Healthy People 2020," a set of objectives identified once a decade to improve the health of all Americans.
According to the CDC, poverty limits access to healthy foods and safe neighborhoods, while more education is a predictor of better health. CMS is now incorporating non-medical services into benefit plans as it recognizes the importance of SDOH. In 2019, it expanded the definition of "supplemental benefits," authorizing Medicare Advantage plans to cover nonmedical services--such as adult day health services or in-home support services--to address social determinants for people with chronic diseases. In early 2018, the Bipartisan Budget Act of 2018 (BBA 2018) mandated important changes to the Medicare program for individuals with multiple chronic conditions. In addition, the CHRONIC Care Act (part of BBA 2018) further integrates nonmedical services by waiving the requirement that all members be offered uniform access to benefits. The act enables more specific targeting of services, such as meal delivery, home modifications to assist with mobility, and personal care services.
State agencies (as well as health care providers) increasingly acknowledge the role SDOH play in patients' health status and health care costs, particularly because SDOH disproportionately affect low-income individuals, many of whom are served by Medicaid. Recently, the Social Determinants Accelerator Act, bi-partisan federal legislation, was introduced to assist states and communities in coordinating programs that address social determinants, to improve the health and well-being of individuals participating in Medicaid. The act proposes planning grants and technical assistance for states and communities to address individual patient nonmedical needs that are closely tied to health, like food security, housing stability, and employment. As this would leverage existing programs and authorities, the act requires the active participation of hospitals and health systems to form closer ties with social service agencies and community groups, in turn improving outreach to health care services not typically covered by Medicaid.
The Helping Ensure Access to Local TeleHealth (HEALTH) Act was introduced in June 2020. This would provide permanent Medicare payments for telehealth services at federally qualified health centers and rural health clinics. Earlier in the month, the Evaluating Disparities and Outcomes of Telehealth During the COVID-19 Emergency Act of 2020 was introduced to require the Secretary of HHS to conduct a study within a year of the end of the emergency period summarizing health care, particularly telehealth, utilization patterns during the coronavirus pandemic. To tackle COVID-19 provider headwinds and continue treating non-COVID-19 patients in an appropriately physically distant manner, CMS relaxed requirements around reimbursements early in the pandemic. Providing permanent telehealth payments would address barriers like transportation, increasing care among senior, lower-income, and rural patients.
The Private Sector Is Integrating Nonclinical Care, Often With Community Partners
As the focus on value-based care increases, efforts to reduce costs and improve outcomes are becoming incorporated into reimbursement payment methodologies. In turn, providers are becoming more incentivized to do less rather than more, encouraging better management of costs by treating patients in more cost-effective settings. These shifting priorities include efforts to keep patients healthy at home. To help attain this goal, the private sector has been innovative with various programs that integrate nonmedical care as part of a value-based outcomes-driven strategy, such as:
- As early as 2015, Humana announced its Bold Goal, a population health strategy to improve the health of the communities it serves, tackling food insecurity, social isolation, and transportation. Humana has a program that rates community efforts across the country on a variety of factors from loneliness to food insecurity.
- In 2017, Pfizer unveiled its Oncology Together program, which links patients with social workers who can help connect them to emotional support as well as help with transportation, lodging, work, or financial issues.
- In 2019, CVS Health and its Aetna health insurance unit began to collaborate with a social care coordination platform with a series of initiatives, such as investing more than $60 million in affordable housing. Insurers Anthem and UnitedHealth Group have invested in affordable housing and reimbursement for certain housing-related costs, like rent. In 2019, UnitedHealthcare announced it has surpassed $400 million in investments in new affordable housing.
- In January 2020, The Humana Foundation, the philanthropic arm of Humana Inc., announced it is investing $7.6 million in eight communities across the southeastern U.S. to address social determinants of health on a local level, addressing financial asset security, post-secondary attainment, and sustaining employment and food security.
- In February 2020, EmblemHealth announced the launch of the "Health Care Is" campaign, aimed at broadening the dialogue on SDOH by framing it around issues and causes that consumers care about.
- During a February 2020 call following the release of Lyft's expectation-beating fourth-quarter earnings report, the company highlighted its progress in expanding partnerships in the health care sector, viewing the nonemergency medical transportation business as a multi-billion-dollar opportunity. The company provides rides for Medicaid beneficiaries in several states and expanded its commercial agreements with health care providers and hospital systems to service these rides.
The Shift To New Payment Alternatives Focusing On Value Is Creating New Business Models
As all payors--both public and private--refine payment models, the industry is adapting, focusing more on ways to improve outcomes and reduce overall health care costs, including better care coordination and lower hospitalizations. As this process progresses, existing companies may evolve as they tweak their strategies, and a new crop of companies may emerge.
Providers focusing on care outside the hospital setting such as Gentiva Health Services Inc. (doing business as Kindred at Home; B/Stable/--), Pluto Acquisition I Inc. (doing business as AccentCare; B-/Positive/--), and BW Homecare Holdings LLC (doing business as Elara Caring; CCC/Negative/--) are taking on a more prominent role and tailoring their services to include those focused on SDOH. While Kindred at Home, AccentCare, and Elara Caring are concentrated in home care, more than 40% of revenue of AccentCare and Elara Caring stems from nonclinical personal and community care, offering nonskilled attendant care for daily activities such as personal hygiene, dressing, meal preparation, and medical adherence. These solutions allow patients to remain in their homes, driving better outcomes and lower re-hospitalization rates, in addition to being less expensive for payors than an alternative institutional setting.
Companies such as Cure TopCo LLC (Signify Health; B/Stable/--) and Press Ganey (not rated) are focused on evaluation products that gather data for various needs relating to quality, compliance and reimbursement. Cure TopCo has two businesses (Signify and Remedy) that incorporate SDOH. Signify performs in-home evaluations annually to create comprehensive evaluations of health and social determinants information for the benefit of Medicare Advantage plans. Remedy provides services that enable health systems, at-risk providers, and employers to organize, execute, and finance value-based health care delivery. It produces savings for Medicare from the Bundled Payments for Care Improvement (BPCI) initiative and by coordinating post-acute care. The company identifies and addresses the social and behavioral factors affecting patients, such as access to care, food, transportation.
Another group of companies offering solutions to enhance efficiency, improve outcomes, and reduce costs include health care IT companies such as Project Ruby Parent Corp. (doing business as Wellsky; B-/Stable/--). Wellsky is an enterprise software provider of technology solutions to health care providers and human services organizations, enabling clients to manage clinical, financial and administrative workflows. The company recently entered the growing personal care segment with its acquisition of ClearCare Inc., a leading provider of a software-as-a-service platform used by personal care agencies.
SDOH Are Making Their Way Into Reimbursement Payments
SDOH now have a part in determining reimbursement. The ICD-10 (International Classification of Diseases, Tenth Revision) coding system is used by health care providers to classify and code all diagnoses, symptoms, and procedures related to a person's care. These codes are incorporated into medical claims to determine reimbursement. SDOH are now incorporated into coding with what are known as the ICD-10-CM Z codes; these denote factors that might influence health status, or they explain reasons for medical encounters having to do with circumstances other than a disease or injury classifiable by the rest of the ICD-10-CM code set.
There are proposals to expand the ICD-10-CM codes to capture more social diagnoses and barriers to assist providers and consumers in obtaining routine care, medications, and preventive services not already captured. Payors can use these codes to predict future health care expenditures, and researchers can use the data to determine disease prevalence. The addition of social determinants to the formal coding system establishes a consistent, predictable way of tracking nonmedical barriers to health, allowing providers and payors to coordinate to address these factors and track their influence on health care costs.
Data Is King: Successful Implementation Requires Capturing Nonmedical Information In A Consistent, Predictable Way
With the shift in reimbursement to value-based care payment methodologies that incorporate incentives and penalties, data becomes essential. The success of this approach requires performance measures of the effectiveness of outcomes and quality-improvement initiatives.
While both the public and private sectors have acknowledged there is value in addressing social determinants, funding continues to be limited, as it is difficult to determine the potential return on investment for a particular intervention. Several health systems are deploying analytical tools to manage patient populations and collect data about patient social risk factors that could inform social interventions. In addition, health systems are beginning to exchange data with community partners, including follow-up care data or data regarding how many patients actually utilize community programs. Health systems and their community partners are focusing on understanding how services that address social needs can be integrated into clinical care and what kind of infrastructure will be needed to facilitate that integration.
Companies like WellSky have deployed software solutions to manage clinical, financial, and administrative workflows in post-acute care, including personal care and community based organization. In addition, several of the Healthcare Effectiveness Data and Information Set (HEDIS) measures--one of the most widely used performance improvement tools--require reporting an outpatient visit that might be difficult to complete due to social barriers that are unrelated to a consumer's health.
How Does ESG, And In Particular Social Factors, Affect Credit Ratings?
Social factors are prevalent in our credit analysis on health care companies because most healthcare companies are either providing a service to the community or a product to treat a human ailment. While many of these treatments, products, and drugs greatly benefit society, they can also be costly to stakeholders such as the government or taxpayers, commercial payors, and consumers. Improving health outcomes while raising the cost effectiveness of therapies are increasingly becoming twin goals for health care companies. In some markets, public debate focuses on the accessibility and affordability of medicines and quality care and relatedly, the transparency of prices. Safety is also a major risk given that medical errors--including product recalls, misuse, and failure--could lead to public health issues, an erosion of public trust, and litigation. This could weaken a company's reputation and financial position, as highlighted by the recent opioid crisis.
As health care expenses rise, payors are looking for new ways to reduce costs, increasingly advocating that health care providers and manufacturers be compensated for the value they bring, to better align incentives. They are reimbursing providers for preventing health problems or steering them to lower cost sites of care, such as outpatient centers or at-home providers. Investing in nonclinical services that can improve health outcomes might not be simply charitable or mission-driven; they could also increase revenue, improve credit quality, and promote longer-term sustainability.
This report does not constitute a rating action.
|Primary Credit Analysts:||Sarah Kahn, New York (1) 212-438-5448;|
|David P Peknay, New York (1) 212-438-7852;|
|Secondary Contact:||Thomas Englerth, New York (1) 212-438-0341;|
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