An unusual experiment is underway in Fresno, Calif., that could usher in a new era in managing chronic illnesses and reducing related health care costs for employers and insurers.

The city has embarked on an ambitious program to reduce the rate of asthma-related emergencies among its residents. To fund the effort, it aims to sell special bonds to private investors eager to share in the savings realized by health care providers and payers as a result of fewer ER and hospital visits by asthma sufferers.

Fresno has an unusually high number of asthma sufferers; more than 17% of residents suffer from the disease, compared to 8% nationally. Every day, 20 end up in the emergency department and three are hospitalized because of their illness. Asthma emergencies not only severely impact affected individuals and their families, but also cost Fresno hospitals, employers and other insurers nearly $35 million per year.

Over the past year, with funds provided by The California Endowment, a non-profit that provides grants to community-based organizations, the city has worked with various stakeholders to develop a home-based asthma prevention and education program. The initiative, which includes quality clinical care, education and a focus on environmental triggers such as poor air quality in the home, will initially be aimed at 200 high-risk individuals and later expanded to 1,100.

In the first year, the program is expected to reduce asthma-related emergency department and hospital costs by $1.6 million. By year five, health care savings to payers are projected to be $13.2 million. The savings will be calculated by Collective Health, a Connecticut company specializing in health care analytics and financial strategies, using pre- and post-claims data from Fresno payers.

 

Private money for public good

To raise money to finance the asthma initiative, the city hopes to rely on the sale of social impact bonds, which are securities that allow individuals to invest in programs with societal benefits. The return on their investment comes when specified outcomes are achieved.

Since debuting in late 2010 in the United Kingdom, social impact bonds have been employed by governments around the world. In this country, Massachusetts and New York City have used social impact bonds to fund projects related to prison population reduction.

Specifically, Fresno will issue health impact bonds, a “pay-for-success” investment vehicle developed by Collective Health. The company also pioneered the specific application of health impact bonds to asthma and other health conditions, and the underlying analyses that demonstrate cost savings opportunities, says Rick Brush, founder and CEO.

“Health impact bonds are an innovative way to raise capital that pays for proven health interventions, specifically evidence-based prevention programs that promote health and sustainably reduce costs,” Brush explains.

Bond investors provide upfront capital for targeted interventions that are delivered by qualified service providers. Financial stakeholders such as health insurers, self-insured employers and other payers that benefit from reduced health care costs agree to pay a portion of validated savings back to the bond investors.

In Fresno, Brush says, it already has been shown that home-based education and indoor air quality improvement can significantly reduce asthma emergencies and costs — and those future savings can be leveraged to raise money for prevention. The next step is to finalize the details of the next phase of the asthma initiative and secure additional funding from The California Endowment. If funding is approved, Phase 2 of the project could begin in first quarter 2013.

“We have several steps ahead before we actually ‘launch’ a health impact bond,” notes Brush. “This project would lay the foundation for that by demonstrating that the intervention works, measuring the savings, and assessing the feasibility and requirements of a health impact bond.”

 

Tool for self-funded employers

Meanwhile, Collective Health is talking with other self-insured employers and health plans around the country about using the health impact bond model to benefit plan members and corral costs.

“Employers are already looking at innovative ways to bring down costs. They’ll realize cost savings directly from this type of prevention program,” says Brush, who was formerly involved with communities of health as an executive with Cigna. “There is a lot of interest in this because it’s aligned with what they are trying to do, which is improve health and bring down costs.”

Whirlpool Corporation is one of the employers with high hopes for the health impact bonds approach. Susan Pavlopoulos, senior manager of global benefits, says the company is about six months away from implementing an asthma/COPD prevention program developed by Collective Health that will be financed through health impact bonds.

“This gives us a new avenue we haven’t had for funding,” she says. “It is a different approach to attacking the health problems that are most prevalent in our population”.

To get started, Whirlpool shared its health claims data with Collective Health, which identified the populations that would benefit most from a prevention program. The two then developed the goals and metrics for the program. At press time, Collective Health was looking for individual investors who would be willing to fund the project.

“If they meet the jointly approved goals, we all share in the savings,” Pavlopoulos says.

Whirlpool chose to focus first on asthma and chronic obstructive pulmonary disease because the diseases affect a high number of employees and are very costly. However, she notes, the model could be applied to almost any chronic disease state.

“I hope to pilot it with asthma/COPD and then carry it out across other diseases,” she says.

Whirlpool’s asthma/COPD program initially will include about 2,000 members of its corporate staff and later be rolled out to hourly workers. At this point, Pavlopoulos has no hard numbers on projected savings from the planned prevention program. “That’s what I’m focusing on now,” she says.

“My hope is that this can have an impact and will be a win-win for us as a health plan and for the plan members who will get attention that they may not get through traditional channels. If we’re going to keep our employees healthy, we have to help them break down the barriers to good health.

“This is really a no-risk situation for us; we’re not seeing any downside,” she asserts. “If it doesn’t work, the only thing we’d be out is shared savings at the end. So, at this point, we’re seeing only gains.”

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