SDoH, NNT and discount rates

Social Determinants of Health (SDoH) are the non-medical but highly critical mileau of experiences and environments which can drive health care needs and spending. From a public health and cost control point of view, it is a fancy way of saying that if basic life needs are not met, individuals are likely to have complex and expensive medical problems that are directly tied to those unmet needs.

SDoH is a big thing, it is the motivation for some payer-provider systems to invest in better housing or air conditioning or de-molding schools or any number of things that don’t look directly like medical care in an attempt to avert medical utilization and costs.

But it is not a panacea. The business case for SDoH spending is a complex case that is dependent on the cost of the intervention, the number of interventions needed to avert an episode and the duration during which the intervening payer can collect the positive outcomes of the intervention. I want to pull out a tweet that is a good teaching example:

For the renovation to be a good health and financial investment for a medical care paying entity (a private insurer, Medicare, Medicaid, CHIP etc) the following things need to be true.

1) 1 asthma hospitalization costing $15,000 has to be avoided for every 3.75 apartments.  3.75 is the absolute cost effective limit of the Number Needed to Treat (NNT)

2) The avoided hospitalization has to happen while the people who live in those 3.75 renovated apartments are covered by the entity that paid for the renovation.

3) The avoided hospitalizations have to happen soon enough so that the future avoided costs are still profitable to fund out of current revenue once we factor in opportunity cost of money and attention.

That is a tough business case for most preventative services to meet once we get past flu shots.

And it gets even harder as challenges can often be correlated. When I lived in Pittsburgh, my son had moderate to severe asthma that led to at least four nights at the ER. Thankfully he never had to admit him. We lived 300 yards from I-376. We were next to tightest traffic choke point between Breezewood, Pennsylvania and Chicago (the Squirrel Hill Tunnels). We were also 1,000 yards upwind of the Edgar Thompson Steel Works. Renovating our house could have eliminated or minimized one trigger, but the fine particulate triggers were not going to be addressed. A few blocks further south, the housing stock was far worse and the residents were far more likely to have respiratory distress. Renovations would be a solid improvement in their standard of living but renovations would probably not be a cost effective asthma intervention because of the steel mill six hundred yards away.

SDoH as a business case will vary dramatically based on churn of the targeted population. A locally prestigious integrated delivery network (insurer and hospital system) (IDN) that runs both a Medicare Advantage plan and a Medicare Fee for Service Accountable Care Organization (ACO) has far less effective churn of membership than an insurer that only sells ACA individual market policies in a competitive market. We would expect the IDN to be able to make SDoH investments that are profitable at the corporate level even if the accountants fight to the pain over internal transfer payments between the Medicare Advantage team and the ACO team. An ACA only insurer in a competitive market has almost no business case to pay for SDoH as any benefit that would be gained by its members will be reflected in lower healthcare costs that another insurer pays out as the ACA market is a high churn, short duration market.

SDoH can be a good thing to do in and of itself from a societal point of view. But the business case for SDoH investments as a purely financial matter is heavily dependent on the cost of the intervention, the cost of the avoided medical expense, the number of interventions that have to happen for the medical event to be avoided and how long the payer is responsible for the healthcare costs of the people who are receiving the intervention.

We should expect low SDoH investments as a cost reduction strategy from payers in competitive, multi-insurer regions with high churn markets. We should expect more SDoH investments in low competition regions and sticky markets.

15 replies
  1. 1
    JPL says:

    OT David I hope that you finished your preparation for the impending storm.

  2. 2
    infodoq says:

    There are other strategies that have been in place for a while that are less expensive than full renovations. I don’t have #s but in NYC years ago they were giving out HEPA vacuums and/or HEPA filtration machines, mattress and pillow covers, and education about smoking in the home and saw fairly impressive improvements in asthma exacerbations.

  3. 3
    Matt says:

    But the business case for SDoH investments as a purely financial matter is heavily dependent on the cost of the intervention, the cost of the avoided medical expense, the number of interventions that have to happen for the medical event to be avoided and how long the payer is responsible for the healthcare costs of the people who are receiving the intervention.

    That last one is the kicker: if not doing the intervention means that enough people will die sooner then it’s never going to look “profitable” to the insurance vampires.

  4. 4
    Aardvark Cheeselog says:

    It’s almost like markets aren’t always the best way to allocate resources!

  5. 5
    J R in WV says:

    Dave tells us:

    We were next to tightest traffic choke point between Breezewood, Pennsylvania and Chicago (the Squirrel Hill Tunnels). We were also 1,000 yards upwind of the Edgar Thompson Steel Works.

    So my first question is shouldn’t Edgar Thompson Steel Works be totally, fully. completely responsible for every asthma attack within particulate distance of their factory? All of those costs, every nickle~!!~

    Or have to buy out or replace every home, school, business with green belt of trees and water sprays to put down and capture that dust!!!

    The Steel Works seems cut and dried simple to me. The cost of doing business, the moment the contribution of the steel works to local health issues is evident, the past profits of that industrial site are in play to remedy those who have suffered from that site.

    The highway situation is more complex, but still should be addressed the same way. Fuel manufacturers, auto manufacturers, highway engineering firms, everyone who has made a nickle from the existence of that highway system being what it is are also responsible for the side-effects of that highway.

    Your kid shouldn’t be paying for that situation with his suffering, nor should your family be funding the amelioration of his breathing problems. The industrial magnates who have made billions and trillions of $$ from the situation are responsible for curing the situation.

    If that means replacing the automotive transit there with mass transit, electrically powered by green energy, that’s a good thing, funded by the masters of the universe and their deep pockets. Or even recalling all those vehicles to replace all of them with suitable electric vehicles, powered by plugin chargers at home and away, schools, businesses, offices, stores, everywhere. Not any kid’s lungs!!!

  6. 6

    @J R in WV:
    Get me 218 votes in the House and 60 in the Senate along with 5 friendly SCOTUS justices and then we’ll talk about externalities actually being fully internalized.

  7. 7

    @Matt: Not that cynical —

    If the intervention does not avoid a medical event in the time it takes for an insured individual to go from insurer A to insurer B, then insurer A has no incentive to make insurer B more profitable.

  8. 8
    polyorchnid octopunch says:

    This of course is a great argument for a single payer monopsony for health care (like we have in each province in Canada). Since everybody’s in the same insurance plan for life (barring churn among provinces… and that turns out not to be that big of a deal when you look at cartel effects), it’s clearly in the interests of the state to minimise negative SDoH.

    This in fact could be a large part of the reason that our overall social welfare systems are much much better than the ones that exist in the US; since healthcare is part of that system, it makes sense to minimise those costs and maximise the productivity of people via good health to minimise social welfare costs overall.

  9. 9
  10. 10
    Steeplejack (tablet) says:

    @David Anderson:

    Thanks for unpacking the less common acronyms. And, uh, what is NNT?

  11. 11

    @Steeplejack (tablet): Updated the post

    Number Needed to Treat — how many interventions are needed before 1 event can be avoided.

    NNT can vary widely. For instance heart attack aspirin therapy has a NNT of 1667 to avoid a major cardiac event . Since aspirin is dirt cheap ( a few bucks a year) this is a very cost effective intervention even if it is a low probability intervention.

  12. 12
    Steeplejack (tablet) says:

    @David Anderson:

    Thanks very much. I know that a lot of the time you’re writing for a specialized audience, but it’s always good to identify the acronyms somewhere. It helps the interested layperson, and surprisingly often it prevents misunderstanding with experts in different or even related fields who have conflicting acronyms. Also, even within specialized fields, there’s a certain percentage of people who, uh, aren’t current, let’s say. I used to be the managing editor of a group of medical newsletters, audience doctors and hospital administrators, and it was surprising how often the issue of acronyms and “jargon” came up.

  13. 13
    J R in WV says:

    @David Anderson:

    I wasn’t yelling at you, just saying emphatically how strongly I believe that big businesses should be responsible for their side effects when discovered. Can’t quite see how we make the petrochemical companies pay for their horrible use of lead for generations, for which I blame the right wing movement.

    But, otherwise, I’m working on it! We’re working on it!!! Thanks, DougJ!~

  14. 14
    Wms says:

    What’s the analysis for sewage and water treatment? We’ve made that choice as a public good.

  15. 15
    Fred Fnord says:

    You’re also neglecting the other sticking point that makes this even less likely: MBAs don’t like to LOOK like they’re ‘using money inefficiently’ even when they’re not, and it is even more important for them to look responsible and serious than it is for them to actually save money.

    I freely admit that I don’t know how things are done in the health care business in particular. But in any business that requires office space, it’s well known that giving employees who have to actually concentrate on anything their own offices is essentially always worth the cost of extra floor space. Even in San Francisco, where the higher cost of office space is only partially evened out by the higher cost of an employee, this holds true. But open office plans LOOK incredibly cost-effective, and consequently nobody ever has to explain the cost of one to their boss, or to the board of trustees. I would imagine that it is much the same when a publicly-owned health care entity is caught doing housing renovations. Sure, you CAN explain it, and they MIGHT believe you, but why risk it?

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