People are worth more to the healthcare sector sick than healthy. Current payment systems are supply driven and reward treatment, rather than prevention or outcome-based interventions. The result is that patients, payers and the wider economy are losing out. Today, new approaches have emerged that are more collaborative, cost and resource efficient and ultimately, more financially sound. Innovative approaches that represent a benefit for all stakeholders are performance-based contracts, where investors pre-finance interventions which generate a positive social and economic impact. Those so-called Health Impact Bonds and the hurdles that need to be overcome along the way will be explained in this article.

The challenges the current system faces are well illustrated by the fact that as many as 50 percent¹ of patients don’t adhere to their prescribed therapy, at a shared cost to pharma industry, pharmacists and health insurers of 478 billion dollars in the United States alone² – and that’s before accounting for the costs of lost productivity and employee absence due to illness, which remain an externality to the industry, picked up by the public purse or employers.

Even in areas where the shared benefits are obvious, with big incentives to resolve this challenge, healthcare systems seem unable to adapt to change. Current systems remain largely closed, highly siloed, and resistant to creating the right environment and framework for ‘value based healthcare’ (VBHC)².

Four Hurdles
What is preventing the health industry to focus their innovation effort on value based healthcare and thus, to create more value for companies as well as the single patient and the whole society? Interviews with 24 German experts³ identified four hurdles, which are consistent with the findings of other surveys:

1. Failure to incentivise VBHC interventions
2. Focus on compliance rather than health economic impact and innovation
3. Innovation gaps in patient-centricity, digitization, and new business models
4. Fear of loss of control, share and profit when collaborating across sectors

New Opportunity: Health Impact Investing
Social Impact Bonds that already have been implemented successfully in the US und UK can be transferred to the healthcare sector and serve as blue print for Health Impact Bonds. Investors pre-finance interventions that generate a positive social impact, from which the state benefits socially and economically. When the agreed outcome-targets are reached, the state pays back the investment including a return. This financing model ensures that the outcome parameters have been determined and agreed prior to the contract by all partners and that they are measured during and after the project, so that the impact is quantified.

Given the demographic development and the continuous increase of chronical diseases, the German healthcare system will have to change to achieve better health outcomes and manage the cost explosion. Three factors will be critical for success:

1. Create a collaborative ecosystem
2. Deploy scalable patient-centric models that leverage technology
3. Establish new innovative impact finance solutions

So far, impact Bonds have rarely been applied in health care. The Netherlands are currently investigating and developing health impact ideas with the ABN AMRO bank as potential investor. Case studies from South Carolina and California from ongoing Health Impact Bonds demonstrate the potential also in Germany. Health insurers would be outcome funders, because they benefit from a health-economic impact, i.e. cost savings. And they carry no risk, as they only pay if the intervention is successful, ergo, if the agreed outcome targets are reached.

As new solutions emerge, stakeholders in healthcare now have a choice. They can either defend their existing business model and continue to focus narrowly on delivering products, rather than solutions. Or they can show they understand that today’s environment requires collaborative approaches, different health ecosystems, new businesses and financing models and ultimately better patient outcomes.

Sources:
¹ World Health Organization, 2003, Adherence to Long-Term Therapies, Evidence for Action.
² The Economist Intelligence Unit 2016, Value-based Healthcare: A global Assessment, commissioned by Medtronic.
³ The 24 interviews were conducted with stakeholders in the healthcare and pharmaceutical sectors. These included patient advocates, politicians and executives from the health insurance, healthcare provider and pharmaceutical industries. They were conducted over the phone or face to face, with a duration of 20-60 minutes each. The research was conducted between March and May, 2017.