How Medicaid Managed Care Orgs Can Better Invest in SDOH Interventions

March 10, 2023 - Medicaid managed care organizations can leverage financial bonds to help increase funds for social determinants of health interventions and avoid underinvesting, according to research published in Health Affairs.

Social determinants of health, including food insecurity, transportation barriers, and housing instability, can impact health equity and lead to avoidable health outcomes and spending. Interventions to address these factors typically require significant upfront funding, with benefits occurring down the line in the form of cost savings.

Medicaid managed care organizations experience enrollment and eligibility changes, which may dissuade them from investing in interventions as they are not guaranteed a return on investment. An organization investing in something and not reaping the full return as cost savings is known as the wrong pocket problem.

If a Medicaid managed care organization makes a year-long investment in a social determinants of health intervention and then experiences enrollment losses, its return on investment would not be proportional to its initial investment.

Researchers have proposed a potential solution to the wrong pocket problem: a financial bond, which they refer to as a social drivers of health (SDH) bond. Multiple Medicaid managed care organizations would issue and administer the proposed SDH bond jointly. Individual investors would purchase the bond, expecting a future return, and the money would go toward funding social determinants of health interventions.

After providing upfront funding for the interventions, bondholders would receive regular interest payments at intervals dictated by the bond. In addition, investors would receive the face value of the invested amount at the end of the bond’s term. Unlike a standard bond, investors would also see benefits from pursuing investments that target social determinants.

An SDH bond would allow managed care organizations to receive immediate capital to launch interventions for their beneficiaries. Since social determinants of health interventions help improve outcomes and lower costs, organizations will gradually incur funds to pay back the bonds.

The regular payments could be established based on a proportion of the estimated cost savings of an intervention. Since multiple managed care organizations would issue a bond, the share of outstanding bonds to be serviced would adjust over time depending on each organization’s enrollment, helping to avoid the wrong pocket problem.

Involving the capital market in SDH bonds would allow a greater influx of funds than managed care organizations would usually be able to invest, researchers said. Additionally, pooling funds and the ability to invest across multiple interventions reduces the financial risk through diversification.

Since the interventions are funded from one source, beneficiaries can maintain access to the interventions even if they switch plans or managed care organizations, researchers noted. SDH bonds also allow for potential public-private partnerships to address interventions that may not have a sizeable financial return but impact health equity.

To see the potential benefits of SDH bonds, managed care organizations must consider the number of organizations participating and the possibility of risk-sharing when structuring their bond.

Managed care organizations may face challenges when coordinating with state Medicaid agencies. One issue will be whether SDH bonds will be incorporated into the regular managed care organization procurement cycle, according to researchers. Other state policies, such as the medical loss ratio and premium rate-setting policies, must also be considered when designing the bond.

Organizations may experience difficulties tracking which beneficiaries receive the interventions as they do not generally have procedure codes. Accurate data will depend on the quality of reporting from community-based organizations and their ability to transmit timely data to managed care organizations.

Managed care entities must also consider which interventions to invest in and which community-based organizations should provide them. Researchers suggested issuing requests for proposals from community-based organizations in each state.

Although researchers applied the hypothetical bond to Medicaid managed care organizations, other payers, such as Medicare, could potentially use it.

“The SDH bond is an innovative financial instrument that can help address the wrong-pocket problem and encourage managed care organizations to invest in SDH interventions,” researchers concluded. “Taking this idea from theory to reality will require stakeholder engagement, careful review of the literature, and complex modeling to optimize the structure of the bond.”