2012-05-02

Co.Exist

What Impact Investing Could Do For Health Care

We spend $2.6 trillion a year on treating illness. Could investing in people rather than treatment help us redirect some of that money toward preventing the underlying problems?

In his TedMed talk last week, where he called for a renewed focus on improving root causes of health problems rather than waiting until they cause full blown illnesses, Sandeep Kishore noted this somewhat startling statistic: Of the 30 years of average life-expectancy gains the United States made in the last century, a surprisingly small amount of that average increase--just five years--stems from improvements in the sort of medical care we get in hospitals. The rest of those gains came from other sources, like improvements in water quality and sanitation, vaccinations, and other improvements in public health.

And while that may sound surprising, it’s consistent with a lot of what we know about health. For example, Steven Schroeder, the past president of the Robert Wood Johnson Foundation, has estimated that only about 10% of how healthy we are and how long we live is determined by health care. Instead, how we live our lives--our choices and behaviors, our physical surroundings, our socioeconomic circumstances--turn out to be far more important over the long run.

But, as Kishore argued, even though we know that there’s a lot more opportunity to improve health and well-being by improving our social and physical environments and personal situations, we spend a lot more money and effort on treating people once they’ve become sick.

One solution to begin addressing this imbalance comes from an intriguing white paper (PDF) released by the California Endowment and put together by UC Berkeley researchers Maria Hernandez and Len Syme, and an organization called Collective Health. They argue that emerging kinds of impact investing--namely a kind of pay for success bond that the authors call a Health Impact Bond--can create an opportunity to develop initiatives that address underlying social and environmental causes of disease, rather than simply treating illness.

The essential idea of the health impact bond is that because we spend so much more on medical care (and so much less on social and environmental interventions) than we should, investors can profit by providing upfront capital to pay for social interventions that will not only save money for traditional health payors like Medicaid, but produce better outcomes over time.

Specifically, the paper looks at how this kind of effort could help reduce asthma hospitalizations in Fresno, California, where asthma related emergencies cost $17 million. It argues that by doing things like providing funding to remove mold from old homes, replace air filters and mattress covers, and provide better patient education, asthma-related costs would drop several million dollars by keeping people out of the hospital, much healthier, and presumably much happier.

As of now, the health impact bond is just a concept. But it highlights a broader opportunity. As impact investing gets adopted in the United States, identifying strategies to fund social interventions to improve health, rather than deal with illnesses once they’ve emerged, will be substantial. After all, we spend a ton of money and effort on treating health problems once they get so bad that people need to go to the hospital--despite the lessons of the last century, which show that we have a lot more to gain by improving our social and physical environments to prevent problems before they happen.

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3 Comments

  • Bunmi A.

    I agree we should focus on individual health habits but also think there needs to be some systems change around healthcare. For example, is there a way to change the content of our food so that it doesn't contain high amounts of ill-inducing ingredients (ie Sodium, high fructose corn syrup, etc). Related to healthy eating is also cost--how do we address a system that makes you pay MORE to eat healthy food (read: we have to pay more to stay alive). 

    I'm more interested in how impact investing can help address system issues like food costs and food content so that people aren't at risk of these health issues to begin with. We can invest in the people all we want but if the healthier food options are breaking the bank or if the food we eat is killing us, then the investing described in this article is like a cup with a hole in it.

  • Isha

    Several analyses of healthcare expenditures show that the only expenditure actually correlated significantly and positively to health outcomes (in developed countries) is pharmaceutical expenditure.

  • doylecjd

    There is one important aspect that is worth considering here. While "we" spend 2.6 trillion a year treating illness, "someone" is making 2.6 trillion a year providing something whether it be services, medicines, equipment, electricity, etc... The old saying, there is more money in the treatment than the cure rings more true than ever. The shift in spending from treatment to prevention is mostly predicated on the aspect of reduced income in sectors addicted to high margins. Unless we address the underlying causes for the misdirection of healthcare, we can never hope to rely on human nature to do the right thing.