How can a financing vehicle deliver cost-effective health care?
On Monday 15 February 2016 the first national Health Impact Bonds conference took place, organized by Society Impact, PGGM, Rabobank, the Dutch Ministry of Health, Wellbeing and Sports, City of Amsterdam, ABN AMRO, EY, Zilveren Kruis (health care insurance) and CbusineZ. The conference highlighted the enormous potential of HIBs for creating impact in the health care sector.
Health Impact Bonds (HIBs) are a derivative of Social Impact Bonds (SIBs), a new and innovative financing vehicle in which the private sector works with governments and philanthropies to fund social programs that help address social issues (read more about SIBs in this blog: http://blog.sinzer.org/the-importance-of-social-impact-measurement-in-a-social-impact-bond). HIBs in turn are designed to finance health programmes, interventions or health enterprises that help address health issues.
Why a HIB?
The Dutch healthcare sector is one of the best in the world, but the costs of health care are continuously increasing - potentially leading up to 30% of the total GNP in 2030. Solutions to this problem can be found in new innovative, preventive and more entrepreneurial ideas. Although an old Dutch saying states that “prevention is better than cure”, this philosophy is not commonly applied in the Dutch health care sector at the moment. Only 3% of the total health expenses are spend on preventive programs, while effective programs focussing on e.g. stimulating a healthy life style can result in a positive impact on the quality of life which can lead to a reduction of health care costs and an increase of productivity on the long-term.
The common goal here is to create cost-effective health services that benefit the “patient”, health insurer and the government. Potentially, innovations in health care are able to create a huge impact but there are a few hurdles to tackle:
The current health care financing system is not set up to finance interventions that are preventive and innovative. It’s set up to cure, not to prevent, which is causing perverted incentives. New financing vehicles, such as the HIBs, are needed to get this innovation started since the payment is based on outcomes instead of outputs.
Wrong pockets: future costs savings can be found in multiple budgets. This requires governments to adopt a helicopter overview and share the savings among different budgets.
The usual suspects in this sector have different interests, e.g. the patient is looking for high quality health care services for a low price (and is not used to pay for this), the health care service provider is looking for more efficiency (and not a reduction in revenues) and the insurance company wishes to reduce costs for existing health care services.
How does it work?
In a HIB an unusual suspect (bank, philanthropist, foundation) takes part to finance the innovative program for several years. This provides the health entrepreneur with time and – assumingly – evidence with which to convince insurance companies, governments, and patients, to finance the intervention. An agreement between the private investor, health entrepreneur and health insurance/government is made about the outcomes and cost savings that need to be delivered. The investor will be reimbursed by the health insurance agency or government only if and when the cost savings have been realised.
Want to learn more about how health outcomes and cost savings in multiple budgets can be forecasted, monitored and reported? Download our case study (in Dutch):