Incorporating Social Determinants of Health: Progress Towards VBC 2.0

VBC 1.0

The American health care system is currently in the midst of a shift from fee-for-service (FFS) to value-based care (VBC). This has been informed by, and seeks to adhere to, the tenets of the Triple and Quadruple Aims. The Affordable Care Act (ACA) and Centers for Medicare and Medicaid Services (CMS) initiated the most decisive shift toward VBC through provider payment reforms, which linked quality and outcomes to reimbursement. These include the Hospital Value-Based Purchasing Program, Hospital Readmissions Reduction Program, and Medicare Shared Savings Program (MSSP). ¹ This initial effort to formalize VBC in these direct patient care settings can be conceptualized as VBC 1.0.

Early results from these programs produced moderate quality improvements and cost savings. Twenty-four percent of Accountable Care Organizations in the MSSP were able to meet quality benchmarks and generate >$700 million in savings in the first year of operation. ¹ However, in the decade-plus since the ACA has been in effect, CMS' other value-based programs have largely struggled to yield cost savings or significant quality improvement, and have even been found to exacerbate health inequities. ²

VBC 2.0

Analogous to the increasing shift from FFS to VBC, there is a developing national opinion that social determinants of health (SDOH) play a larger role in health than previously understood. In fact, an estimated 80% of an individual's health outcomes can be attributed to SDOH. ³ The incorrect assumption that health outcomes are predominantly associated with direct patient care may explain the discrepancy between high health spending and low population health outcomes in the United States compared with other Organization for Economic Co-Operation and Development countries. In the United States, there are obvious disparities in life expectancy, infant mortality, chronic disease prevalence, and overall mortality among different populations, which are associated with SDOH status. ^3,4

The economic consequences of unmet SDOH needs are astronomical. Health inequities rooted in SDOH disparities account for $42 billion in lost productivity per year and $320 billion in annual health care spending for common chronic conditions, including diabetes, heart disease, asthma, and breast and colorectal cancers. ⁵ If unaddressed, this spending could grow to $1 trillion annually by 2040. ⁵

The COVID-19 pandemic also exacerbated existing SDOH disparities, resulting in increased homelessness, food insecurity, and income inequality in populations already struggling with these issues. ³ Evidence suggests that addressing SDOH issues directly during the pandemic could have reduced its impact on the most marginalized populations. ³ In addition, addressing SDOH positively influences more than just health outcomes. There is evidence that investments in SDOH interventions such as housing support, income supplementation, and food insecurity produce positive financial outcomes for those receiving assistance at least 82% of the time. ³

VBC 1.0 represents prioritization of value inside the direct patient care setting, where 20% of health outcomes are determined. VBC 2.0 represents broader prioritization of value outside of this setting by addressing SDOH, where 80% of health outcomes are determined. This commentary article seeks to argue there is a clear and distinct movement toward VBC 2.0 through new policies and investments by various stakeholders in the American health care system.

Policy Support for VBC 2.0

Policy support for VBC 2.0 seeks to address sources of health inequity that contribute to disparities in SDOH, health outcomes, and total cost of care. Recommendations to address health inequity include intentionality in system design, building trust with populations suffering from SDOH disparities, accurately measuring and trending progress, and addressing individual and community-level barriers to improvement. ⁵ CMS serves as the guiding light for policy change, as reforms and new legislation inform decisions made by providers and private sector payers. It is now estimated that 40%–50% of the cost structure of both Medicare and Medicaid is focused on addressing SDOH issues, and this is a direct result of policy changes to facilitate this value-based shift. ⁴

In 2021, CMS released new payment guidance that increased flexibility in reimbursement for interventions that promoted value through directly or indirectly addressing SDOH. Similar to the CHRONIC Care Act of 2018, this represented an evolution from policies addressing VBC 1.0. However, this new guidance was directed toward Medicaid and Medicare rather than solely the dual-eligible population targeted by the CHRONIC Care Act. ^6,7 This new guidance contained a provision of commitment to SDOH and authorization to implement alternative payment models for interventions addressing housing and food insecurity, transportation, and assistance with education and employment attainment. ⁶

In 2022, CMS introduced three health-equity focused quality measures to be included in their Hospital Inpatient Quality Reporting (IQR) Program. Despite the program's direct patient care focus, these measures authorized reimbursement for screening and identifying SDOH needs in patients, including housing and food insecurity, transportation, utility difficulties, and interpersonal safety concerns. These SDOH components mirrored the guidelines released 1 year prior, but now incentivized provider involvement in the SDOH needs of their patients with increased reimbursement. CMS believes provider incentivization with greater reimbursement will improve program participation in new ventures focused on health equity. Providers that successfully completed this program could expect to receive a 4.3% increase in operating payment rates. ⁸

Medicaid's mechanisms to address SDOH vary by state, but a consistent practice across many states includes increased mandates for SDOH screening during and after new member enrollment to support more referrals to social services. ⁴ Medicare's SDOH emphasis is primarily positioned in the Medicare Advantage (MA) space. A study of 17 MA plans representing 65% of market share found 100% of plan leaders felt addressing SDOH needs of their members was a key priority. These plans addressed SDOH needs in two primary ways: establishing new initiatives or programs in-house or forming external partnerships with other organizations better positioned to address SDOH. ⁷

The success and sustainability of these new policies will depend on (1) consistent gathering of SDOH information, followed by (2) standardization of information as clinical data in the provider's electronic health record and claims data in the payer's record. CMS' Accountable Health Communities (AHC) Health-Related Social Needs (HRSN) screening program, first launched in 2017, demonstrated a productive effort to screen members and produce standardized data. The AHC-HRSN screening tool is a survey that can be widely administered to assess various core SDOH needs, and then promote data aggregation in a patient's electronic health record.

Over a 5-year trial of this program from 2017 to 2022, 28 organizations screened >1.1 million members in 328 counties, 21 states, and 7 of the 10 largest cities in the United States. More than 35% of those screened were found to have at least one SDOH need, and just >20% had two or more. This program produced unique collaborative processes between providers, public and private payers, and independent organizations to develop actionable solutions to the identified SDOH needs. At the program's completion, 137,000 members received SDOH-based referrals for assistance, and 92,000 (67%) of them were found to have resolved needs at repeat screening intervals. ^4,9

CMS has also developed Z-Codes, which are International Classification of Diseases, 10th Edition (ICD-10) codes that can be used to capture standardized claims data on SDOH to drive more seamless reimbursement processes. Z-Codes capture a variety of SDOH domains, including housing and economic circumstances, employment, education, primary support group, and psychosocial stressors. A study of 33.1 million Medicare beneficiaries found that 1.59% had claims with Z-codes in 2019 compared with 1.31% in 2016. The most common codes included homelessness (22%), disappearance/death of a family member (12%), loneliness (12%), problems related to living in a residential institution (5%), and problems in a relationship (5%). These claims were also stratified by gender and race to identify inequities in prevalence. ¹⁰ New CMS policies for addressing SDOH, supported by standardized data collection and tracking for both payers and providers, allow for these relevant sources of health inequity to be diagnosed, treated, and reimbursed-for in the same manner as traditional disease.

Financial Support for VBC 2.0

Financial support for VBC 2.0 is concentrated in three primary areas: the provider sector, the payer sector, and the privately funded for-profit SDOH industry. Although funding sources differ, they all represent a uniquely similar focus on efforts to improve health outside of the patient care setting. Despite specializing in direct patient care, providers have invested heavily in SDOH efforts for the past few years. One study identified 57 provider systems that invested $2.5 billion from 2017 to 2019. ¹¹ The majority of funds were directed toward housing insecurity ($1.6 billion), with smaller portions to education ($476 million), food insecurity ($284 million), social and community context ($253 million), and transportation ($32 million). ¹¹

CMS' commitment to SDOH is reflected by their policy changes, which have also financially influenced the private payer sector. In 2020, private insurers were responsible for just under one third of national health expenditures. ¹² A study from Velazquez and colleagues in 2022 examined spending practices from private insurers responsible for more than two thirds of the private payer market. They found this group spent a total of $1.87 billion on SDOH-focused efforts from 2017 to 2021. ¹²

Spending as a percentage of net income also increased year over year from 2017 to 2021, which may be related to record payer profits and/or an increasing prioritization among these payers of SDOH and VBC 2.0. ¹² The majority of these funds went to housing ($1.2 billion) and food insecurity ($238 million), whereas smaller portions were directed toward employment ($59 million) and education ($57 million) assistance, social and community context ($50 million), and transportation ($13 million). ¹² These spending trends mirror those exhibited by the provider sector, MA, and Medicaid. ^{4 –6,8,11}

The final source of financial support for VBC 2.0 lies in the for-profit SDOH industry, a group of private companies with $2.4 billion in funding and a total valuation of $18.5 billion as of 2021. ³ It was hypothesized that increased policy support for SDOH with insufficient mechanisms in place to meet SDOH needs has given rise to this industry, which contains 58 companies. ³ Subsectors of companies with the most funding and valuation, respectively, include comprehensive value-based providers ($1.05 billion, $10.1 billion), home care ($654 million, $5.9 billion), and community care coordination ($466 million, $2.34 billion). ³ This industry is distinct in SDOH focus from payers and providers. Companies do not address the SDOH areas most supported by CMS policy, including housing insecurity and employment assistance, but instead, focus on food insecurity and care coordination. ^{3 –6,8,11}

The initial shift from FFS to VBC 1.0 was enhanced by the ACA and new value-based programs within the CMS ecosystem of coverage, but insufficient improvements in quality and outcomes were achieved. Increasing awareness that factors outside of the direct patient care setting significantly impact health outcomes drove payers and providers alike to increase their focus on SDOH, thus initiating a shift toward VBC 2.0. Policy advancements by CMS have laid the foundation for improved SDOH-focused reimbursement supported by standardized data tracking and claims codification. Billions of payer and provider dollars to address various domains of SDOH may have further accelerated this movement. ^3,11,12 VBC 2.0 represents an affirmation by key stakeholders in the American health care system that quality and outcomes are more socially determined than ever before.