Before a hospital or system launches a population health management initiative, it is essential to have clarity around the goals, required resources and success metrics.

The wide range of activities that fall under the population health heading can include traditional health screening and community health education, intensive management of patients with chronic illnesses like diabetes, and financial risk-bearing arrangements for providing comprehensive care to a defined population. Similarly, the resources required can range from little more than those needed for current activities to massive new investments in people, data and even facilities.

Before embarking on a population health management program, trustees should ask three key questions:

1 Why are we doing this? Some organizations will conclude that, regardless of the financial, cultural and organizational barriers, managing and improving the health of the people they serve simply is the right thing to do — it is their mission. But if that is the sole rationale, the board, management team and physicians must prepare for a difficult road ahead. Even though there is little doubt that improving population health is the right thing to do, if there is not a strong business case to be made for it, the organization is unlikely to achieve that goal.

A second, and probably more common, reason for starting a population health initiative is the market served by the organization has made or is expected to make a transition from payment for volume to payment for value. Better quality, safer, more efficient care and higher levels of patient satisfaction are high-value care. And in a value-based payment system, such care can significantly increase revenues to the organization.

Yet a third potential reason for developing a population health program is to manage financial risk tied to contracts with payers or employers. When a hospital takes on risk through its own health plan, a joint venture with an insurer or by entering into bundled payment or pay-for-performance agreements, it must be able to manage population health.

2 What new resources will be required? Effective population health management can require large investments in a variety of areas. Among those are new personnel, new care delivery models, community outreach and information systems.

Depending on the goals and scope of the initiative, nutritionists, health educators and care managers may be required. In the current fee-for-service environment, none of them can bill payers for their services, so their salaries constitute significant new expenses without a corresponding revenue offset. If and when the predominant payment system shifts to a value-driven one, these team members will demonstrate their monetary worth. But until then, they are purely new expense.

New care delivery models, such as intensive case management for patients with chronic diseases or the use of patient-centered medical homes in primary care, also call for significant investment. They require people, information systems and, sometimes, new facilities. They also may result in lower physician productivity, as measured by patient volume, throughput and use of tests and procedures. As a consequence, expenses will rise and revenues may decline.

Community outreach programs already are part of most hospitals’ and health systems’ efforts to generate community benefits. Health fairs, screening programs, educational activities and similar events require personnel time and other resources, with little or no revenue created as a result. Some organizations have launched communitywide smoking-cessation or weight-reduction programs, both of which can have a positive impact on health. But such programs generate new expenses without accompanying revenues.

Perhaps the largest new expense will be data and information systems. Managing population health requires extensive data about the population being managed. Some of the data may come from existing databases or electronic health record systems, but there always will be a need for additional data from sources like health insurance claims, community surveys and disease registries.

In addition to new data, databases and analytic tools, organizations also will require a variety of new information management systems and comprehensive EHRs. For example, online systems for remote patient visits or consultations can greatly improve patient access and reduce visit frequency. Online patient education tools can be valuable in helping patients with chronic illnesses to manage their conditions. And there is a growing number of smartphone applications for everything from fitness to diabetes management that can be part of the population health toolbox. But all of these tools require new investment.

3 Will the payers in our market reward us for improving population health? This is the most important question. If payers in your market are still paying principally for volume — number of admissions, number of tests and procedures, volume of patients treated — an effective effort to improve population health can create a financial disaster for the hospital or health system. Healthier people generate fewer admissions, fewer tests and procedures, and fewer physician visits. While many insurers are beginning to introduce some form of value-based payment (such as bonuses for meeting quality or patient-satisfaction goals), the vast majority of payments remain volume-driven. Under these circumstances, the winners from improved population health management are the insurers, while hospitals and physicians suffer both higher expenses and reduced revenues.

While improving population health is certainly a laudable goal, it is critical for trustees to ensure that the need for prudent business practices doesn’t get lost in the shuffle. Asking and answering these three questions can help organizations to avoid some of the many pitfalls that could derail a well-intentioned effort to manage population health. 

William F. Jessee, M.D., FACMPE (Bill.Jessee@IHstrategies.com), is chief medical officer and senior adviser, Integrated Healthcare Strategies, Minneapolis.