Last month marked the 10th anniversary of Hurricane Katrina, which killed nearly 2,000 and displaced more than 250,000 people from Louisiana to Florida. This anniversary and more recent events like Hurricane Sandy, the West Texas explosion, the Boston bombing, and the Ebola outbreak remind us of the importance of maintaining health and health care delivery during and after disasters.
The economic and health impacts of disasters are significant. One Health Affairs study estimated that six recent U.S. climate change-related events cost approximately $14 billion, with the vast majority of those costs (95 percent) attributed to premature lives lost. In 2015, the U.S. Congress appropriated $5.4 billion in emergency supplemental funding to respond to the Ebola outbreak domestically and internationally. At a local level, the economic impact of disaster is also devastating, reaching far beyond the direct cost of treating victims, as illustrated by the decline in revenues of Texas Health Presbyterian Hospital after their response to the first U.S. Ebola patient.
In this period of continued threats, health care delivery reform, and fiscal austerity, disaster preparedness requires a clear value proposition that encourages the U.S. delivery system to invest in preparedness. Here, we describe that value proposition and present economic and systemic solutions to better address health and health care needs during disasters. In light of the recent decrease in federal funding for health care preparedness programs, this is particularly relevant, as ignoring the situation is what Health Affairs Blog contributor Dr. Dan Hanfling described as “flirting with disaster.”
The Value Proposition
To drive reform in the health care delivery system, payers are shifting to value-based, patient-centered care for defined populations. Payers can scale and apply this approach to promote population health resilience and improve health care delivery during disasters. Resilience refers to the capacity of an individual or community to withstand and then recover from a crisis. If investors (hospitals, providers, payers) knew that allocating funds for disaster preparedness would improve health and yield positive returns, they would be far more likely to resource efforts appropriately. We recently published a study that used the key microeconomic concept of opportunity cost to demonstrate a positive return after six years of investment in a regional emergency response team.
Defining the benefits of preparedness investments is a critical initial step to drive system progress. Direct benefits include improvements in patient or public health during a time of crisis. To calculate direct benefits, one could compare the reduction in mortality for a similar event among facilities or jurisdictions with varying levels of preparedness investments. One should also consider other direct benefits, such as improved triage accuracy, safer delivery of care, and decreased time to definitive medical or surgical treatment. Indirect benefits of preparedness investments are those that are external to the public’s health during disasters. These benefits include improved care coordination, realized daily care delivery efficiencies, community tax benefits, decreased litigation risk exposure, and the economic effect of positive versus negative publicity.
As they better understand the value of preparedness, stakeholders will see that their interests are aligned around improving health care preparedness at the individual, provider, facility, and community levels. We offer three innovative and attainable models that promote health and health care delivery in disasters at facility and community levels.
Model 1: Delivery System Reform
Our first proposed option is to integrate community health resilience within current delivery system reform efforts. We propose weaving key indicators of preparedness into the nationally recognized measures of clinical quality within Medicare’s shared savings program and its Merit-Based Incentive Payment System. In essence, providers would be incentivized to prepare for disasters by including critical preparedness indicators—such as immediate bed availability—in payment structures, thereby fostering a shared sense of responsibility for the community.
This model would improve the linkage between clinical medicine and public health, motivate regional planning for disasters, and foster community resilience. Integrating measures of resilience with current delivery system reform efforts synergizes well with population health efforts, care coordination priorities, and value-based payment models. Investments in health systems’ preparedness could also contribute toward the not-for-profit hospital Community Needs Health Assessment requirement as defined by the Internal Revenue Service (IRS).
Model 2: Bond Credit Ratings
Our second proposed option is to integrate measures of health care preparedness into the bond market, with the backing of bond credit rating agencies. This model is especially relevant to organizations impacted by disasters because ratings reflect the financial strength of public and private institutions to repay debt. If health care facilities’ resilience and ability to deliver health care in disasters were incorporated within credit ratings criteria, municipalities, public institutions, and private organizations seeking to raise capital would need to make preparedness an explicit objective. Essentially, increased resilience would result in a higher credit rating, lower interest rates, and lower capital cost. A recent article hinted at this model by suggesting that quality metrics could affect hospital credit ratings.
Bond investors look for downside protection — the assurance of recovering an investment in times of distress. If a facility or city is more resilient, maintaining operations during disasters and supporting the health of its community, it seems to follow that this would naturally correlate with lower risk and greater confidence in the prospect of repayment.
Model 3: Insurance
Just as individuals purchase personal health insurance, facilities make efforts to safeguard their business against disasters through insurance contracts. Facility coverage for disasters varies but generally includes business interruption, liability, and property insurance. Of note, standard business interruption insurance covers income loss during disasters but not loss of profits due to negative publicity and the reputation effect on demand for health care post-disaster, as demonstrated in Texas.
Although evolving, individual health care plans mainly insure an individual for care delivered, but provide little in the way of promoting overall health. While this paradigm may be shifting, one can draw a parallel between individual health insurance and facility insurance for disasters. Neither encourages investment in mitigation practices before the crisis occurs. If this changes, insurers could function more like Bond Credit Ratings and reward more “prepared” hospitals and health care systems with lower insurance premiums, buying down risk, and in essence, promoting the “health” of the institution and community. The Ben Franklin idiom, “An ounce of prevention is worth a pound of cure,” captures the issue well: if insurers were to prioritize preparedness, claims could be anticipated to be fewer with smaller payouts.
The insurance model we propose would require companies that provide facility insurance to fully or partially cover investments in preparedness capabilities. We recognize the need for actuarial analysis to justify this coverage. Consistent with a regional Threat and Hazard Identification and Risk Assessment (THIRA), which describes risks associated with disasters, adjusting insurance premiums to account for threats, vulnerabilities, and the efforts taken by a community to address these shortcomings would mitigate financial risk and improve population health.
Looking Forward
Public and private resources, roles, and responsibilities for national health resiliency will continue to evolve relative to political will, the fiscal climate, and the frequency and scale of disasters. However, health care organizations, insurers, communities, and the nation can improve health and health care delivery in disasters by using innovative strategies that incentivize and finance preparedness efforts.
Aligning health care market incentives with preparedness efforts will improve investment strategies and lead to the more effective use of limited resources. Ultimately, weaving health care preparedness principles into the nation’s economy and health delivery system offers a new paradigm that supports the nation’s security. Payers, providers, and health care communities can link preparedness to day-to-day activities, capitalize on economies of scale, and develop regional value-based models for sustaining emergency preparedness.
Authors’ note
The views expressed in this publication do not necessarily reflect the views of the United States Department of Health and Human Services.
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