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Behind the Numbers: Cost Savings for the Highest Risk Population

Global Head, Health Services, Oliver Wyman
Partner, Health & Life Sciences, Oliver Wyman

The number of chronically ill and poor patients, often called “frequent fliers” or “super-utilizers” of the US healthcare system, is growing as more people at the margins are receiving insurance coverage through Medicaid. Dan Gorenstein recently reported from the Marketplace Health Desk a series on this topic, and Oliver Wyman research is featured in his “Personalizing Medicine with Tailored Social Services” and “The Challenge in Pairing the Sick with Social Services.” The stories cite Oliver Wyman research that suggests proper care for these patients—including meeting social needs such as mental illness, addiction, and poverty—could save $300 billion annually. Here’s how our team led by Jim Fields, Josh Michelson, Parie Garg, and Rohit Singh arrived at this savings opportunity:

The $300B savings opportunity is possible when the system focuses on the highest risk patients by actively managing their health. While there is a common adage that 5% of the population drives 50% of medical cost, not all of these members can be actively managed, if they are experiencing trauma or require neonatology services, for example.

A population health lens requires a more nuanced approach, understanding the risk profile of individual patients. According to our Oliver Wyman analysis, 17% of the population is driving 50% of overall healthcare costs as a result of end-stage, polychronic, or advanced progressive chronic conditions, excluding complex diagnoses such as oncology and degenerative central nervous system diseases that require significant specialist care. (See chart.)

With total US healthcare expenditures at an estimated $3T annually, this population of high-risk patients represents a pool of approximately $1.5T in aggregate cost. Our proprietary model has identified a 20% savings opportunity in this patient population (totaling ~$300B), with potential for even greater savings levels as the care models mature. These figures can be attributed to a reduction in healthcare consumption, driven primarily by:

  • A $150B savings due to a 33% reduction in inpatient spending
  • A $75B savings from a 27% reduction in outpatient spending
  • A $60B net savings from a 30% reduction in specialist care that is enabled by an increased primary care focus (with patient-centered primary care teams practicing to the top of their license, tighter care coordination, and more disciplined referral management)
  • A remaining $15B picked up from smaller savings categories across the spend distribution, such as pharmacy

This is not just theory. There are many examples of organizations across the country driving this magnitude of impact for focused populations. Iora Health, an innovative provider of primary care, reduced hospitalizations for its patients by 40 percent, emergency room use by ~50 percent, and use of specialists by 80 percent by using “smart” care teams, health coaches, “clubs” for certain chronic conditions, and biometric feeds to alter how patients interact with their medical conditions and risk factors.

CareMore, an integrated Medicare Advantage plan and provider of proactive care to seniors, uses strength and balance training in a community atmosphere to reduce the rate of hip fractures among frail elders, in addition to a robust array of non-traditional services to support an individual’s overall health and wellbeing. They avoid costly hospitalizations and high death rates while also addressing depression. Others have had success integrating health and social services to improve care, such as CareOregon.

Yet despite the demonstrated impact of the likes of Iora, CareMore, and CareOregon, many in the market remain skeptical about the true ability to drive savings, particularly at an industry-wide level. Effective implementation of these best-in-class models is not easy, nor is scaling them, particularly within systems that are built on a strong hospital and inpatient chassis.

Even if a provider is able to align the incentives and economics through value-based payment, there is still the hard work of shifting from a provider-centric to a patient-centric model: team- and relationship-based, proactive, highly empathetic, and willing to embrace social, behavioral, and lifestyle issues as co- determinants of health outcomes, meaning providing support well beyond standard, office-based medical interventions.

Adding to the difficulty is how hard high-risk patients can be to reach and engage, given the complexity of their needs and other social factors. With a blend of challenges that are cultural, behavioral, structural, and economic, achieving this level of savings will take time to realize.

Nevertheless, innovative models are indeed delivering impressive impact across funding sources—Medicare, Medicaid, and commercially insured. As Josh Michelson observes, “The opportunity to significantly alter the current trajectory of healthcare costs is very real with a focus on the highest risk patients. And the benefits of solving for the most complex spill over into the larger population, making the $300 billion savings much higher.”

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