Go Big or Go Home: The Importance of Scale in Population Health

Post by Scott McLeod

Director of Product Marketing, Caradigm

In a recent article, “Why Dartmouth Ditched the Pioneer ACO Program”, Rene Letourneau for HealthLeaders Media described Dartmouth-Hitchcock Health System’s exit from the Pioneer ACO program. While the article notes Dartmouth’s defection was “unsurprisingly” prompted by financial concerns related to the CMS targets, it also revealed an often-overlooked factor in success or failure of accountable care initiatives—the size of the population served.

Robert A. Greene, MD, executive vice president and chief population health management officer for Dartmouth-Hitchcock, touched on this concern. “We would have to go it alone if we stayed in the program, which means our population would have been smaller, said Greene, “If we stayed in for 2015, we would have expected to owe another $3 million to $4 million.” Estimates place the size of Dartmouth-Hitchcock’s at-risk population at 23,500 lives in 2013.

As healthcare delivery organizations seek sustainability under risk contracts, they should look to the experienced health plans and insurance companies. Health payers range in size from local plans with ten thousand covered lives to national carriers covering millions. Many of those at the lower end of this scale struggle financially, and as a result, also with attaining the clinical outcomes desired for their members.

While smaller size can create a number of challenges, I will call out two—the cost of variability and critical mass for programs.

Utilization and costs of healthcare services vary from year to year. In a larger population, the overall variation is less noticeable because there is typically enough patients with lower utilization to balance those that incur higher costs. In a smaller population, a relatively small set of patients can have a negative impact on the average utilization and per capita spend. This is why insurers are concerned about adverse selection, resulting in a larger-than-desired proportion of higher-risk individuals among its members.

Population health initiatives need a certain number of patients to be sustainable. For example, focusing on preventive care targeted at high-risk diabetics requires a sufficient number of members that qualify and enroll in a program for it to be successful at the population level. Smaller payers often do not have the necessary membership. Adding to this, on the other side of the equation, is the fact that lower revenues makes it difficult to allocate resources for these programs.

In my experience working with payer organizations, the minimum size for long-term sustainability is 80,000 – 100,000 covered lives. It will be some time before a significant portion of ACOs and other at-risk organizations achieve that size. Until then, in addition to some success stories, I expect we will see more developments like those occurring at Dartmouth-Hitchcock.