Sustainable Financing Where can Regions Find the Money Needed for Population Health Initiatives? September 29th, 2017 Stacy Becker Vice President, Programs Share Post The most common, and often the first, question ReThink Health hears when it comes to sustainable financing is, “What are the innovative financing mechanisms?” Leaders ask, for example, about social impact bonds, blending and braiding, and wellness funds. Here’s another question: What do all these finance mechanisms have in common? (Hint: the answer is in the question.) Answer: They are mechanisms, not sources of funding. Financing mechanisms are transactional; they are techniques or instruments that allow us to pool, distribute, and transfer funds. A credit card is a financing mechanism. Hopefully, you have some money in the bank when you use it. The sources of money used to repay the credit card might be income from your job or an inheritance, for example. What leaders really want to know when they ask about financing is: Where do we find the money for our population health initiatives? ReThink Health’s Revenue Typology for Population Health Initiatives, produced by our sustainable financing team, is our attempt at answering this question. The typology recognizes two critical aspects of funding options: 1) where the money comes from (the sources); and 2) the process by which the money is acquired (which may or may not involve a mechanism). Combinations of these constitute what we’re calling a financing “structure.” (click on image to view tool) To be honest, I am dissatisfied with the word “structure,” because it sounds so vague. And yet, structure is appropriate here because it suggests an arrangement; a composition; a system of decisions, protocols, procedures, and authorities. In short, it recognizes that anyone seeking sustainable financing for a population health initiative has much more to consider than just the financing mechanism. In the world of population health, where there is not yet a dedicated, long-term source of funding, the process by which funds are acquired is paramount. Take a look at the typology, and you’ll see that each financing structure has a particular set of decision-makers, a particular process for making decisions, and particular constraints on supply. That is, each structure involves a different set of relationships, skills, and conditions in order to obtain funding. No wonder most multi-sector partnerships rely on grants. Exploring the Revenue Typology To get better acquainted with the typology, we suggest you work left to right. In the far left column, financing streams are sorted by their potential for sustainability. Grants are great for seed funding, and various types of loans and bonds can provide working capital or start-up funding, but neither will sustain your efforts over the long-run. Indeed, a sustainable revenue source is needed to pay back those loans and bonds. Next, we list, describe, and provide examples for financing structures. Those in the sustainable category, for example, include health care payment models, public revenues, public appropriations, anchor institutions, reinvestment, mandates, and the private market. The three center columns describe how the financing structure is organized. Who makes decisions, and by what process? What factors influence the supply of such funding? Finally, the typology points to each structure’s key challenges and benefits. At first glance, you might think the list of financing structures sounds like a rather odd assortment. Why are public revenues (such as taxes or tax credits) separate from public appropriations? How is a mandate a financing structure? The typology separates tax policy from direct public appropriations because the decision-making processes are different. Tax policy typically has a very public-facing process, and the more a proposed tax is dedicated to a specific purpose (as it was with Philadelphia’s sugar-sweetened beverage tax), the more likely a larger public campaign is involved. Perhaps the proposal is determined by a public referendum or folks are encouraged to contact their legislators before it comes to a vote. By contrast, public appropriations are steeped in a mostly inward-facing budgetary process composed of administrative and legislative procedures, lobbying by special interests, and shaped by esoteric spending rules, such as those concerning entitlements, mandates, balanced budget requirements, and fiscal notes. Mandates are simply policies requiring that specific purposes be funded. The notorious “unfunded mandate,” in particular, provides no funding but, nonetheless, is quite powerful because it forces the provision of financial resources for a specific purpose. The Americans With Disabilities Act is a great example of just how powerful a mandate can be. So, we consider “mandates” to be a financing structure. To come full circle on the differences between a mechanism and a financing structure, let’s talk about “reinvestment.” Reinvestment is the practice of taking excess revenue and placing it back into service in the same enterprise. In the corporate world, Amazon is regarded as the poster child for reinvestment, choosing to continuously invest revenues in the company to propel growth rather than distribute excess revenues as profit. Within the confines of a single organization, the process by which reinvestment occurs is pretty straightforward. However, reinvestment can be quite challenging for population health. First, as the Amazon example illustrates, reinvestment typically refers to cash; that is, excess revenues result from sales (more revenue in the door). Much of population health is about avoided costs; we spend less on health care than otherwise projected as a result of our interventions. Thus, there is no cash. (If your rent only goes up by $50 instead of $100, do you have more cash? No, you just have a smaller deficit to fill.) Second, unlike Amazon, which can make its own decisions about how much cash to distribute to shareholders and how much to plow back in the company, in population health we often want to move money from health care toward someplace else. That’s politically tough in fragmented, siloed environments. We know from our own Rethink Health Dynamics Model that reinvesting as a potential funding source is quite significant. While there are emerging models of reinvestment as a financing structure supporting population health, such as Central Oregon’s arrangement with Pacific Source, reinvestment remains a financing structure of considerable potential and little practice. We need standards of practice that create a ready yardstick for measuring and accounting for savings, produce “excess revenues” (i.e., turn savings into cash), and distribute the funds according to consensual (or imposed) agreements. Such practices are feasible if we have the discipline and the will. Start with your strong suits first Let’s face it. There are no easy, readily accessible sources of sustainable funding. The typology doesn’t help you determine what’s best for your region; it only provides information to help you analyze your own opportunities. Our intention in putting the typology together is to empower regional leaders to get more familiar with the distinctions between mechanisms and sources of financing and then begin to determine the best opportunities for financing. When you examine the typology, the best opportunities for you will most certainly be aligned with the relationships, skills, and conditions you have to work with. Pursuing new mechanisms risks stretching your capacities into unfamiliar territory. But starting where you are, with your strong suits, you’ll build stronger and broader relationships, more financing expertise, and a keener eye for assessing and adapting to prevailing conditions. Seed funding and grants can become positioned as stepping stones to more sustainable funding, rather that one-off funding sources. The typology illustrates just how difficult it can be to secure funding. But it also shows the wide array of options currently in use by regions across the country. That is, regional leaders are exercising leadership and creativity to build funding for population health. We hope the typology is helpful to you on your path toward sustainability. It is still in draft form and we welcome your insights and questions. Please let us know what you think by commenting below. The personal views and opinions expressed in this blog (and in any comments) are those of the original authors only, and do not reflect the opinions of The Rippel Foundation or ReThink Health. Neither The Rippel Foundation nor ReThink Health is responsible for the accuracy or validity of any of the information contained in the blog or any comments. All information is provided on an “as-is” basis. Join the Conversation Kitty Bailey Great post, definitely broadens my thinking! It seems that most of our discussion has been focused on Grants as a way to get started and Reinvestment for longer-term sustainability. Having this typology gets us thinking in new ways. In your examples, were the reinvestments initiated through legislative action. In other words are they really just public appropriation by another name? Or were they really decisions by independent healthcare actors to reinvest into population health? Thanks Stacy!