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Addressing the social determinants of health: Capturing improved health outcomes and ROI for state Medicaid programs

The social determinants of health (SDoH) strongly contribute to variations in health status. Addressing SDoH can help ensure access to high-quality care, improve outcomes, and manage costs.

Health happens in neighborhoods. The social determinants of health (SDoH)—the conditions in which people are born, grow, live, work, and age1 —contribute to about 40 percent2 of the variation in health status among individuals. It is increasingly important that healthcare stakeholders address SDoH (including economic stability, employment, education, food security, housing, transportation, social support, and safety) to ensure access to high-quality care, improve outcomes, and effectively manage costs.

Momentum is building among public- and private-sector leaders to integrate health and social care, given the interdependencies between these types of spending.3 Private payers and providers are investing in SDoH programs and interventions (such as affordable housing programs, subsidize ride-sharing to appointments, meal deliveries, and healthy food prescriptions). Federal models, such as Accountable Health Communities and Integrated Care for Kids, are testing the impact of addressing health-related social needs and coordinating with services outside of clinical care. However, stakeholders often encounter several obstacles in undertaking SDoH efforts, including difficulties identifying the right SDoH to prioritize; designing interventions across organizational and legal boundaries; and systematically implementing and scaling SDoH interventions in a fragmented social and healthcare ecosystem, where financial incentives for states, providers, community-based organizations, and other partners may not be aligned.

This paper describes seven tactical actions that state Medicaid programs interested in addressing SDoH can consider (Exhibit 1). These actions have the potential to improve the program’s quality (e.g., customer experience, health outcomes) and are also likely to yield a positive financial return on investment (ROI). Both are crucial when determining whether available resources have been used efficiently.4

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Although this paper focuses on Medicaid programs, the actions described may also be relevant for other markets within a state agency’s purview, such as the individual market exchange or state employee health benefit plan.

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Advanced analytics: building a business case

To ensure appropriate resource allocation and sustain SDoH-related investments, SDoH programs must demonstrate improvements in health outcomes that lead to a measurable reduction in the cost of care, and thus generate an economic ROI from the perspective of the Medicaid program. Often, however, SDoH initiatives lack a clear business case and thus it becomes difficult to determine whether investments in these initiatives achieve these goals. Advanced analytics can help state agencies identify which social determinants to focus on and determine how to establish clear, measurable goals to demonstrate impact on outcomes and costs.

1. Align SDoH efforts with strategic objectives: Many efforts to address SDoH start with a proposed solution for a specific determinant—for example, a housing or food security program. However, such interventions may have too broad a target population, address an SDoH that has a negligible impact on healthcare utilization, or result in low or unmeasurable impact on care quality and value. When a case for investing is being built, therefore, we recommend that state agencies not start with a specific SDoH, but rather first determine the program’s key strategic objectives, expressed in health gains and cost reduction. For example, if a state agency aims to address preventable hospital utilization, advanced analytics incorporating SDoH data can help identify beneficiaries who may have underlying SDoH issues that are contributing to poor outcomes and increased emergency department or inpatient costs.

Thus, analytics can help state agencies develop insights about which communities, beneficiaries, and/or specific SDoH factors to address. The agencies can then prioritize the populations, geographies, and interventions with the highest potential for impact, as well as ensure that providers and community organizations have the tools and support required to make certain that individuals receive necessary services.

2. Determine how outcomes will be improved and costs reduced through SDoH interventions: Metrics related to investment/ operational costs, healthcare spending, and impact on outcomes (both short- and long-term) are often not robustly tracked, leading to vague estimates of care quality and financial impact.5 To break this dynamic, we recommend that state agencies test hypotheses and continually monitor performance using metrics derived from claims, member surveys, or public health data (Exhibit 2).

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For example, the rate of potentially avoidable exacerbations and complications (PECs) is one metric that can be used to evaluate SDoH interventions. The healthcare spending associated with PECs can account for more than 15 percent of total Medicaid costs.6 However, PECs are, by definition, events that the healthcare system can often prevent (for example, a chronic obstructive pulmonary disease [COPD] exacerbation leading to hospital admission, a stroke in a beneficiary with diabetes). Many PECs are associated with SDoH factors; examples include asthma exacerbations due to exposure to mold and cardiac exacerbations due to poor access to healthy foods.

Understanding which PECs have the greatest impact on patient outcomes and spending—and which SDoH factors are associated with them—can inform the program’s design and business case (such as an estimated reduction in PECs and the associated potential cost savings).

Delivery model: tailoring care to communities

Analytic insights can be used to match appropriate resources to those most in need. However, the ability to impact outcomes and spending requires interventions that engage members in new practices and behaviors.

3. Design effective interventions: The uptake and effectiveness of interventions can be increased if state agencies work with local stakeholders (including beneficiaries, providers, community organizations, academics, and policymakers) to design programs that reflect their needs and assets, and then deploy the programs in a manner that will engage targeted individuals (e.g., by using the right channels, messaging, and incentives). For example, existing care management efforts might prompt members to pick up prescriptions but not take into consideration that cost and transportation are common barriers in some regions. Input from the community can help to highlight the need for financial support (which could be addressed, for example, by connecting members with prescription drug financial assistance programs) and for ride-sharing or prescription drop-off programs to improve access. Understanding member preferences through quantitative and qualitative data can then shape messaging and outreach efforts, increasing the likelihood that members are informed about how they can obtain and afford medications. In a virtuous circle, savings achieved through better medication adherence (and a consequent decrease in PECs) could be reinvested to scale or launch additional interventions.

4. Evaluate and improve interventions: Measuring the impact of interventions is critical and begins with the collection of baseline social, utilization, and clinical metrics (Exhibit 3). The clinical metrics, for example, could include the percentage of members who are food-insecure, monthly volume of nonemergent ED visits, or HbA1c levels in diabetic beneficiaries.

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An intervention’s impact may not be immediately evident; proxy measures and leading indicators will be important to gauge participation. After an initial period, interventions can be adapted to address flaws or build on strengths. To avoid pilot paralysis, a timeline and criteria for scaling or ceasing the pilot should be in place (for example, scale if target savings are achieved in 12 months; cease if there is no impact on health outcomes after 6 months).

Financing: Innovating on incentives

Currently, many SDoH initiatives are funded through grants or public funding—with limited accountability for outcomes or ROI and without a clear path to sustainability. State agencies have an opportunity to realize sustainable funding for SDoH interventions in at least three practical, complementary ways.

5. Establish partnerships or enable other organizations to address SDoH: Successful partnerships can be formed wherever clear synergies exist such that parties have a strong self-interest to cooperate. For example, Departments of Education and Health could partner to address childhood asthma exacerbations, thereby reducing ED visits while improving school attendance.7 However, ensuring cross-partner information-sharing and collaboration can be challenging. Data privacy and governance issues are often the largest obstacle, requiring consensus on how to share and manage sensitive data. Additionally, effective collaboration may require changes in policies, organization, and/or leadership. Nevertheless, such partnerships may make it possible to leverage existing funds more efficiently.

State agencies can also enable other organizations to address SDoH. As North Carolina transitions its Medicaid program to managed care, for example, it has invested in tools that it then provides at no cost to make it easier for healthcare stakeholders to address SDoH. These tools include:

  • An interactive map showing SDoH indicators by region, which will help organizations identify SDoH most prevalent in their area8
  • A standardized SDoH screening tool to establish consistency among independent payer and provider organizations9
  • A community resource database and referral tool to create a standard data-sharing system for health and social care coordination; this tool will be freely available to payers, health systems, providers, and community-based organizations10

6. Take advantage of federal funds to support social­-service providers: Several sources of federal funding are available to support social service partnerships and offset the up-front costs of SDoH investments. A few examples (not exhaustive) are listed below:

  • Centers for Medicare & Medicaid Services (CMS) waivers: 1115 demonstration waivers can help state agencies direct funding to interventions and organizations addressing SDoH as part of efforts to improve physical and behavioral health.11 12 Further, through 1915 waivers, CMS allows state agencies to cover housing-related services.
  • Medicaid Federal Financial Participation (FFP) matching funds: To help support data and analytics infrastructure modifications related to SDoH, CMS will match Medicaid FFP funds at a 75- to 90-percent match rate.14 Examples of efforts that could qualify for matching funds include creating a unique identifier across social services programs to facilitate data exchange or building SDoH risk profiles from beneficiary data to inform case management.
  • Flexibility through CMS’s Managed Care Final Rule: States with managed care can use the increased flexibility provided by the 2016 Final Rule, which gives managed care organizations (MCOs) the ability to cover value-added nonmedical services, such as nutrition classes.15
  • SUPPORT Act: The 2018 SUPPORT for Patients and Communities Act allocates funds for an enhanced federal match to health home programs focused on individuals with substance use disorder. The funds, which have been allocated for 10 quarters, can be used for several SDoH-related services (such as referral to community and social support services). By amending the Institutions for Mental Diseases exclusion, the SUPPORT Act also gives state agencies the ability to use Medicaid funds through a state plan amendment to pay for treatment services in eligible institutions for mental disease, including those in the community.16
  • MOM and InCK models: Maternal Opioid Misuse (MOM) and Integrated Care for Kids (InCK) are two models introduced by the Center for Medicare & Medicaid Innovation that are relevant to SDoH. MOM aims to support state agencies in improving integrated care delivery for pregnant and postpartum women with opioid use disorder, in part by strengthening connections to wrap-around services (including referral and coordination with community and social services). InCK seeks to support state agencies in developing innovative delivery and payment models for children, with a focus on addressing behavioral health conditions, substance use disorders, and SDoH. The application deadlines for these funding opportunities are in May and June of 2019, respectively.17 18

7.Incorporate SDoH into the design of provider value­-based contracts and risk adjustment: Value-based models with accountability for total cost of care offer incentives to address health more holistically. Under such arrangements, providers can use shared savings or up-front capitated payments to pay for SDoH interventions designed to avoid admissions or complications, resulting in both higher care quality and improved performance on cost metrics. Providers can also contract with community-based organizations (CBOs) to offer social services.

New York and Massachusetts are both examples of states that have incorporated SDoH into their design of value-based programs. New York’s Medicaid DSRIP program requires providers in value-based models to implement at least one social determinant intervention by contracting with at least one nonprofit CBO.19 This model has the added benefit of giving CBOs an additional revenue stream, helping them stabilize and grow.

The MassHealth Medicaid risk-adjustment methodology incorporates a “neighborhood stress score” that includes measures such as local poverty, employment, and education rates, and access to transportation.20 Thus, providers who treat patients with high social needs are not penalized for factors beyond their control and are more likely to participate in the program.


State initiatives to address SDoH have the potential to improve health outcomes while reducing healthcare costs. Advanced analytics, interventions tailored to communities, and partnerships with effective incentives are key. Successful efforts may result in more sustainable Medicaid programs (and potentially individual exchange plans and state employee health plans), as well as healthier and more engaged beneficiaries.

As interest in addressing SDoH grows, we will continue to develop proprietary analytics, share insights, and monitor activity in this area.

About the author(s)

Erica Coe is a partner in McKinsey’s Atlanta office. Marc Berg is a partner in the Washington, DC, office. Seema Parmar is a senior expert in the Calgary office. Danielle Feffer is a consultant in the Stamford, Connecticut, office.

The authors would like to thank Jessica Kahn, Nina Jacobi, and Alex Luterek for their contributions to this paper.