How a Nonprofit Organization Gets Paid to Address Social Needs

By Douglas McCarthy, The Commonwealth Fund


Integrating health and social services is critically important as patients with complex needs cope with the COVID-19 pandemic. The experience of Homage — a nonprofit serving Snohomish County, Washington — offers insights about how to integrate these services in a financially sustainable way.

Homage’s CEO, Steve McGraw, saw an opportunity when a change in federal policy granted Medicare Advantage (MA) plans greater flexibility to include some nonmedical services as supplemental benefits to help improve the health of members with chronic illnesses. He and his team approached an MA plan to explore the possibility of a partnership to provide care coordination and social services such as home-delivered meals, medically related transportation, and falls prevention strategies as a cost-saving intervention for the plan’s high-need and high-cost members.

The health plans leaders were impressed by the results Homage presented from a pilot of its program at a local health system, which improved care and reduced hospitalizations for patients with two common and costly-to-treat conditions: congestive heart failure and chronic obstructive pulmonary disease. The MA plan asked Homage to come back with a proposal showing how paying the nonprofit for its services could reduce the plan’s medical costs.

Calculating Return on Investment in Social Services

To help determine the financial value proposition of the nonprofit’s services, Homage turned to Lori Peterson and Victor Tabbush of Collaborative Consulting. Peterson is a skilled facilitator for cross-sector partnerships of the kind that Homage was proposing. Tabbush, a professor emeritus at the UCLA Anderson School of Management, has a longstanding interest in helping nonprofits develop capacity for sustainable financial contracting. With support from The SCAN Foundation and The Commonwealth Fund, he developed a tool for health care and community-based organizations to use in calculating the return on investment (ROI) for such cross-sector partnerships.

Tabbush and Peterson led the Homage team through the ROI Calculator tool, including determining the cost of the agency’s services — a key input needed to calculate their value. The outputs from the ROI Calculator helped the Homage team —including McGraw, director of finance Arin Ricchiuti, wellness director Richard Robinson, and data specialist Linda Church — quote a mutually advantageous price for its services.

The Journey Toward a Contract

Building a business case for an investment in social services was the first step in a negotiation process with the health plan, which required time to build mutual understanding of goals and constraints. For example, the Homage team discovered that how the federal government pays MA plans factors into what a plan can afford to pay for social services. In this case, the parties needed to adjust the scope and intensity of Homage’s proposed services and the expected ROI  to meet the health plan’s budget constraints.

Homage also needed to understand the health plan’s contractual relationships with its providers, which would play a part in determining the success of the program once implemented. Before an agreement could be reached, Homage had to explain why the standard contract provisions offered by the health plan should be adapted to fit the circumstances of the partnership. A practical lesson learned from Homage's experience is to include the cost of legal review in the nonprofit’s overhead expense calculation.

Resources to Help Nonprofits Use the Tool

Organizations interested in learning more about the ROI Calculator tool can watch an introductory webinar. To begin using the tool, nonprofits will need to define the population they will serve with a specific scope and intensity of services. Those that need help estimating the cost of their services — another input required by the tool — may wish to seek out the training and tools offered by the Nonprofit Finance Fund and the Center for Health Care Strategies or the Aging and Disability Business Institute.

For nonprofits that haven’t quantified the impact of their services, The Commonwealth Fund developed a review of the evidence on how various social services have influenced health care cost and outcomes. Nonprofits can use the review to identify studies relevant to their service offering. The Commonwealth Fund also compiled nationally representative data on utilization and costs of health care services such as hospital stays and emergency room visits for high-need, high-cost populations, another input needed by the tool.

The outputs from these tools may need to be adapted to the circumstances of a proposed cross-sector partnership. For example, hospitalizations fell by 40 percent among patients enrolled in Homage’s pilot program. For purposes of developing a pricing proposal, the Homage team decided to use a more conservative estimate to allow for the uncertainty of serving a new population.

Other Populations and Services

State Medicaid programs also create opportunities to incorporate the social determinants of health in the scope of managed care contracts. Recognizing this opportunity, the Cincinnati-based nonprofit Health Care Access Now (HCAN) used the ROI Calculator to model the financial benefit of its Pathways care coordination program for Medicaid-insured patients with chronic conditions. HCAN is using the results of the ROI calculation in discussions about expanding its service offerings for Medicaid managed care plans in Ohio.

The current economic downturn is straining nonprofits just when they are needed most to help those affected by the COVID-19 pandemic. As charitable giving is being stretched, nonprofits need to identify new ways to sustain their financial footing. The ROI Calculator may offer help in developing the business case for nonprofit partnerships with health systems and health plans. Financial arrangements, like the Homage and HCAN examples, are one way to help ensure that the social services sector has the capacity to meet the demand as health care organizations identify and refer patients in need of nonmedical services. From a societal perspective, addressing the social determinants of health is key to transforming the health system to attain equitable health outcomes.