The Geography of Health: Rethinking Value-Based Payments

A growing body of evidence shows that where someone lives may be a more powerful predictor of their health outcomes than their genetic makeup or even their healthcare provider. Up to 60% of a person’s health status is influenced by their ZIP code and the associated social and environmental conditions it represents. As the industry continues its shift toward value-based care models, this reality can no longer be ignored.

The Impact of ZIP Codes on Health Outcomes

The correlation between an individual’s geographical location and their health has long been understood to some extent—but as recent analyses have shown, the impact of ZIP codes on patient health outcomes is far more significant than previously thought.

An employer health study compared emergency department visit frequency and per-member-per-month (PMPM) costs in Greenville, SC and Des Moines, IA. Greenville’s emergency department visit frequency was 309 per 1,000 members with PMPM costs of $543, while Des Moines averaged 114 ED visits per 1,000 members and PMPM costs of $354, or 53% less than Greenville. These variations aren’t random; rather, they reflect systematic differences in community resources, social support, and healthcare access.

The data tells a compelling story about how ZIP code shapes healthcare utilization and costs. When examining emergency department use across ZIP codes, research shows that residents of socially vulnerable areas have up to 39% higher rates of ED visits for conditions that could be treated in primary care settings. For Medicare and Medicaid dual-eligible beneficiaries, the impact is even more pronounced, with D-SNP members in underserved communities averaging significantly higher rates of preventable hospitalizations and emergency department visits compared to those in well-resourced areas.

These geographic patterns are both predictable and actionable. By analyzing hundreds of community-level factors—from food security to transportation access—healthcare organizations can now anticipate and address the socioeconomic factors driving costly utilization. Addressing social needs through targeted geographic interventions can yield significant returns: UI Health in Chicago found that providing permanent housing for homeless patients with medical and behavioral health needs reduced healthcare costs by 27%.

Why Geographic Insights Matter for Value-Based Care

Healthcare organizations implementing value-based care programs have begun to recognize that fair provider evaluation must account for these geographic disparities. The Centers for Medicare & Medicaid Innovation (CMMI) has acknowledged this reality by introducing social risk adjustments in new payment models, including adjustments for providers serving socially disadvantaged communities. This shift reflects a growing understanding that providers shouldn’t be penalized for caring for populations in high-need areas.

The impact is particularly pronounced in specialized programs like D-SNPs and MLTSS. For MLTSS populations, the ability to live independently is closely linked to the availability of community resources, from home caregivers to accessible transportation. In fact, recognizing the crucial role of place-based factors in health outcomes, over 91% of Medicaid managed care plans now report activities to address social conditions impacting their member populations.

ZIP Code Matters

A member’s ZIP code serves as a powerful indicator of social drivers (previously called “determinants”) of health, or SDOH, which offers crucial insights into the complex web of social, economic, and environmental factors that shape health outcomes. Through ZIP code analysis, healthcare organizations can assess critical factors including socioeconomic status, healthcare facility proximity, and environmental conditions that directly impact physical and mental health. Additionally, ZIP codes can reveal patterns in food security, with food deserts contributing to higher rates of nutrition-related illnesses, and transportation access, which affects healthcare utilization and medication adherence.

Beyond these fundamental indicators, ZIP code data illuminates housing stability patterns, where high rental rates and overcrowding can signal increased health risks and mental health challenges. Educational attainment and health literacy levels within specific ZIP codes correlate strongly with health behaviors and disease management capabilities, while public transit availability and car ownership rates provide insights into potential barriers to healthcare access.

Identifying these factors and their connection to health outcomes has historically been the remit of public health agencies, and their efforts have yielded a wealth of data. But accessing and leveraging that data has historically proven challenging for healthcare organizations, as we’ll discuss shortly.

Integrating SDOH Into Value-Based Contract Design

Payer actuaries can leverage SDOH data to enhance risk adjustment, cost benchmarking, provider incentives, and performance measurement to ensure contracts fairly account for non-clinical factors that impact patient health.

Read the full blog on our website here: https://resources.edifecs.com/LI-News-the-geography-of-health-rethinking-value-based-payments