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In Lieu of the Cliff

5 min read

For most Americans, the accommodation we all want most to vacate is the hospital: no privacy, noisy with sounds one would rather not hear, hard to sleep, food bland or worse and hideously expensive. Yet the hospital (its check-in desk in the emergency room) is among the most common overnight venues for what Dr. Jim O’Connell, a central character in a new book by Tracy Kidder, calls America’s ‘rough sleepers,’ for whom the alternative is worse:

Bedding down outside, they die at ten times the rate as housed Bostonians. They die of overdoses, of being set on fire, of being beaten to death, of suicide, of falling asleep in the snow and never waking up.

Those who give hope know they face hopeless odds:

“Jim is basically standing at the bottom of a cliff, trying to save people,” says Rosanne Haggerty, founder of Community Solutions.

This is the problem: you can’t catch people who’ve fallen off a cliff. You must divert them from falling off it in the first place. That means affordable housing, but not the type our industry typically makes. 

For the dependent rootless, housing is the foundation of both post-cliff recovery and the best guardrail to keep them from going over. Though all of us know this—the correlations are indisputable, the causations are common sense made manifest—among the largest challenges to making that change work are the double-bunkered silos of ossified regulations: the Department of Housing and Urban Development’s (HUD) in affordable housing, the Department of Health and Human Services (HHS) in healthcare. Now HHS, of all places, is offering a keyhole into its silo and, just possibly, a way to create a new type of housing to intervene in lieu of the cliff.

In a recent “Dear Medicaid Director” letter, the Centers for Medicare & Medicaid Services (CMS) offered a more liberally interpreted use of existing Section 1115 Medicaid waiver authority where:

States may consider employing in Medicaid managed care programs to reduce health disparities and address unmet health-related social needs (HRSNs), such as housing instability and nutrition insecurity, through the use of a service or setting that is provided to an enrollee in lieu of a service or setting (ILOS) covered under the state plan.

The key turns only for those states whose governors are, in the memorable phrase of my friend Michael Mirra, visionary former head of the Tacoma Housing Authority, the ‘unified spreadsheet and sole credit card’ for their state’s Medicaid population. Having ‘bought’ their state’s Medicaid liability from the Federal government a few years back for a guaranteed payment stream, these states are now urgently trying to figure out how to save the overall costs of their exploding homeless populations by upstreaming their interventions from relief to aversion.

Arizona, California, North Carolina and Oregon have launched programs that cover rent or room-and-board for unhoused enrollees discharged from a hospital, some of which have shown large savings compared with the status quo. Although, diverting Medicaid money via ILOS, however positive-sum it may be for a unified-spreadsheet governor, can at the same time be a zero-sum game politically, because in the moment of budget change, what extra is given today to the housers must also be taken today from the homeless industry. 

To make the political game a positive sum, we need three simultaneous innovations: on the supply side, on the demand side and in the funding mechanism.

Supply-side: recovery’s boarding house. For over a century, boarding houses were a staple of affordable, urban, lower-income living. I wrote about this, ironically, just as the pandemic was arriving on our shores, advocating their reinvention2 Provide interim accommodations (say, up to six months), room with board available, personal private space, ‘non-medical’ wellness and behavioral support (including peer-to-peer support), easy socialization and outplacement to independent living (e.g., affordable rental). Half a dozen examples already exist nationwide, often with veterans as the anchor tenants.

Demand side: Health Reinvestment Act funding from big pharma. We are in the early-middle stages of a sea change in pharmaceutical financial liability akin to prior sea changes in lead-based paint, asbestos, nuclear power and tobacco. Big pharma’s penance is far from over, and in my view, the manufacturers will end up being forced to ‘buy an equity stake’ in cleaning up the problem, the way fire insurers wound up migrating into fire prevention, exclusionary banks into community lending and utility companies into energy conversation and greening the environment. Call it the Health Reinvestment Act and expect it after the next President is elected.

Business model: Social Impact Bonds issued by state housing finance agencies. To make the unified spreadsheet externally visible, find a governor with a unified credit card and build a financial instrument that spans both the funding silos and the time dimension. Such a solution is the Social Impact Bond (SIB), for which there is a clear business case for a state to issue SIBs. Moreover, as anyone who’s done forensic analysis of their annual reports and bond indentures knows, state housing finance agencies are swimming in cash, and increasingly governors are noticing that it can be upstreamed to the state. With big pharma underwriting the success payments, the state can execute a binding performance-based contract across the needed interval of years, the state HFA can issue the SIBs, which can, in turn, be ‘Health Rated’ just as rating agencies, like Standard and Poors, recently rated Sustainability Bonds. 

And if the pharma companies and hospitals themselves become big buyers of the SIBs and count these purchasers as part of their Affordable Care Act community health benefits requirement, then the money would come full circle, thereby helping deflect the states from their own budgetary cliffs.

David A. Smith is founder and CEO of the Affordable Housing Institute, a Boston-based global nonprofit consultancy that works around the world (60 countries so far) accelerating affordable housing impact via program design, entity development and financial product innovations. Write him at [email protected].