Region Stockholm has issued a SKr30m (US$3.2m) five-year health impact bond to finance preventative measures for people at risk of developing type 2 diabetes, a pilot programme that could be scaled up across the country.
SEB was adviser and financial intermediary, and financial services company Skandia is the investor in what is thought to be the first international deal to focus on strengthening preventative healthcare and link bond repayment and interest to the success of the preventive measures.
The health impact bond will test a scalable model of cooperation between the public and private sector, and the structure will give investors higher returns if the preventative measures reduce healthcare costs.
“By linking repayment and interest to the success of the prevention programme, the model achieves an element of risk-sharing,” said Katarina Holmgren, chief financial officer at Region Stockholm.
The deal aims to tackle the problems of the global healthcare system, which needs to find new ways to structure and pay for care as medical costs spiral due to ageing populations, significant increases in lifestyle diseases and chronic illness.
If the project is successful and brings cost savings for Region Stockholm, Skandia will get a higher return than regular financing. If the project fails to deliver health benefits and cost savings, Skandia will receive a negative return.
The deal combines a fixed underlying five-year bond with a zero-coupon structure, and a variable portion with a return based on cost savings achieved by the diabetes prevention programme. Skandia’s total return will be a combination of both bonds.
The upside is limited by a cap of 10% over the five-year period, and the downside is limited by a floor of minus 20% for the five-year period. No payments will be made during the bond’s tenor and repayment of the nominal amount and positive or negative returns will be made on maturity.
“This is a unique financing model that offers risk sharing for the region and enables prevention on a large scale that will in the longer term reduce human suffering and lead to lower costs,2 said SEB’s chief sustainability officer Hans Beyer.
Proceeds will fund preventative measures focusing on lifestyle habits for up to 925 people at risk of developing type 2 diabetes, who will be selected through a health survey.
They will work with Health Integrator, a digital tool, and coaches to develop a health plan that will give access to services to promote a healthier lifestyle through exercise, food, sleep and stress.
Providing type 2 diabetes care currently costs Region Stockholm around SKr2.5bn per year and prevention could reduce healthcare costs and free up resources for other healthcare purposes.
Promoting positive lifestyle could result in a risk reduction of 58%, Region Stockholm said, and potentially healthcare costs of SKr1.4bn a year if the initiative is scaled up to pre-diabetics countrywide.
Healthcare costs to treat type 2 diabetic patients are nearly 4.5 times higher than patients without it.
Sweden has up to 500,000 diagnosed diabetics, 90% of which have type 2 diabetes, an estimated 150,000 undiagnosed patients and up to six diabetes-related deaths per day.