Making the Value Proposition in Benefit Design

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In a perfect world, consumers would act rationally, seek high-value medical services, comply perfectly with prescribed medications, and avoid care that offers them little or no benefit. Consumers would have clear evidence of the relative value of all medical therapies. Although our world is imperfect, certain benefit design strategies may help guide consumers in making medical decisions.

Value-Based Insurance Design (VBID)

VBID¹ involves “the lowering or elimination of financial barriers to the purchase of ‘high-value’ drugs or services in hope of raising compliance and avoiding more expensive future medical costs, such as hospitalization.”²

Approaches to VBID include:³

• Design by Service–waiving or reducing copayments for certain drugs or services for all users
• Design by Condition–waiving or reducing copayments for treatments for individuals diagnosed with a specific clinical condition
• Design by Condition Severity–waiving or reducing copayments for services that help keep high-risk patients healthy
• Design by Disease Management Participation–waiving or reducing copayments for patients who participate in a disease management program provided by a preferred network and/or attain specific clinical benchmarks

Identifying medical care that is “valuable” and instituting appropriate incentives requires the integration of evidence into the benefit design process.⁴

VBID and Medicare

Medicare is the country’s largest insurer. As such, those who shape and administer the program understand the need to seek the best value for the program’s expenditures. At an October 2007 meeting of the Medicare Payment Advisory Commission (MedPAC), experts described the potential for and barriers to VBID in reducing spending growth. The group also discussed a central premise of VBID–the proper alignment of clinical and financial incentives. Raising cost-sharing requirements for particular services causes consumers to limit both non-essential and high-value uses of health care. A major challenge for VBID is to structure cost-sharing that promotes the use of only beneficial products and services while taking into account the differences in clinical value for a heterogeneous population of consumers.⁵

MedPAC’s June 2009 report to Congress, “Improving Incentives in the Medicare Program” highlights various VBID successes but cautions that lowering copayments for all individuals–the design-by-service approach–would not save resources. Rather, an approach that carefully targets only those patients who would benefit from a medication or service is needed to achieve cost savings for Medicare. The report emphasizes that identifying those targets will require an investment in comparative effectiveness research to better understand alternative therapies and the use of tools such as electronic medical records to identify the right patients.⁶

Discouraging Low-Value Services

The corollary to promoting high-value health care is discouraging low-value health care. For employers who purchase health care, reducing co-payments for essential care–i.e., making compliance affordable–makes good business sense and serves the goal of retaining a healthy workforce. The opposite is a much more difficult prospect. In HCFO-funded analyses, Peter J. Neumann, Sc.D., and colleagues likened VBID only for high-value services to “one hand clapping.” In exploring challenges to incorporating disincentives to use low-value services in VBID programs, Neumann acknowledged that labeling any medical care as “low-value” is complicated insofar as a particular service is likely be of high value to at least some subgroups.⁷

New VBID Experiments

Insurers in Oregon are exploring both sides of the value proposition. In 2011, five insurers in the state will offer benefit plans that encourage enrollees to take advantage of high-value services while avoiding low-value services. To date, one employer, a Portland steel mill, will offer the policies to its employees. Under the new value-based plans, employees will receive free or low-cost care for illnesses such as diabetes and depression but will pay additional fees for knee replacements and heart bypass surgery. This experiment moves beyond VBID analyses to date insofar as it includes incentives and disincentives for medical services, not just for pharmaceuticals. Not surprisingly, the experiment’s low-value service component is controversial. Critics argue that some individuals receive significant clinical benefit from services deemed “low-value” and that a more tailored approach is needed to avoid impeding access to beneficial care.⁸

Earlier this year, the National Business Coalition on Health announced that five of its member organizations would participate in the American Health Strategy Project in cooperation with Pfizer, Inc. The project will promote the use of value-based health benefits to improve the health of employees and their families. It will build on a model developed through the Kansas City Collaborative that aligned financial incentives with value-based health promotion and prevention strategies.⁹ 

VBID and Health Reform

In March 2010, Congress passed the Patient Protection and Affordable Care Act (PPACA). Among the goals of health reform is to encourage consumers to make better, value-based health care choices. The new law gives the secretary of the U.S. Department of Health and Human Services the authority to move that process forward. Among the provisions on improving coverage is a section that states, “The Secretary may develop guidelines to permit a group health plan and a health insurance issuer offering group or individual health insurance coverage to utilize value-based insurance designs.”¹⁰

As the secretary and purchasers of health care continue to seek ways to reduce costs while improving the quality of care and health outcomes, strategies such as VBID are likely to diffuse. Studies, such as those described below, recently funded under the Robert Wood Johnson Foundation’s Changes in Health Care Financing and Organization (HCFO) program, are assessing the potential alternative VBID strategies and will help inform health reform implementation.

• Niteesh K. Choudhry, M.D., Ph.D., Brigham and Women’s Hospital, is conducting a study to determine the factors that influence the success of value-based insurance design plans and to develop “best practices” for future implementation. The researchers will conduct a series of natural experiments examining VBID plans implemented by CVS Caremark, a large pharmacy benefit manager, on behalf of numerous clients. They will evaluate the impact of VBID characteristics on patterns of adherence with and discontinuation and use of statins by (1) developing a system to classify differences in VBID plan characteristics that may influence the ability of the plans to stimulate the use of evidence-based medications; (2) surveying plan administrators and plan sponsors to identify additional plan features that might confound the relationship between VBID plan characteristics and medication use; and (3) using pharmacy claims to determine which VBID design features (and combinations thereof) most effectively stimulate appropriate medication use.

• Matthew Maciejewski, Ph.D., Duke University, is exploring the business case for value-based insurance design (VBID) in order to inform benefit design changes and cost-containment strategies under consideration by insurers and Medicare. The researchers will examine “Medication Dedication,” a BlueCross BlueShield of North Carolina (BCBSNC) program that eliminated copayments for generic medications and reduced copayments for brand-name medications to treat hypertension, congestive heart failure, hyperlipidemia and diabetes. They will determine whether VBID improved medication utilization behavior among BCBSNC enrollees with hypertension during the first two years of the program and address the following research questions: (1) did the initiation of Medication Dedication impact medication initiation, switching and adherence among program participants with hypertension; and 2) did Medication Dedication impact inpatient, outpatient or emergency room health services utilization and expenditures among program participants with hypertension.

Conclusion

VBID is an attractive approach to designing health insurance. For employers, it creates a healthier workforce, less absenteeism, and lower claims costs. For providers, it promotes greater compliance by patients with prescribed therapies. For consumers, it encourages better health.

Details on these and other related HCFO studies are available at www.hcfo.org.

Title: Large Employers Use of Workplace Health Clinics
Grantee Institution: Center for Studying Health System Change
Principal Investigator: Ha T. Tu, M.P.A.
Grant Period: December 1, 2009–August 30, 2010

The researchers will explore the workplace health clinic model by asking (1) what  key motivations and objectives and major strategies and approaches are used; (2) how are workplace clinics structured and organized and how do they fit into the overall structure of an employer’s health benefits; (3) to what degree do the clinics affect the delivery of care, access, quality, and coordination; (4) what is the return on investment relative to short- and long-term health care costs as well as to indirect costs of absenteeism and productivity; (5) are successful strategies replicable; and (6) are there employer characteristics that contribute to the effectiveness of workplace clinics? The objective of the project is to understand more fully the full spectrum of employer strategies concerning workplace clinics, the barriers faced by employers, and the impact of different strategies and models on cost containment and care delivery.

Title: The Painful Prescription: Revisited
Grantee Institution: The Brookings Institution
Principal Investigator: Henry Aaron, Ph.D., and William B. Schwartz, M.D.
Grant Period: May 1, 2004–December 31, 2005

With the current trend of rising health care costs in the United States, many wonder whether health care rationing is likely to slow the growth of health care spending and what its effects might be. With support from HCFO, the researchers updated their RWJF-funded research of 20 years ago that was the basis of “The Painful Prescription: Rationing Hospital Care.” This seminal work compared health care in the United States and Great Britain and examined the potential for rationing in the former. The researchers (1) updated data on most of the technologies examined in the original book; (2) added an extended examination of the political, legal, and other obstacles to the acceptance of rationing, and (3) authored two policy briefs: Health Care Rationing: What it Means and Treatment of Coronary Artery Disease: What Does Rationing Do? The researchers sought to clarify the nature of the painful prescription—that “external constraint” known as rationing that will force patients to forgo care when providing all beneficial medical care to everyone is more than the United States can afford.

Title: Cost Effectiveness, Quality and the Future of Medical Technology Assessment
Grantee Institution: Harvard School of Public Health
Principal Investigator: Peter Neumann, Sc.D.
Grant Period: July 1, 2002 – June 30, 2004

How does Medicare assess and make coverage decisions for new medical technologies? The researchers conducted an in-depth descriptive and multivariate explanatory analysis of 100 CMS coverage decisions over the past 12 years. They compared Medicare’s processes and decisions with those of other health technology assessment (HTA) organizations. Specifically, the researchers examined six key questions: (1) What technologies has Medicare formally assessed in the past decade? (2) What are the key determinants of Medicare coverage decisions? (3) Have coverage decisions been consistent with evidence of societal cost-effectiveness? (4) Have other HTA organizations assessed the same technologies? (5) What “best practices” for technology assessment surface from an investigation of key technology assessment organizations in the United States and abroad? (6) What role can cost-effectiveness play in future assessments in the United States (given data limitations, an array of societal objectives, and likely political opposition)? The objective of the study was to inform decision makers about HTA processes and to reveal “best practices” about technology assessment as they consider whether to cover new medical technologies.

¹ The focus of this discussion is value-based insurance design as distinct from value-based purchasing. “The concept of value-based health care purchasing is that buyers should hold providers of health care accountable for both cost and quality of care. Value-based purchasing brings together information on the quality of health care, including patient outcomes and health status, with data on the dollar outlays going towards health. It focuses on managing the use of the health care system to reduce inappropriate care and to identify and reward the best-performing providers. This strategy can be contrasted with more limited efforts to negotiate price discounts, which reduce costs but do little to ensure that quality of care is improved.” Meyer J, Rybowski L, Eichler R. Theory and Reality of Value-Based Purchasing: Lessons from the Pioneers. AHCPR Publication No. 98-0004. Rockville, MD: Agency for Health Care Policy and Research, 1997.
² Fendrick, A.M. “Value-Based Insurance Design Landscape Digest,” Center for Value-Based Insurance Design, July 2009.
³ Ibid.
⁴ Bernstein, J., “Using Evidence to Design Benefits,” Research Insights, AcademyHealth, May 2010, http://www.academyhealth.org/files/publications/RschInsightsDesignBenefit.pdf
⁵ Medicare Payment Advisory Commission Public Meeting, October 3, 2007, http://www.medpac.gov/transcripts/1003-04MedPAC.final.pdf
⁶ Report to Congress, “Improving Incentives in the Medicare Program,” Medical Payment Advisory Commission, June 2009
⁷ http://www.ajmc.com/media/pdf/AJMC_10apr_Neumann_280to286.pdf
⁸ “Insurers test Health Plans that Stress Patient Choice,” USAToday, March 11, 2010, http://www.usatoday.com/news/health/2010-03-11-valuehealthcare11_CV_N.htm
⁹ “NBCH Selects Five Coalitions for New Value Based Benefit Pilots,” FoxBusiness.com, May 3, 2010, http://www.foxbusiness.com/story/nbch-selects-coalitions-new-value-based-benefit-pilots/
¹⁰ Section 6301 of the new law also establishes the Patient-Centered Outcomes Research Institute (PCORI) “to assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of evidence concerning the manner in which diseases, disorders, and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored, and managed through research and evidence synthesis that considers variations in patient subpopulations, and the dissemination of research findings with respect to the relative health outcomes, clinical effectiveness, and appropriateness of medical treatments, services, and items.” The PCORI builds on the $1.1 billion in funding for comparative effectiveness research in the American Recovery and Reinvestment Act (ARRA).