Volume 5, Issue 11 , Pages 1118-1124, November 2008
Introduction to Value-Based Insurance Design
Article Outline
- Abstract
- Introduction
- Economic Theory Behind Value-Based Insurance Design
- Value-Based Insurance Design in Practice
- Financial Implications of Value-Based Insurance Design
- The Need for Value-Based Insurance Design in Radiology
- Conclusion
- References
- Copyright
When all patients are required to pay the same out-of-pocket amount for imaging services, which have varying degrees of benefit dependent on patient characteristics, there is potential for overuse and underuse. Rising costs of health care have stimulated efforts to redesign health care packages. Cost sharing has emerged, whereby costs are the same for everybody. Unlike traditional health care plan designs, value-based insurance design tailors the cost of care delivery to the benefit that a patient or class of patients derives from that care. With value-based insurance design, cost sharing is still used, but a “clinically sensitive” approach is designed to mitigate the adverse health consequences of high out-of-pocket costs. The authors summarize the principles of value-based insurance design and review examples of its implementation in other areas of medicine.
Key Words: Value-based insurance design, benefit-based copays, disease-management programs, pay for performance, consumer-directed health care, consumer-driven health plans
Introduction
Health care costs continue to rise, with the United States spending 15.4% of its gross domestic product on health care in 2004, by far the highest of all nations in the developed world, at least 50% higher than the second and third countries, Switzerland and Austria, and nearly double the average among developed countries [1]. Despite this expenditure, the World Health Organization [2] in 2005 reported that the United States was lagging behind most other developed countries in life expectancy. As a result of this, the quality and cost of US health care has been questioned. Recent movements in the US health care arena have advocated for value-based health care, the current focus of which is to expand health information technology, increase transparency in provider quality and cost, and institute pay-for-performance plans. These strategies have been directed primarily at the providers of care rather than consumers [3].
Prescription drugs and diagnostic imaging are two of the fastest growing components of national health expenditures [4, 5]. To control health care costs, health plans and employers have used financial incentive mechanisms to alter patient and provider behavior, including health savings accounts, consumer-driven health plans, and pharmaceutical coverage policies to patients (cost sharing, including copayments, coinsurance, deductibles, and multitier plans) [6]. At the national level, employers have tended to increase employees' out-of-pocket costs, no matter the potential long-term health benefits of their medications or procedures. As a consequence, patients with health care spending accounts without other medical insurance, those with high-deductible insurance, and those who spend out of pocket for services may be more sensitive to the costs of procedures, including diagnostic imaging, and may forgo elective services such as screening mammography.
The first principle of the Hippocratic oath taken by physicians entering the practice of clinical medicine is to first do no harm. In today's complex health care environment, this principle has extended beyond basic clinical care into health care financing. In clinical care, most interventions intended to improve health carry some risk for an adverse event. Clinicians must weigh the risks and the benefits when choosing therapies or interventions. In health care financing, there is a similar trade-off between cost-containment initiatives and access to medical services. To be effective, interventions seen as valuable (in which the net clinical benefits exceed their expense) would be promoted, whereas interventions seen as less valuable (those in which costs exceed the expected clinical gain) would be limited. Given the concerns over health care quality, health care providers are striving to improve quality by introducing disease-management initiatives and pay-for-performance programs [6].
In the current system, cost-sharing amounts are constant for a particular service, although the clinical value of the service varies depending on who receives it. Ideally, uniform copayments would discourage the use of low-value health care, but this assumes that patients can distinguish between high-yield and low-yield therapies. The evidence shows that higher copayments reduce the use of all services, including highly valuable health care services, and thus result in worse health outcomes [7, 8, 9]. The concern also is that cost sharing most adversely affects consumption in low-income seniors, who need the health care the most [9]. With respect to imaging, Blustein [10] demonstrated that mammography screening rates were decreased with Medicare and lack of supplemental insurance (14.4%) at a time before the uniform coverage of mammographic services by Medicare when the insured relied on supplemental insurance or paid out of pocket to cover breast screening expenses. This is in comparison with those with Medicaid, which covered breast cancer screening services, and supplemental insurance (23.9%), employer-sponsored supplemental insurance (44.7%), and self-purchased supplemental insurance (40.1%) [10]. Solanki et al [11, 12] demonstrated negative direct (and to a lesser degree, indirect) effects of cost sharing (copayments, coinsurance, and deductibles) on the number of mammograms in patients belonging to both health maintenance organizations and preferred provider organizations or indemnity plans. The converse is also true; decreasing copayments was shown to increase medication adherence within a disease-management program by Chernew et al [13] in a large employer-based health system.
In response to these adverse effects of the current copayment system, a benefit-based copayment system was advocated by Fendrick et al [14] in which copayment rates are set on the basis of the value of clinical services rather than costs. The amount of patient cost sharing would be based inversely on expected clinical benefits. This concept was expanded outside prescription drugs to health insurance in general, and the approach became known as value-based insurance design (VBID) [15, 16]. The VBID system is based on the “medical appropriateness” of an imaging test and is different from a cost-effectiveness exercise.
Economic Theory Behind Value-Based Insurance Design
The value of insurance lies in the fact that it allows people to alleviate the financial risk associated with illness and allows those who would not be able to afford care to purchase it [17]. However, reducing the cost of care at the point of service may encourage the use of services in which the clinical benefits might not justify their cost. The excess consumption is termed “moral hazard” and reduces the value provided by the health care system [18]. The theory behind cost sharing is that it presumes that health care consumers will use only services having benefits that exceed the costs to them and offset some of the moral hazard (over consumption) [14]. In the VBID situation, cost sharing is still used, but a “clinically sensitive” approach is used to mitigate the adverse effects of high out-of-pocket spending [19, 20]. Recognizing that the value of an intervention varies across patients, more efficient resource allocation can be achieved when the amount of patient cost sharing is dependent on the value that a specific service provides to a particular patient [21, 22]. Value-based insurance design does not assume that customers faced with cost sharing will make balanced decisions when it comes to cost and benefit. When patients are faced with moderate copayments, a complex variety of issues come into play and lead to the underuse of services [23]. Targeted reductions in patient copayments can increase value by leading to the increased use of services that are of proven effectiveness. Goldman et al [24] modeled the effects of varying copayments for cholesterol-lowering therapy according to risk category and demonstrated savings in emergency room visits and averted hospitalizations.
Value-Based Insurance Design in Practice
There are two main variations of VBID in practice: targeting specific services or interventions and targeting specific clinical diagnoses [15]. The first approach simply targets services known to be of high value, such as angiotensin-converting enzyme inhibitors. Although some users of the services have higher value conditions, such as congestive heart failure and myocardial infarction, than other users with conditions, such as essential hypertension or diabetes, the system does not attempt to differentiate among individuals who receive specific interventions.
The second approach targets patients with select clinical diagnoses, such as coronary artery disease, and lowers copayments for specific high-value services, such as statins or β-blockers. The second approach, which may require a more sophisticated data system to implement, creates a differential copayment on the basis of the indication for a specific medical intervention [15].
Service-Specific (or Imaging Modality–Specific) Approach
The first approach selects clinically valuable services for copayment reduction. An example of this is the use of β-blockers in all patients. This system would appropriately provide benefit not only for users with congestive heart failure but also for patients with other indications, such as performance anxiety, because it does not attempt to differentiate between these patient groups. A similar issue in radiology would include targeting a specific imaging modality, such as computed tomographic pulmonary angiography, for all patients. A patient with appropriate risk factors, such as neoplasm, immobility, or recent surgery, will benefit, but so will emergency room patients with no risk factors.
In 2005, Active Health Management (New York, New York) lowered employer copayments for 5 classes of drugs covering a variety of diseases: angiotensin-converting enzyme inhibitors, angiotensin receptor blockers, diabetes medications (including oral therapies and insulin), statins, and inhaled corticosteroids (steroids) in conjunction with a disease-management program [13]. In this program, copayments were reduced from $5 to zero for generic drugs and by 50% for brand-name drugs. For 4 of the 5 classes of drugs (except steroids), there were 7% to 14% reductions in nonadherence. These increases in adherence are likely to translate into decreased direct and indirect costs.
One potential application in radiology is colon cancer screening, a high-value service, using computed tomographic colonography. Complete coverage of computed tomographic colonographic services by payers will facilitate the screening of larger populations. This cancer screening activity can be integrated with and managed similar to the provision of breast cancer screening services.
Disease-Specific Approach
The second approach targets patients with specific clinical disorders and lowers copayments for specific high-value services, such as the use of β-blockers in congestive heart failure. A similar approach in diagnostic radiology would be the lowering of copayments for specific diagnostic imaging tests (eg, computed tomographic pulmonary angiography) in patients with prespecified clinical risk factors (eg, older age, immobility, neoplasm). In the screening population, for example, copayments could be reduced (or eliminated altogether) for high-risk women undergoing screening mammography or breast magnetic resonance imaging who carry the breast cancer 1 or 2 gene, for patients with familial polyposis syndromes who attend for colon cancer screening, or for patients with significant exposure risks (eg, asbestos, cigarettes, chronic inflammation) who attend for lung cancer screening. Because it creates copayments that vary by individual, the approach requires greater administrative efforts and costs to implement.
Several companies have identified the high cost of managing diabetes-related complications and have responded by decreasing or eliminating the cost of diabetes medications. The postal supply company Pitney Bowes reorganized its drug benefit design in concert with disease-management and patient education programs for diabetes [25]. The company reduced out-of-pocket costs for all diabetes drugs and devices to reduce financial barriers to adherence, increase compliance, and reduce complications. Coinsurance levels for generic drugs and devices were lowered to 10% from the previous cost share of 25% to 50% for employees and their codependents. After 2 to 3 years, pharmacy costs were reduced by 7%, and emergency visits decreased by 26%. Overall, per participant, the cost of direct health care plans dropped by 6%. Participants also paid less than their peers in comparable industries [25].
In the Asheville Project, several employers in Asheville, North Carolina, provided community-based, pharmacy-directed medication care management programs for specific disease entities, namely, diabetes mellitus, asthma, hypertension, and dyslipidemia [26, 27, 28]. In the diabetes plan, copayments for diabetic medications and related supplies were waived, and total mean health care costs per patient were $918 lower than projections for the first year of enrollment [26]. In the asthma study, copayments were waived for a 5-year period [27]. Measures of asthma control improved, emergency room visits decreased from 9.9% to 1.3%, and hospitalizations decreased from 4.0% to 1.9%. Direct cost savings averaged $725 per patient per year, and indirect cost savings were estimated at $1,230 per patient per year. Indirect costs due to sick or nonproductive days decreased from 10.8 to 2.6 days per year [27].
In the hypertension and dyslipidemia study, disease-related medication copayments were significantly reduced or waived over a 6-year period [28]. Measures of hypertension and dyslipidemia control improved, and the cardiovascular and cerebrovascular event rate dropped from 77 to 38 per 1,000 person-years during the study [28]. Cardiovascular-related medication expenses decreased by 46.5%, and patients' use of emergency department and hospitalizations decreased by 54%. Per person expenditures per year decreased from an average of $1,362 to $734 over the 5 years [28].
An innovative new program at the University of Michigan has been launched that is aimed at encouraging the use of medicines that can help prevent the worst long-term effects of diabetes [29]. Importantly, the program approaches the spectrum of diseases related to diabetes in its entirety. At the University of Michigan, employees and their dependents who have any form of diabetes will be able to receive some of their medications for free. Participants are charged no copayments for certain drugs directly related to managing diabetic blood sugar control. Also, additional medications treating or decreasing the risk for diabetic complications or comorbid conditions, such as hypertension, dyslipidemia and depression, are similarly made available free of charge. All of the drugs chosen for “free copays” have been shown to help prevent diabetes complications that can be debilitating or fatal. Copayments for other drugs in the same classes are reduced by 50% or 25%. Participants also receive educational materials to help them understand how to improve their health and reduce their chances of diabetes complications. More than 2,000 of the 69,700 employees and dependents covered by University of Michigan benefits currently take medications for diabetes. The program also integrates non-drug-based services directed at diabetic care into the “free copay” model, such as free yearly eye and foot examinations, to try to diagnose early signs of diabetic retinopathy and neuropathy.
The concept for the comprehensive diabetes care program came from University of Michigan research that has shown the potential health value of removing any cost barrier that might keep people with chronic illnesses from getting beneficial medications, tests, and screenings. The research has also suggested that the approach may save individuals, employers, insurers, and society money in the long run, by preventing or delaying costly complications ranging from heart attacks and strokes to blindness and amputations [30, 31]. The University of Michigan program, called MHealthy: Focus on Diabetes, is the first in the nation to be designed specifically to evaluate the impact of targeted copayment reduction for preventive medications [29].
The University of Michigan program is testing whether both the quality and the value of care for people with diabetes can be improved and will be an example of what can be done and with in-depth evaluation will reveal if there is a measurable difference. The program will be evaluated by tracking aggregate ordering and refill data from its prescription drug benefit system, as well as total health expenditures for all participants and eye examination data for participants insured through University of Michigan health insurance. Those data will be compared with prescription refill data for the same medications from a group of non-Michigan employees with diabetes who will receive educational materials but no copay reductions [29].
Financial Implications of Value-Based Insurance Design
The driving force behind VBID is to increase the use of “high-cost” and “high-yield” imaging services. The goal of any health care system is to improve health, not to save money. However, the implementation of a VBID service will have financial consequences, especially in the early stages.
Increased Direct Costs Now and Added Value Later
The identification of certain imaging services or patients for lowering copayments (or maintaining them where costs are rising) will mean that insurance companies will have to pay the extra share of costs, not just to provide the services but perhaps to implement information technologies that permit the identification and risk stratification of patients for targeted service delivery. In addition, costs will rise as certain high-yield imaging services are increasingly used, although one may argue that this increased use is appropriately targeted. The long-term effect is added value, because VBID is targeting high-yield (cost-effective) imaging services that will have positive downstream health (and cost) benefits.
The increase in direct costs now should be offset later by savings from improved health as imaging services are used with more efficiency. The greater the risk for an adverse outcome and the greater the cost of the adverse outcome, provided consumers respond to lower copayments, the greater the health benefits gained. A portion of costs associated with VBID will include expenditures on additional high-value services used because of lower copayments [15]. However, savings down the line can be made if VBID services are targeted to high-risk patients with appropriate imaging to prevent adverse events or diagnose them sooner [15]. In addition, further health care savings will be made with improved employee productivity and decreased disability rates. The high yield can be funded by increasing cost sharing on less appropriate imaging, as modeled by Goldman et al [24], in the case of cholesterol-lowering therapy.
The Targeting Factor
The financial impact of a VBID program will depend on the level and precision of targeting or risk stratification [15]. The better the system is at identifying specific high-yield imaging services or patients who would most benefit, and the more responsive patients are to lower copayments, the greater the financial return and the health benefits. For wider implementation of VBID, the added costs will have to be taken into account. One could implement a VBID system that finances the costs of low copayments for high-value services through higher copayments on lower yield services.
Potential Impact on Radiology Practice Revenue
At this time, it is difficult to quantify the potential monetary effect of VBID implementation on radiology practices. Because VBID is predicated on health care choices made by insured individuals, the most likely portion of one's practice to be affected would be outpatient utilization rather than inpatient or emergency department services. Depending on the case mix of one's practice, the effect of VBID may be neutral, with a decrease in inappropriate imaging balanced by increased appropriate utilization in patients who avoided imaging because of attendant copayments. However, the most likely result would be a net decrease in (inappropriate) utilization as patients choose not to (assume the expense and) undergo imaging that provides little evidence of benefit. The impact on practice revenue could be modeled before the implementation of VBID and should be empirically measured once VBID is instituted.
The Need for Value-Based Insurance Design in Radiology
It is easier to control the adoption of a new technology than to cut back on the use of one that has already been disseminated widely [32], a pattern all too familiar with imaging technology. In the RAND Health Insurance Experiment, families randomized to the least generous health plan spent nearly 30% less on medical care, with little or no difference in health [33], suggesting that utilization waste exists, a significant portion of which represents imaging expenditure. Radiology as a specialty must be an active participant not just in controlling the cost of imaging services utilization but in encouraging and supporting value-added radiology.
Health care costs continue to increase at a very high rate, with radiology being dubbed the “new pharma.” Attempts to address the cost of care have been made by indiscriminately increasing the share paid by beneficiaries (through consumer-driven health plans and increasing copayments at the point of service). As previously discussed, this insurance design leads to adverse outcomes if patients uniformly curb utilization rather than select the services with the highest clinical value. Additionally, patients may assign value to services that are not consistent with high-quality clinical care, for example, whole-body screening computed tomography rather than screening mammography or colon cancer screening.
Need to Improve the Quality of Imaging Care Use and Delivery
Concerns have been expressed regarding the quality of health care. In radiology, there are lost opportunities (and costs) when the wrong imaging is done on patients. Although radiologists have the background knowledge and training in medical physics and imaging technology and an understanding of the disease process, they frequently play no part in deciding what imaging modality to use and when. One potential means of shaping VBID is to participate in developing and implementing disease-based clinical guidelines that have imaging components that then may be used for copayment decisions by purchasers. The ACR Appropriateness Criteria® represent only the first step in this direction [34].
Examples of VBID Implementation in Imaging
To our knowledge, there are currently no variations of VBID that are being studied or have been implemented in diagnostic imaging. We have provided VBID examples in cancer screening that have an imaging component because the evidence for the survival benefit of screening is more robust than for other applications of diagnostic imaging, particularly in high-risk populations. The cost of screening itself is not a large contributor to the current rapid rates of increases in imaging utilization. Rather, screening reduces the larger future expenditure for treatment of late-stage cancers compared with treating those cancers detected by screening. Under the VBID model, not only could the copayment for computed tomographic colonography or colonoscopy be eliminated, but insurers may elect to provide additional incentives to high-risk patients. These incentives can be a reduction in health insurance premiums or even “paying” patients to get screened.
Back pain as a disease entity represents an ideal candidate for VBID coverage. Low back pain occurs in approximately 80% of individuals, with 90% resolving within 6 weeks [35, 36]. Value-based insurance design coverage for imaging in back pain may be structured to link copayments with trials of conservative therapy in patients with nonradiating back pain and no “red flags” for serious disease (eg, cancer, fracture, infection). Low-risk patients may elect imaging immediately when the copayment covers much of the imaging cost or may elect medical management or physical therapy with imaging only if symptoms do not resolve. In the latter instance, the copayment for imaging will be markedly reduced or eliminated.
Conclusion
Value-based insurance design is a “clinically sensitive” means of cost sharing because it recognizes that different services vary in value for different patients and even differ in value for the same patients. Clearly, patient-directed incentives structured in concert with evidence-driven choices of medications and services slated for cost reduction can improve patients' behavior and compliance. At least one experiment has shown a measurable cost reduction in the management of downstream disease complications and an increase in worker productivity. These VBID programs coupled with physician-directed pay-for-performance measures may work synergistically to reduce overall cost of health care.
By using different copayments for imaging services with different yields, costs for lower copayments for the increased use of more efficient imaging services (or indications) can be compensated for by greater copayments for less efficient imaging services (or indications). Value-based insurance design is an exciting prospect in radiology that can potentially measure and assign value to the positive contribution that imaging makes to health that may have a significant impact on clinically appropriate cost containment.
References
- . World health statistics 2007 highlights and tables: health systems. http://www.who.int/whosis/whostat2007_6healthsystems_nha.pdfAccessed September 23, 2008
- . World health statistics 2007 highlights and tables: health status: mortality. http://www.who.int/whosis/whostat2007_1mortality.pdfAccessed September 23, 2008
- Carlos RC. Value-driven health care: the provider perspective. J Am Coll Radiol.
- National health spending in 2006: a year of change for prescription drugs. Health Aff (Millwood). 2008;27:14–29
- . The inappropriate use of imaging studies: a report of the 2004 Intersociety Conference. J Am Coll Radiol. 2005;2:401–406
- . Value-based insurance design: a “clinically sensitive” approach to preserve quality of care and contain costs. Am J Manag Care. 2006;12:18–20
- . The effects of prescription drug cost sharing: a review of the evidence. Am J Manag Care. 2005;11:730–740
- The health effects of restricting prescription medication use because of cost. Med Care. 2004;42:626–634
- . The impact of cost-sharing on appropriate utilization and health status: a review of the literature on seniors. Med Care Res Rev. 2004;61:415–452
- . Medicare coverage, supplemental insurance, and the use of mammography by older women. N Engl J Med. 1995;332:1138–1143
- . The direct and indirect effects of cost-sharing on the use of preventive services. Health Serv Res. 2000;34:1331–1350
- . Cost-sharing and the utilization of clinical preventive services. Am J Prev Med. 1999;17:127–133
- Impact of decreasing copayments on medication adherence within a disease management environment. Health Aff (Millwood). 2008;27:103–112
- . A benefit-based copay for prescription drugs: patient contribution based on total benefits, not drug acquisition cost. Am J Manag Care. 2001;7:861–867
- . Value-based insurance design: aligning incentives to bridge the divide between quality improvement and cost containment. Am J Manag Care. 2006;12:SP5–SP10
- . Value-based insurance design. Health Aff (Millwood). 2007;26:195–203
- . Uncertainty and the welfare economics of medical care (1963). J Health Polit Policy Law. 2001;26:851–883
- . The economics of moral hazard: comment. Am Econ Rev. 1968;58:531–537
- . Value-based insurance design: a “clinically sensitive, fiscally responsible” approach to mitigate the adverse clinical effects of high-deductible consumer-directed health plans. J Gen Intern Med. 2007;22:890–891
- . “Fiscally responsible, clinically sensitive” cost sharing: contain costs while preserving quality. Am J Manag Care. 2007;13:325–327
- . Access versus excess: value-based cost sharing for prescription drugs. Health Aff (Millwood). 2004;23:34–47
- . Cost-effectiveness and evidence evaluation as criteria for coverage policy. Health Aff (Millwood). 2004;W4:284–296
- . Reconsidering the moral hazard-risk avoidance tradeoff. J Health Econ. 2006;25:1005–1014
- . Varying pharmacy benefits with clinical status: the case of cholesterol-lowering therapy. Am J Manag Care. 2006;12:21–28
- . Reducing patient drug acquisition costs can lower diabetes health claims. Am J Manag Care. 2005;11:S170–S176
- . Patient self-management program for diabetes: first-year clinical, humanistic, and economic outcomes. J Am Pharm Assoc. 2005;45:130–137
- . The Asheville Project: long-term clinical, humanistic, and economic outcomes of a community-based medication therapy management program for asthma. J Am Pharm Assoc. 2006;46:133–147
- . The Asheville Project: clinical and economic outcomes of a community-based long-term medication therapy management program for hypertension and dyslipidemia. J Am Pharm Assoc. 2008;48:23–31
- . MHealthy: Focus on Diabetes. http://www.hr.umich.edu/mhealthy/improve/diabetes/index.htmlAccessed September 23, 2008
- . Indications for and utilization of ACE inhibitors in older individuals with diabetes (Findings from the National Health and Nutrition Examination Survey 1999 to 2002). J Gen Intern Med. 2006;21:315–319
- . Grounding coverage in value: a paradigm for linking quality and costs. Med Care. 2006;44:389–391
- . The promise of health care cost containment. Health Aff (Millwood). 2007;26:1545–1547
- Use of medical care in the RAND Health Insurance Experiment (Diagnosis- and service-specific analyses in a randomized controlled trial). Med Care. 1986;24(suppl):S187
- . ACR Appropriateness Criteria®. http://www.acr.org/SecondaryMainMenuCategories/quality_safety/app_criteria.aspxAccessed September 23, 2008
- . Conservative treatment of acute and chronic nonspecific low back pain: a systematic review of randomized controlled trials of the most common interventions. Spine. 1997;22:2128–2156
- . AHCPR management guidelines for acute low back pain. Washington, DC: Agency for Health Care Policy and Research; 1994;
This study was funded in part by grant 1 K07 CA108664 01A1 from the National Cancer Institute (Bethesda, Md) and a Radiology Research Academic Fellowship from GE Medical Systems (Milwaukee, Wis) and the Association of University Radiologists (Oak Brook, Ill).
PII: S1546-1440(08)00329-3
doi:10.1016/j.jacr.2008.06.014
© 2008 American College of Radiology. Published by Elsevier Inc. All rights reserved.
Volume 5, Issue 11 , Pages 1118-1124, November 2008
