Value Based Insurance Designs Can Break Even, Possibly Save Money: Here's the Details

While the Disease Management Care Blog anxiously awaits seeing just how the President is going frame health reform in his State of the Union Address and whether 24's Jack Bauer can control his psycho-girl partner, it turned its eye to this 'Web First' report in Health Affairs. The authors include disease management veterans Iver Juster and Mark Fendrick, along with a host of other stars. The title says it all: 'Evidence That Value-Based Insurance Can Be Effective.'

Hundreds of faithful DMCB readers already know the NEJM-approved definition for care management. Thanks to checking in again, you can quote this definition for another important concept called 'value based insurance' (VBI) that likewise bears an academic imprimatur:

VBIs are health insurance designs that reduce patient out-of-pocket expenses for covered services that provide important medical benefit relative to costs.

Note that VBI is not necessarily an exercise in cost reduction a.k.a savings. Rather, this is an exercise in lowering the economic barriers to treatments that are cost effective. It's safe to say that interest among employers in VBI as one of many approaches to population-based chronic illness management, particularly pharmaceuticals, is growing.

The introduction part of this study makes for a good mini-review, backed up by lots of references from the medical literature. The authors point out that it's unclear if VBI should be extended to all insurance enrollees or to just those who exceed a certain risk level. That's because extending VBI over a larger populations, even if it's at nominal individual cost, can be costly. This approach could exceed any downstream savings from reduced claims expense. Further complicating this is the fact that foregone revenue from reduced co-pays at the 'front end' is easily calcuated, while the calculation of the savings on the "back end' is ultimately an exercise in estimating what doesn’t happen. Last but not least, VBI can paradoxically increase the use of drugs or preventive services, which can represent an additional cost.

Unfortunately, the study methodology itself does not make for an easy read. That's because 'preliminary statistical analysis of the spending data indicated considerable uncertainty surrounding estimates of the impact of the value-based insurance intervention on aggregate spending.' In response, the authors conducted a 'break-even analysis.'

And just what is a break even analysis? If you're interested, read on. Otherwise, skip to the next paragraph so you don't need to read that BEA solves a set of simultaneous equations to identify the assumptions necessary to justify the belief that the intervention broke even by calculating the ratio of adherer to non-adherer costs (adherence effectiveness) that would allow the firm to break even by simultaneously solving the equations for the following: (1) pre-VBID cost, (2) post-VBID cost, (3) the percentage who adhere post-VBID, (4) an effectiveness impact equation that produces dollars spent on adherers, and (5) increased drug cost.

This particular VBI study involved one employer that reduced copayments for the five classes of drugs that truly reduce the morbidity and mortality of a number of chronic diseases: ACEs, ARBs, beta blockers, diabetes medications and inhaled corticosteroids. Generic medications in any of these classes were free and the co-pays for 'preferred' and 'non-preferred' brand drugs were discounted by 50% to $12.50 and $22.50, respectively. Eligibility for a drug discount was defined by any past or current use of any of these medications; anyone that appeared to be eligible was sent a letter announcing that the VBI medication discount program was underway. The program was implemented by ActiveHealth Management, a 'comprehensive, telephonic, nurse-staffed program' that is an independent Aetna subsidiary.

The authors calculated the outcomes associated with a 3%, 4% and 5% increase in drug use in response to the better prices and found that there would be a 9%-17% decrease in individual 'nondrug' health care services, leading to at least a break even. Given how relatively "blunt' the intervention was (it wasn't limited to patients most likely to benefit and wasn't accompanied by co-pay increases for low value items), the authors argued VBI has the potential to generate significant savings.

And kudos to the authors for pointing out the limitations of their study: the calculations didn't account for the portion of ActiveHealth's fees devoted to administering the VBI, for patients that may only take some of their medications and for assuming all other cost drivers would remain stable during the period of study.

What can the DMCB conclude after reading this?

First off, value based purchasing is one of many options underway in the commercial insurer market. Not only does this speak to the ability of this health care sector to look for novel approaches to addressing health care costs, but is a role model for government health insurance programs.

Second, this is another telling example that the industry is not your old 'disease management' anymore. Telephonic nurse-based management programs are being synergistically paired with other sophisticated interventions - such as novel health insurance co-pay designs - that result in approaches that are greater than the sum of its parts.

Third, this is an excellent demonstration of how important it is for disease management organizations to not only measure and document their outcomes, but to put their findings up for peer review. Kudos to ActiveHealth for not only running a business but doing their part to advance the science of population-based care (even if it's curiously absent from their web site). When it comes to medicine, this is the price of doing business.

Lastly, the DMCB wonders if the growth of tying 'value' to consumers' out of pocket costs will lead to corresponding increases in the out-of-pocket costs for services that are deemed less cost effective by insurers and patients. Could this mean that the prognosis for business-as-usual provider 'cost-plus' fee schedules has decreased somewhat? Will comparative effectiveness research catch up to what the market is already doing, or will it accelerate it or have no effect at all? Time will tell.

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