Value-Based Insurance Design:Returning Health and Wellness to

the Health Care Cost Debate

A. Mark Fendrick, MDUniversity of Michigan Center for Value-Based Insurance Design

www.vbidcenter.org

Value-Based Insurance Design:Returning Health and Wellness to

the Health Care Cost Debate

Returning Health to the Health Care Debate

Substantial underutilization of high value

health care services persists

Returning Health to the Health Care Debate

Cost growth is the principle focus of health

care reform discussions

“The nation’s long-term fiscal balance will be

determined primarily by the future rate of

health care cost growth.”

Peter Orszag, Director, Congressional Budget Office

Testimony before the Senate Budget Committee,

June 21, 2007.

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior authorization

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior authorization

1-800-NO-WAY

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior authorization

1-800-NO-WAY

Drive to Canada

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior Authorization

Disease Management

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior Authorization

Disease Management

Lack of copay relief for recommended services

does not reflect investment for DM

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior Authorization

Disease Management

Generic Drug Programs

Dealing with the Health Care Cost Crisis

Generic Substitution Programs

It is important to distinguish between

generic substitution and therapeutic

substitution programs

SimvastatinZocor

Distinguishing between generic and

therapeutic substitution

US Food and Drug Administration. Electronic Orange Book. Available at:

http://www.fda.gov/cder/ob. Accessed February 20,2007.

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SimvastatinZocor

Distinguishing between generic and

therapeutic substitution

US Food and Drug Administration. Electronic Orange Book. Available at:

http://www.fda.gov/cder/ob. Accessed February 20,2007.

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Distinguishing between generic and

therapeutic substitution

US Food and Drug Administration. Electronic Orange Book. Available at:

http://www.fda.gov/cder/ob. Accessed February 20,2007.

LIPITOR (atorvastatin calcium) Simvastatin

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Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior Authorization

Disease Management

Generic Drug Programs

Information Technology

"The bottom line is that research does indicate that, in

certain settings, health IT appears to facilitate

reductions in health spending if other steps in the

broader healthcare system are also taken to alter

incentives to promote savings. By itself, however, the

adoption of more health IT is generally not sufficient to

produce significant cost savings."

Peter Orszag, Director, Congressional Budget Office

Testimony before the Senate Finance Committee, July 18, 2008.

Dealing with the Health Care Cost Crisis

Health Information Technology

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior Authorization

Disease Management

Generic Drug Programs

Information Technology

Comparative Effectiveness

"More research on what works and what

doesn't, tied to financial incentives to

provide the higher-value care, could help to

reduce costs without harming quality. We

currently have a set of financial incentives

just for more care. And we need a set of

financial incentives for better care.”

Peter Orszag, Director

Office of Management and Budget

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Denial

Prior Authorization

Disease Management

Generic Drug Programs

Information Technology

Payment Reform

Dealing with the Health Care Cost Crisis

Interventions to Control Costs

Prior Authorization

Disease Management

Generic Drug Programs

Information Technology

Payment Reform

Make Beneficiaries Pay More

Dealing with the Health Care Cost Crisis

Shift Costs to Consumer

Increase premiums

Dealing with the Health Care Cost Crisis

Shift Costs to Consumer

Increase “one size fits all” cost sharing

for clinician visits, diagnostic tests and

prescription drugs

Dealing With the Health Care Cost Crisis

Shift Costs to Consumer

*Fourth-tier drug copay information was not obtained prior to 2004.

Kaiser Family Foundation. Employer Health Benefits: 2005 Annual Survey.

Average Drug Copay for All Workers Facing Some Cost Sharing

$7$13

$17$10

$22

$35

$74

$0

$20

$40

$60

$80

Generics Preferred Nonpreferred 4th Tier*

Ch

ange

($

)

2000 2005

Co-Payments for Expensive Drugs Soar

Health insurance companies are rapidly adopting a new pricing system for very expensive drugs, asking patients to pay hundreds and even thousands of dollars for prescriptions for medications that may save their lives or slow the progress of serious diseases.

By GINA KOLATA

April 14, 2008

Copay set on price, not value

Generic drugs - lowest copay

Preferred brand - middle

Non-preferred brand - highest

Benefit Design Trends:

Increased Cost Sharing at Point of Service

Impact of “Across the Board” Cost Sharing

A growing body of evidence demonstrates

that cost shifting leads to decreases in

essential and non-essential care

“I can’t believe you had to spend a

million dollars in grant funding to

show that if you make people pay

more for something they will buy

less of it.”

Barbara Fendrick (my mother)

Cost-sharing within Plan Design Affects

Adherence to Mammography

Trivedi. NEJM. 2008;358:375-383Travedi A. NEJM. 2008.

Benefit Design Trends: Cost Sharing

Consumer Driven Health Plans

CDHP plans connect the advantage of a better

informed consumer [a desirable outcome] to

higher out of pocket expenditures [uncertain]

Charge consumers high out-of-pocket fees

Will likely reduce costs in the short run

Likely will lead to worse clinical outcomes

Cost-sharing within Plan Design Affects

Adherence to Chronic Disease Drugs

Romero O, et al. Poster Presented at AMCP Conference, San Diego CA 2007

Value Based Insurance Design

A Role for “Soft Paternalism”

If the consumer is not the appropriate decision

maker, the system should provide incentives to

offset the undesirable decreased use of

essential services due to cost shifting

Value Based Insurance Design

Basic Principles

Medical services differ in the clinical benefit

provided

The clinical benefit derived from a specific

medical service depends on the patient using it

Value Based Insurance Design

Basic Principles

Value-based packages adjust patients' out-of-pocket costs for specific services based on an assessment of the clinical benefit achieved

The more clinically beneficial the therapy for the patient, the lower that patient's cost share

Can VBID be successfully implemented?

Value Based Insurance Design

Keys to Acceptance

46

Value Based Insurance Design

Improved Health at any Expenditure Level

Does it work?

0%

2%

4%

6%

8%

10%

12%

14%

Decrease in

Non-

Adherence

Ace/ ARBS Beta

Blockers

Diabetes Statins Steroids

Drug Class

Impact of VBID

Chernew,. Health Affairs. January 2008.

N Engl J Med 2005;353:487-97

Addressing Poor Adherence

Financial Incentives are not a Panacea

Medication Adherence

Side effects

Cognitive Impairment

Inadequate follow-up

No symptoms

Psych. problems

Missed provider

visitsBarriers to care

Lack of illness insight

Poor provider

relationship

Lack of belief in

benefit of Rx

Cost of Rx

Complexity of

treatment plan

What are the economic effects?

Value Based Insurance Design

Keys to Acceptance

Value Based Insurance Design

Economic Effects

Incremental costs of the increased use of high

valued services can be subsidized by:

1. Medical cost offsets

2. Reduction in absenteeism/disability costs

Value Based Insurance Design

“Clinically Sensitive, Fiscally Responsible”

“We believe that relying on clinically

informed financial incentives – for patients

and providers – will be useful in achieving

improved health outcomes for any level of

health care expenditures.”

Fendrick and Chernew. JGIM. May 2007.

Center for Value Based Insurance Design

Improved Health at any Expenditure Level

Engages in the development, evaluation and

promotion of insurance products that encourage

the efficient expenditures of health care dollars

and optimize the benefits of care

www.vbidcenter.org