What is Value-Based Medicine?
Most employer-based medical insurance plans charge every person in a given plan the same out-of-pocket cost for medical services and pharmaceuticals, regardless of the severity of that person’s problem or the effect the products and services have on the person’s health and ability to keep working. So whether a visit to the doctor is for a life-threatening cancer, diabetes, the common cold or a sprained ankle, an employee pays the same co-pay or deductible.
Value based medicine recognizes that plan designs that attempt to reduce costs by increasing deductibles and copays can sometimes have the opposite effect. When out-of-pocket costs keep an employee from taking a medication or following a course of treatment that could reduce the risk of a heart attack, or from refilling a prescription that could help control diabetes, the risk of long-term plan costs actually increases. Initial studies have shown that patients who are required to pay more for health care sometimes buy less of essential and excessive therapies alike.
Value-based medicine attempts to correct the imbalance between cost and quality by adjusting out-of-pocket costs for health services based on an assessment of the clinical benefit to an individual and identifying the most essential and beneficial level of treatments. Thus, the more clinically beneficial the therapy, the lower the individual’s barrier to that treatment will be. Factors such as disease prevalence, disease severity, and treatment compliance patterns in a given employee population drive plan design decisions.
Database analysis of employee demographics, claims experience, case management and disease management are used in the decision making process. Organizations are obligated by federal HIPAA law to protect the privacy of employees who have the particular medical conditions or risk factors that make them eligible for tailored co-pays and other benefits.
This approach, called Value-Based Insurance Design, was first described by University of Michigan Professor Mark Fendrick, M.D., and former U of M Professor Michael Chernew, Ph. D., now a health care policy professor at Harvard. Together, they formed the University of Michigan Center for Value Based Insurance Design in 2005.
What does Value Based Medicine Look Like in Practice?
Under the Value-Based Insurance approach, a person with diabetes would pay little for drugs that can delay diabetes-related health problems and for eye and blood tests that can spot those problems early. Employees in their 50's might actually be contacted to schedule their no-cost colonoscopies to spot pre-cancerous polyps and treat them before they become cancer. In 2001, Fortune 500 employer Pitney Bowes lowered co-payments for asthma and diabetes medications and reported a $1 million savings in overall costs to treat those diseases among their employees.
Other examples of savings using the Value-Based Insurance approach have been reported by the City of Asheville, North Carolina; Marriott Corporation; Mohawk Carpets; Wal-Mart; CIGNA; the state of Maine and the University of Michigan. In addition to medical cost savings, these employers have also benefited from decreased sick leave, lower disability costs and related productivity increases.
Some organizations, such as the Center for Health Value Innovation have begun working nationwide to build a network of employers and other organizations refining Value-Based Insurance concepts (SET SEG became a member of the Center in 2007). The Center promotes education about Value-Based medicine and works to bring employers, insurance companies, physicians, hospitals and third-party administrators together to innovate around Value-Based strategies. Some private entities are developing algorithms that can be used in given populations to help identify insurance plan designs that can accelerate the application of Value-Based concepts.