Is value-based insurance design the answer to reducing healthcare costs?

January 9th, 2017 / By Steve Delaronde

Value-based insurance design (VBID) arrived in Washington, DC on the first day of 2017 when two of the largest federal government healthcare programs launched VBID demonstration programs.  The long-awaited Center for Medicare and Medicaid Innovation (CMMI) Medicare Advantage Value-Based Insurance Design (MA-VBID) plans announced in September 2015 for Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania and Tennessee began on January 1, 2017.  Expansion to Alabama, Michigan and Texas, and possibly all 50 states, is planned for 2018.  Additionally, the national defense bill was signed by President Obama during the last week of 2016, which includes testing the feasibility of incorporating VBID into the TRICARE program in 2017.

The primary objective of these VBID demonstrations is to incorporate value-based care in the Medicare Advantage and TRICARE programs by “reducing copayments or cost shares for targeted populations of covered beneficiaries in the receipt of high-value medications and services and the use of high-value providers.”  While this initiative may promote the use of high-value services for beneficiaries with certain chronic diseases, “enrollees can never receive fewer benefits or have to pay higher cost-sharing than other enrollees as a result of the model.”  Thus, the two government programs only address one side of the value continuum – promoting high-value services without discouraging low-value services.

The concept of value-based insurance design is not new.  In 1997 the Ashville Project was initiated with a group of diabetics in Asheville, North Carolina who agreed to participate in a disease management program promoting self-management in exchange for reduced copayments.  The result was an overall cost reduction of 58 percent in the first five years.  Over the past 20 years, the popularity of VBID and the promotion of high-value medicine has grown, but mostly by incentivizing the use of high-value medications and services such as the use of and adherence to medications to treat chronic conditions, rather than preventing the overuse of low-value care.  This is slowly beginning to change, but that is primarily due to an increase in high deductible health plans than policy shifts by payers.

A recent study by the Rand Corp. published in JAMA Internal Medicine in October 2016 identified 28 low-value services provided to adults nationwide accounting for more than $22 per person annually, or $5.3 billion for all American adults.  Leading the spending categories were spinal injection for lower-back pain, imaging for uncomplicated headache, and imaging for nonspecific low-back pain.  This does not include the costs incurred from the additional, and often unnecessary, diagnostics and services generated from these interventions. Overall, it is estimated that $200 billion of the $750 billion wasted in health care every year is for overtreatment.

In many cases, steering patients away from low-value services is as critical, if not more important, than promoting the use of high-value services.  The American Academy of Family Physicians (AAFP) recommends high-value prescribing of medications through the application of STEPS – safety, tolerability, efficacy, price and the simplicity of the drug.  More importantly, the AAFP advices physicians to consider nonpharmacologic options first and practice “strategic prescribing” where drugs are used sparingly, if at all.

Similarly, elective medical procedures, such as back surgery and cardiovascular stress testing, imaging and interventional procedures are often deemed low-value and avoiding these has the potential to achieve healthcare savings.  However, a 2016 evaluation of a cost-sharing program implemented by the state of Oregon for low value services such as inpatient sleep studies, upper GI endoscopies and other imaging and back surgery revealed that while the utilization of some, but not all, low-value services are reduced, it does not necessarily lead to substantial reductions in healthcare spending overall.  While more research is needed to determine the long-term impact of VBID on healthcare costs, this study may signal the need to consider other approaches beyond VBID.

Provider-focused solutions may be more effective in reducing the utilization of low-value services and achieving more sustainable cost reductions.  Payers should either 1) offer lower reimbursement to providers for low-value services, or 2) offer more upside benefit to providers that promote high-value services and withhold low-value services within value-based care shared savings partnerships.  Additionally, the patient focus of VBID may be too limited to achieve significant healthcare cost reductions, since it will only work for the 43 percent of healthcare spending on what is considered “shoppable” as opposed to emergent, non-elective and inpatient services not actively selected by a patient.

Patients must also trust that they are being offered the most appropriate care, which does not necessarily mean the newest or most expensive medication or procedure.  This means that there needs to be greater consensus in the medical community regarding what services can be considered low-value and high-value.  Thanks to programs such as Choosing Wisely, the healthcare system is moving in that direction.  Eventually, we may see a time when health insurance premiums are priced according to the types of high-value services members are willing to accept and low-value services they are willing to avoid rather than the size of a plan’s network.

Steve Delaronde is director of consulting for populations and payment solutions at 3M Health Information Systems.