The Value-Based Model: Health Management Worth Exploring

AJPB® Translating Evidence-Based Research Into Value-Based Decisions®Spring 2009
Volume 1
Issue 1

The author broadly discusses the concept of value-based insurance design and provides examples of three corporations that have implemented this benefit model.

One shortcoming of the US healthcare system is the difficulty with which effective interventions are implemented into routine clinical practice. Recent prominent trends in health benefit design include the rise in cost sharing for patients at the point of service and the proliferation of disease management programs.1 Methods to increase cost sharing include implementation of higher copayments and deductibles, designing of formularies with multiple tiers, and creation of health plans that are somewhat more consumer driven. The rationale behind this practice is that by increasing cost share, premiums will be potentially lower and patients will make more cost-effective choices. Goldman and associates2 and Braithwaite and Rosen3 reported that use of antihyperlipidemic and glycemic agents decreased by 34% and 25%, respectively, when copayments doubled. In separate publications, Goldman et al4 and Mahoney5 reported that a 10% increase in cost sharing was associated with a 2%-6% decrease in prescription drug spending.

Taira and associates,6 having analyzed a large managed care claims database, concluded that copayment level (independent of other determinants) was found to be a strong predictor of compliance with antihypertensive medication, with greater compliance seen among patients filing pharmacy claims for drugs that required lower copayments. Relative to medications with a $5 copayment, the odds ratio (95% confidence interval [CI]) for compliance with drugs having a $20 copayment was 0.76 (0.75, 0.78); for drugs requiring a $20 to $165 copayment, the odds ratio for compliance was 0.48 (0.47, 0.49). This finding suggests that patient use is sensitive to price. Although increased cost sharing can reduce inappropriate healthcare resource use because employees take a more active role in managing their care, such cost sharing also can work against the use of appropriate services encouraged by disease management and potentially reduce the effectiveness of the management.

Disease management programs aim to improve quality by increasing adherence to recommended treatments and screenings. Disease management programs are based primarily on 2 beliefs: that targeted interventions can improve health and that the resulting improved health can reduce aggregate expenditures. By increasing adherence to recommended care, overall costs might lessen because of reductions in hospitalizations, emergency department visits, and rates of complications. In 2006, Lee and associates7 found that persistence of antihypertensive adherence at 95.5% via pharmacy care (standardized medication education, regular follow-up by pharmacists, and medications dispensed in time-specific packs) was associated with significant reductions (P = .04) in mean systolic blood pressure (−6.9 mm Hg; 95% CI = −10.7, −3.1 mm Hg) compared with the usual care group (−1.0 mm Hg; 95% CI = −5.9, 3.9 mm Hg). In a separate retrospective study, Ho and associates8 suggested that successful blood pressure control is achieved with a combination of intensification and adherence and that therapy intensification must be coupled with interventions to enhance medication adherence.

High levels of cost sharing may not be the best advice in certain circumstances; however, it also is not wise to completely ignore a need for interventions to constrain cost growth. It seems paradoxical that plans would simultaneously integrate measures to improve their Healthcare Effectiveness Data and Information Set (HEDIS)9 scores, embrace the healthcare-related knowledge derived from evidence-based medicine, and launch disease management programs at the same time they are erecting barriers to access drug care. Ideally, health plans would promote medications with the greatest clinical or economic value and reduce access to those medications with the least value.10 In other words, a clinically based and clinically sensitive cost-sharing model is worthy of consideration.

A system of cost sharing that tailors copayments at the point of service to the evidence-based value of specific services for targeted groups of patients can be termed “value-based insurance design.”11 In this design, patients’ out-of-pocket costs are no longer set on price alone, but on the cost and/or quality trade-off in a particular clinical set of circumstances. Interventions that have the highest value would have little or no copayment. Examples of such interventions are an angiotensin-converting enzyme inhibitor for an individual with diabetes mellitus and lipid-lowering therapy for an individual with a history of myocardial infarction. Interventions that have little or no proven health benefit would have higher cost-sharing requirements. Organizations would be able to design their own benefit packages so that they could combine their programs of health-focused disease management and cost sharing.

When designing value-based insurance, an organization should consider a range of options. On one end of the spectrum, interventions that are highly effective and that reduce overall health costs could be covered without copayments or deductibles. At the opposite end, low-value services that provide only marginal benefit at high cost would have high copayments or other forms of cost sharing to reflect their limited value in the patient population.12 It may be possible to successfully integrate disease management programs with cost sharing without a negative impact on treatment adherence or outcomes.

Value-based insurance design, which places individual consumers with an established medical need on a lower formulary tier, is a concept that aims to keep chronically sick people from needing expensive care—the medications that these patients need remain inexpensive or even free to them.13 When a health plan lowers coinsurance costs or the copayments for which patients are responsible, the chronically ill become more compliant with their medication regimen and are likely to stay healthier. By staying healthier, they use fewer healthcare resources, they don’t drive up costs through overutilization, and their overall healthcare costs drop.13 In addition, an employer could possibly measure and see success in categories such as productivity, absenteeism, and presenteeism. Value-based insurance design (also called value-based cost sharing or value-based rationing) is founded on 3 basic medical research outcomes: medications are beneficial in controlling chronic diseases, increasing copayments decreases compliance, and decreased compliance results in worse outcomes.13 The model considers treatment efficacy as well as a patient’s ability to pay for the treatment. The


highlights 3 noteworthy examples.

The design of the model links a copayment amount to the estimated benefit for each patient in a medical situation. It encourages adherence to pharmaceutical therapy and takes into account an estimate of the benefit that medications would provide to a patient. This benefit is determined from available scientific evidence and is relative to the total cost of treatment. From this determination, a lower copayment and a higher copayment emerge. Lower copayments are established for patients who present with clinical attributes similar to those of individuals for whom a drug has been proven by evidence-based medicine to be beneficial. Higher copayments, which are still considered moderate, are established for patients who are less likely to derive a clinical benefit. A comprehensive benefit-to-cost analysis is used to determine the copayment.

Naturally, there are obstacles to the implementation of the model within an organization. One main obstacle is that the model is possible only if patients can readily be characterized by the potential benefit from a specific intervention. Another obstacle involves the ease of use of the model by the patients and the physicians. A third obstacle requires that the technology that a health plan uses to manage its population be capable of adjusting copayments based on the clinical diagnosis a patient receives.

One concern associated with the value-based model is that some employees may seem to benefit unfairly at the cost of others. Could it be said that the sicker a patient is, the more likely he or she is to get free medications? Another aspect of the model is that it is flexible enough to allow changes to its copayment levels that will reward or penalize certain behaviors. This flexibility allows the health plan or the employer group to retain the ability to mold the model in such a way that it reflects the values of its own organization. For example, a patient with diabetes who follows an exercise program and loses weight or maintains a weight loss could see copayments lowered even further. On the other hand, a patient not willing to follow recommended lifestyle changes, such as cessation of smoking, might see copayments increase.

The Asheville Project

The Asheville Project began in 1996 as 2 major employers in Asheville, North Carolina, sought to provide education and personal oversight for employees with chronic health conditions such as diabetes, asthma, hypertension, and hyperlipidemia.14-21 In their model, the employers—as the payers—realigned the incentives for patients and providers to maintain their health. Although the project was conceived as a pharmacy initiative primarily involving collaboration with 2 employers, it quickly led to a linking of multiple resources in the community, including the local hospital system, diabetes and health education center, community pharmacists, self-insured payers, employees with chronic illnesses, diabetes educators, nurse case managers, medical social workers, and physicians.13,15,22-27

Initially, local pharmacists in Asheville voluntarily received in-depth diabetes disease state training with the assistance of universities, community physicians, and the local diabetes education center. The employers/payers agreed to offer the program to their employees, pay for their self-care education, provide financial incentives for their participation, and provide payment to pharmacists as the care managers.

Employees voluntarily enroll in the program, attend the self-care education classes provided by diabetes educators, and follow up on a regular basis with their assigned pharmacist/care manager. Physicians remain informed of their patients’ enrollment in the program and are asked to share their treatment goals. Pharmacists and diabetes educators communicate regularly with the physicians and offer recommendations based on the individual patient’s progress and needs. Physicians are able to alter treatment plans based on input from the pharmacist/care managers and diabetes educators. The employer is provided reports of clinical and financial outcomes.

With the Asheville Project, a benefit has been realized because health-related costs have been reduced. The reductions were achieved in many different ways, including less absenteeism and, as a result, fewer overtime hours being required to cover missed shifts.15-17 Additionally, patients have realized a benefit because they have become more knowledgeable and better equipped to manage their illness, and thus are able to maintain or improve their level of health. The monetary incentive offered to the employees is in the form of complete coverage for medications, supplies, and laboratory work associated with diabetes. Patients have reduced copayments if they comply with the parameters of the program. Pharmacists also benefit from being part of the project because their expertise and time spent with patients are rewarded financially and because they know that they are helping patients achieve a better quality of life. Physicians and other providers realize a benefit because the responsibility for patient care and disease management is shared, and they are able to use their specialized knowledge and skills more efficiently and effectively.15-17

An important component in the Asheville Project is that it is driven by a payer that has an interest in affecting both patients’ health and the amount of money required to provide healthcare.16 To the degree that pharmacy as a profession can get payers to look at medication costs in conjunction with other categories of healthcare, practitioners have an opportunity to implement innovative services that can succeed on several fronts.

Pitney Bowes

The leadership of Pitney Bowes (PB) had previously examined where their healthcare money was being spent and knew that the smallest segment (5%) of the employee population used >$10,000/year (annual cost per beneficiary), accounting for 75% of total healthcare spending.5 Predictive modeling demonstrated that 2 factors served as indicators that an enrollee might move from a lower-cost segment of the population to a relatively higher-cost segment over time: chronic disease (specifically, asthma, diabetes, and hypertension) and poor medication compliance.5,13,22,28,29

Leaning on evidence from the literature but with no guarantee that lowering drug costs might improve adherence and ultimately lower overall costs, PB’s pharmacy benefit manager reported baseline medication adherence among the enrollee population.5 In late 2001, the focus of PB’s value-based benefit design interventions fell primarily in the realms of asthma and diabetes with marginal involvement of hypertension and hyperlipidemia.5,29 In the new design, all medications for the target conditions (asthma, diabetes, hypertension) were moved to tier 1 instead of favoring one medication over another, meaning that coinsurance rates would be 10%; the goal was to keep prices at <$20 for a 30-day supply.5,28 Pitney Bowes also knew that there would be a cost to the company just for implementing the reduced coinsurance rates (ie, less copayments now would be paid by the employees and rebates from pharmaceutical manufacturers would be lost, an annual hit estimated at $1 million).28

Pitney Bowes started seeing a positive overall cost benefit by late 2002 as their claims data began to show that drug possession improved, particularly for patients with asthma and diabetes who switched to brand products.30 Data indicated that the average annual cost of chronic disease care decreased 6% for diabetes and 15% for asthma during fiscal years 2002 and 2003, although prevalence of these conditions increased (savings were not adjusted for this trend). These savings were sustained in 2004.5,22,29,30 Between 2001 and 2006, medication compliance improved to >80% for both diabetes and hypertension and to >60% for asthma.5,29 Enrollees with asthma experienced a 22% decline in emergency department use and a 62% decline in avoidable hospital admissions.5

Pitney Bowes believes that plan design is one of the keys to a successful relationship among the employer, the employee, the provider, and the health plan. By providing the employee with incentives to adhere to high-value care and by offering the provider incentives to administer high-value care, the model they use can drive specific behaviors.

University of Michigan

On July 1, 2006, employees of the University of Michigan (UM) and their dependents were automatically enrolled in an innovative pilot program aimed at encouraging the use of medicines that can help prevent long-term complications of diabetes.23,24,31-33 The program allows eligible participants to receive some diabetes medications for free. Medications that were chosen to be a part of the “free copay” component of the program have been shown to help prevent debilitating or fatal diabetes complications. Copayments for other drugs in the same classes were reduced by 50% or 25%. Participants also receive educational materials to help them understand how to improve their health and reduce their chance of diabetes complications.

The UM program, called MHealthy: Focus on Diabetes,24 is the first in the nation to be designed specifically to evaluate the impact of targeted copayment reduction for preventive medications. The concept for the program came from UM research that showed the potential health value of removing cost barriers that might keep people with some chronic illnesses from getting beneficial medication, tests, and screenings. The UM research demonstrated that specific, targeted copayment relief could improve quality of care and help contain costs; the research 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.

The decision to start with diabetes stemmed from a UM analysis that showed there was room for improvement in the use of preventive medications and other measures among the members with diabetes in their managed care company. More than 2000 of the 69,700 employees and dependents covered by UM benefits currently take medication for diabetes. In 2007, the total cost of diabetes (medical costs, disability, work loss, and premature death) was estimated to be $174 billion annually, and diabetes was the sixth leading cause of death listed on US death certificates in 2002.34 Other facts about diabetes—that it affects so many people and that proper treatment has been shown to reduce the risk of complications and early death by up to 50%&mdash;also played important roles.

The MHealthy model includes the following classes of drugs: antidiabetic agents, insulin, statins, antihyperlipidemics, antihypertensives, and antidepressants, which are used to treat comorbid depression and can increase the chances of a patient remaining adherent to lifestyle and medical regimens. Participants also receive free yearly eye exams in an effort to detect early signs of retinopathies. All UM employees and their dependents were enrolled in the program if they had previously filled a prescription through their prescription drug plan for insulin or another medication for blood sugar control.

Over a 2-year time span, UM intends to evaluate how well the program is doing by tracking aggregate new and refill data from its prescription drug benefit system, total health expenditures for all participants, and eye exam data for participants insured through its managed care company. Those data will be compared with prescription refill data for the same medications from a group of non-UM employees with diabetes who will receive educational materials but no copayment reduction.23 The goals of the MHealthy program include: (1) gaining an understanding of barriers and reducing them; (2) addressing a combination of factors including patient drug copayments, patient education, case management, and patient beliefs to target those patients with diabetes who are most likely to begin using, or adhere to, the medications that can provide the most benefit; and (3) using proven preventive interventions in areas where services are currently underutilized because greater utilization has been shown to improve health and long-term cost control.24


The value-based insurance design model begins with the understanding that identifiable factors can contribute to the effectiveness of an employer’s investment in the health of its employees. Copayments can act as catalysts to either increase or decrease appropriate utilization of therapy among employees. Adherence can have a dramatic effect on employee health and the bottom line of a company. Behaviors that improve health should be encouraged. The features of current benefit design should be reviewed to ensure that barriers that might be contrary to the strategies associated with the model are minimal.

Companies should understand what results to expect from changes in benefit design. Benefit plans encouraging increased access to important cost-sparing medications or disease management programs might see greater utilization in these areas. Simultaneously, utilization of other services such as hospital admissions or emergency department visits might decrease.

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