Value Based Plan Design

Wouldn't it be great if we could find a way to generate better health outcomes at a lower cost? That's the goal of the value based plan design. You may see this health insurance plan design referred to as "value based incentive design" or "value based insurance design" – both describe the same concept and are commonly referred to as "VBID".

The hallmark characteristic of a VBID plan is to provide incentives to use certain services and/or for specifically- targeted members. The driving concept behind VBID is to promote the use of high-value services among patients who will benefit the most in an effort to deliver better outcomes and to reduce costs. The use of those same services is therein discouraged among members for whom the benefit will be negligible. In other words, a member's out-of-pocket cost should be aligned with its expected value: (1) lower co-pays for members likely to have better outcomes; and (2) higher co-pays for members less likely to benefit from the treatment.

Human Resource Factor
As you can imagine, this can create a complex situation when the level of co-pay varies among members working for the same company. The health plan may use health assessments and/or patient records to identify a specific group of high-risk patients who are most likely to benefit from an expensive treatment. With a VBID plan, this group is informed that they are eligible for a program that will, for example, lower their co-pay if they participate in a specific treatment plan.

Now imagine the scenario when other workers learn that they are subject to higher co-pays than the target group. Moreover, targeting can vary over time based on an employee's condition: Previously excluded employees may at some point qualify for the plan, while previous participants may be dropped for a variety of reasons – including improvement of their condition. Another factor involves that of unionized workers, as employers may need to get approval from the union to institute this type of targeted VBID plan.

Co-pay Program
There are two approaches to deploying a reduced co-pay program. The first one impacts specific types of services, such as medication therapy. For example, a plan may reduce the co-pay for all members who take drugs commonly prescribed for diabetes, asthma, and high blood pressure. The second approach requires more data analysis, as it identifies members who suffer from targeted conditions, such as diabetes or coronary heart disease. The program may reduce the co-pay for certain members who utilize high-value services to treat these diseases.

Referenced-based Pricing
There are many types of medical services that vary dramatically in price based on where it is delivered and who is providing it. However, unlike shopping for other types of goods and services, medical procedure prices are not usually posted in a doctor's office so consumers can comparison shop. Because there are many factors associated with procedures, such as hospital and anesthesia charges, doctors are not inclined to publish how much they charge for a particular medical service.

Referenced-based pricing attempts to create some transparency around the cost of certain medical services. A VBID plan may identify a group of procedures or medications that vary in cost, such as knee or hip replacement surgery. It will then publish the maximum price it will pay to cover that particular service. This encourages a patient to learn the reference-based price his plan will cover, and then shop around for a provider who will perform the procedure for less than that amount. If the member chooses a provider who charges more, he will be responsible for the balance above what his insurance plan will cover.

Reference-based pricing can help reduce costs for the plan in three ways:

1. The member comparison shops for a price his plan will cover in full
2. Some providers will reduce the price they normally charge in order for the procedure to be covered
3. The patient is responsible for paying the difference between the reference price and the actual charge

Even if the patient decides to go with option three – frequently because he wants to use his own physician or someone highly recommended – at least he has the option to shop and choose a lower-cost provider, and at least he understands how much the procedure actually costs. Access to this type of information alone demonstrates a marked change from having no idea how much medical care can cost due to blanket insurance coverage.

Accountable Care Organizations
The Accountable Care Organization (ACO) is a medical delivery and payment model established by Section 2706 of the Patient Protection and Affordable Care Act; a version of the model was established as the Medicare Shared Savings Program under Section 3022. Since 2011, approximately 744 organizations have become ACOs serving an estimated 23.5 million Americans.

These organizations are typically comprised of any combination of primary care physicians, specialists, hospitals, or other providers that agree to be paid based on the healthcare outcomes of their patient base, rather than a paid fee for each service. The ACO model is based on providers meeting specific quality targets.

ACOs foster a higher degree of engagement between doctor and patient because the provider's payment is based on patient outcomes. If patients don't adhere to their treatment plans, this can impact their providers' levels of reimbursement. Therefore the providers have a vested interest in providing a very high level of quality care and working with patients to ensure they follow their treatment plans. The ACO philosophy hinges on the belief that patient compliance will lead to a better outcome and prevent higher expenses in the future – and that is where healthcare expenses are reduced.

For the Medicare Shared Savings Program, when ACO targets are met, its providers share in Medicare's costs savings. If targets are not met, the ACO may end up having to return a portion of its payment to Medicare.

According to an August 2015 report from the Centers for Medicare and Medicaid Services, 20 ACOs and 333 Medicare Shared Shavings Program ACOs generated more than $411 million in total savings in 2014. In addition, 97 ACOs qualified for shared savings payments of more than $422 million by meeting quality standards and their savings threshold. The study concluded that ACOs with the most experience tended to perform better over time.

VBID Tool Chest
VBID plans may deploy any number of programs toward these goals, including:

• Wellness programs for the adoption of healthy behaviors
• Chronic condition management to aid adherence to treatment regimens
• Medication therapy with reduced patient out-of-pocket costs
• Incentives to choose high performance providers (doctors, nurse practitioners, pharmacists, hospitals, retail health clinics) who adhere to evidence-based treatment guidelines
• Reference based pricing to encourage healthcare service "shopping"
• Accountable Care Organizations that receive payments based on outcomes instead of fee-for service

The VBID concept is slowly growing among major insurers as they seek out providers willing to sign a contract that includes some degree of value-based payment. In other words, the level of payment is associated with a patient's (and/or his patient base) health outcome, rather than for each service rendered.

For employers and plan providers, the financial return on investment is generated when improved health of the target population is the result of high-value services. For example, the costs of lower- member copayments for cholesterol medication are offset by fewer heart attacks among the target population. Targeting the right conditions – or specific members – is key. VBID works best with conditions for which the underlying risk of an adverse outcome is high, the cost of that adverse outcome is high, the service is very effective at preventing the adverse outcome and, perhaps most importantly, when patients embrace the lower copayment incentive.

The goal of today's healthcare reform measures is to improve health, not to save money. However, VBID plans are designed to save money by improving health. The key is to align patient out-of-pocket costs with the value and impact of particular services.

A 2014 study of Blue Cross Blue Shield North Carolina members with hypertension revealed significant reductions in acute care use following reduced cost-sharing for prescribed medications. Approximately 89 percent of program costs ($6.4 million) were offset through reductions in utilization (a decrease of $5.7 million).

In the mid-2000s, Polk County, Florida, started a diabetes program for county employees, utilizing an onsite clinical pharmacist to counsel participants with diabetes. Co-payments were waived for all diabetes-related drugs, supplies, and associated nonprescription products. After one year, only 3.5 percent of continuous participants were rated as having poorly controlled diabetes (the national average is 29 percent). The program also yielded a 30 percent decrease in all-cause hospitalizations and 24 percent drop in emergency room visits.

Hardware retail giant Lowes has contracted for bundled payments with the Cleveland Clinic for select packages of services. For example, Lowes will waive the standard deductible and fully reimburse all travel expenses for covered employees and their dependents willing to travel to Cleveland for certain cardiac procedures.

More and more, large employers and insurers are turning to value based plan designs to help stem the tide of higher healthcare costs while at the same time improving the long-term health of the workforce they cover.

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