Value Based Insurance Design: Financial Impact

July 7, 2010 at 9:04 PM Leave a comment


Introduction 

U.S. healthcare spending is on track to double over the next 10 years, from $2.6 trillion to $5.2 trillion.  By 2020, healthcare spending will grow from 18% to 21% of the gross domestic product.  Approximately $700 billion of this cost, about a quarter of the country’s total healthcare cost is unnecessary. (Source: Arnst, C. 10 Ways to Cut Health-Care Costs Right Now.  Bloomberg Businessweek.  April 26, 2010.  ) 

About one-quarter of the $700 billion per year – approximately $177 billion a year – is due to non-compliance with prescribed care regimens.  Three out of four Americans fail to take their medicines as directed.  Such non-compliance leads to unnecessary office visits, hospitalizations, and treatments.  Patients’ financial responsibility for their medications is one reason for non-compliance. 

Cost Cutting Effect of Value Based Insurance Design  

How does value based insurance design (VBID) work to reduce healthcare costs?  VBID programs facilitate access to healthcare resources by reducing the patient’s financial responsibility.  This facilitates compliance with prescribed therapy regimens. 

 The extent to which a VBID program provides a net financial benefit is a function of (1) the size of the patient population; (2) the likelihood of an adverse outcome from non-compliance; (3) the cost of treating the adverse outcome; (4) the responsiveness of consumers and patients to lower copayments; and (5) the degree to which the therapy regimen prevents an adverse outcome. (Source: Fendrick AM. Value-Based Insurance Design Landscape Digest. National Pharmaceutical Council. Center for Value-Based Insurance Design.  National Pharmaceutical Council.  July 2009.) 

Studies of chronic diseases, such as diabetes, have yielded evidence that lowering workers’ payments for certain treatments will, over time, slow medical spending.  The most recent example is that of a study conducted by CVS Caremark published in the American Journal of Pharmacy Benefits.  The study compares outcomes for more than 20,000 patients participating in VBID plans to those for more than 190,000 participants of similar age and gender breakdowns in standard three-tier plans.  The study found that diabetes patients participating in VBID programs that reduce the cost of medication are more likely to start and stay on their prescribed therapy regimen. (CVS Caremark Study Finds Value Based Insurance Designs Can Increase Adherence in Diabetes Patients.  Medical News Today.  February 17, 2010.)  

Let’s compare the potential for VBID programs for the diabetes population to the five characteristics listed above.  

(1) 23.6 million US citizens suffer from diabetes (Source: National Diabetes Information Clearinghouse http://www.diabetes.niddk.nih.gov/dm/pubs/statistics/#people; accessed July 7, 2010).  At 7.8% of the US population, diabetes is highly prevalent. 

(2) The likelihood of comorbidities requiring hospital admissions, emergency department visits or additional treatments is significant for diabetes patients.  Let’s look at the statistics, per the National Diabetes Information Clearinghouse at (http://www.diabetes.niddk.nih.gov/dm/pubs/statistics/#people; accessed July 7, 2010).

  • In 2004, heart disease was noted on 68 percent of diabetes-related death certificates among people ages 65 years or older.
  • In 2004, stroke was noted on 16 percent of diabetes-related death certificates among people ages 65 years or older.
  • Adults with diabetes have heart disease death rates about two to four times higher than adults without diabetes.
  • The risk for stroke is two to four times higher among people with diabetes.

High Blood Pressure

  • In 2003 to 2004, 75 percent of adults with self-reported diabetes had blood pressure greater than or equal to 130/80 millimeters of mercury (mm Hg) or used prescription medications for hypertension.

Blindness

  • Diabetes is the leading cause of new cases of blindness among adults ages 20 to 74 years.
  • Diabetic retinopathy causes 12,000 to 24,000 new cases of blindness each year.

Kidney Disease

  • Diabetes is the leading cause of kidney failure, accounting for 44 percent of new cases in 2005.
  • In 2005, 46,739 people with diabetes began treatment for end-stage kidney disease in the United States and Puerto Rico.
  • In 2005, a total of 178,689 people with end-stage kidney disease due to diabetes were living on chronic dialysis or with a kidney transplant in the United States and Puerto Rico.

Nervous System Disease

  • About 60 to 70 percent of people with diabetes have mild to severe forms of nervous system damage. The results of such damage include impaired sensation or pain in the feet or hands, slowed digestion of food in the stomach, carpal tunnel syndrome, erectile dysfunction, or other nerve problems.
  • Almost 30 percent of people with diabetes ages 40 years or older have impaired sensation in the feet—for example, at least one area that lacks feeling.
  • Severe forms of diabetic nerve disease are a major contributing cause of lower-extremity amputations.

Amputations

  • More than 60 percent of nontraumatic lower-limb amputations occur in people with diabetes.
  • In 2004, about 71,000 nontraumatic lower-limb amputations were performed in people with diabetes.

(3) the cost of individual inpatient admissions and ED visits is significant and the total cost of treating diabetes is significant.  For example, a single emergency department visit costs approximately $10,000.  Treating a heart attack costs approximately $35,000 or more.  60% to 70% of employer’s healthcare costs stem from chronic diseases, such as diabetes. (source: Appleb J. Carrot-And-Stick Health Plans Aim to Cut Costs  – Potentially Controversial Policies are Part of Trend Toward Value-Based Design.  Kaiser Health Network.  March 11, 2010)

(4) as demonstrated above in the CVS Caremark study, diabetes patients demonstrate greater therapy compliance as their financial responsibility is reduced; and

 (5) therapy compliance has been proven to lower co-morbidities and related costs.

The Cost of Funding VBID

Years can pass before payers realize a return on their investment in VBID.  Payers incur costs immediately.  For example, payers incur costs for developing VBID programs and administering them.  As well, treatment costs increase due to greater therapy compliance.  It can take months or years before VBID programs generate cost savings.

Accurately assessing the financial benefit of a VBID program can require the services of clinical researchers, health economics analysts and perhaps, actuarial consultants.  The analysis often is quite complex and expensive.

Not all concerns with VBID are financial.  VBID programs enhance access to select therapy regimens based on the value of those services, which is not always related to their cost.  Patients who have an adverse reaction to a preferred therapy regimen in a VBID program might need to administer a non-preferred therapy regimen.  These patients would incur a greater cost for therapy than those who did not experience the adverse reaction.  Those patients who incur a greater cost could develop a sense of ‘unfairness.’ 

Summary

The net cost constituting the financial impact of the VBID program depends on whether the incremental expenditures on high-value services can be offset through a decrease in adverse outcomes as a result of enhanced compliance with the prescribed therapy regimen.  Savings are likely to be enhanced by the program targeting specific patients at high risk of a preventable adverse event. 

As a result, VBID should be carefully implemented and targeted to the situations that meet the five requirements previously listed.  Designing and implementation of VBID programs requires a thorough clinical study of the given patient setting followed by development of administrative protocols and monitoring of compliance with the protocols.   

 Our discussion on VBID concept continues in our next blog article – evaluating return on investment.

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Entry filed under: Healthcare Reform, Value-Based Insurance Design. Tags: , , , , , , , .

What an economic mess — where do we go from here? Hospital Cost Cutting — Critically Important but Short Sighted at Times?

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