Posts filed under ‘Value-Based Insurance Design’

MedSpan Research Pay-For-Performance Case Study

MedSpan Research Pay-For-Performance Case Study

Connectivity is one of the Key Underlying P4P Programs…Read more to learn why

Continue Reading July 21, 2015 at 2:00 PM Leave a comment

Here is What MedSpan Research Has Been Up To and Learning: Our Tri-Weekly Newsletter

Recently, a Modern Healthcare survey determined that a majority of healthcare CEOs supported the transition from Fee-For-Service to Value-Based Compensation. However, their time frame of transition varies. Read our blog entry for more on this subject.

Continue Reading June 8, 2015 at 10:22 AM Leave a comment

Why Market Access is Crucial for Healthcare Marketers Today

Market access has changed dramatically over the years and is becoming a high priority for healthcare marketers. Read on to learn about these changes and how to address the complexities of gaining access.

Continue Reading July 12, 2013 at 10:04 AM 1 comment

Value Based Insurance Design: Return on Investment


Fact:  Treating pre-diabetic patients costs $5,000 in total, while the average annual cost of diagnosed diabetes with complications, such as heart disease or kidney failure, can be as high as $30,000 per year.[1] 

Given the limited nature of healthcare resources, value-based insurance design (VBID) sets allocation priorities based on clinical evidence demonstrating which type of care delivers the greatest value .  That is, VBID programs motivate patients to use, and physicians to prescribe, the treatment alternatives that best enhances health status at the lowest possible net cost.  VBID programs discourage the use of services with marginal value to ensure the appropriate and cost-effective utilization of health care resources.  

One way to measure the effectiveness of VBID programs is return on investment (ROI), which demonstrates the improvement in health status as compared to the money spent in designing, developing and implementing a VBID initiative. 

 ROI Calculation for VBID

 Generally, there are two ways to go about calculating the ROI for VBID initiatives.   The first method considers the costs to the health plan related to reduced co-pays and other financial incentives plus any increased utilization of healthcare resources that may result from the incentives.  The ROI is then calculated by comparing those costs to the reduced medical costs resulting from increased treatment adherence by the newly engaged enrollees plus any increase in revenue due to new beneficiaries who join a plan due to the VBID program.[2] 

Alternatively, the more expansive ROI calculations include program costs, such as communication initiatives and disease management and other support programs, as well as productivity increases associated with reductions in absenteeism and presenteeism.[3] 

Both of the above calculations do not take into account the impact of healthcare treatment on the patient’s quality of life.  While quality of life is an important outcome of healthcare, objective measurement ranges from difficult to impossible.

 So far, several health plans have reported positive results from their VBID programs.  Here are some examples.

 (1)     Savings from Adjustment and or Waiver of Co-payment

 WellPoint tested a VBID model in the State of Maine, with 40,000 employees, targeting diabetes by either waiving or reducing copayments.  This pilot program covered four employers, including the  Preliminary results for the City of Maine pilot, the Telephonic Diabetes Education and Support program, showed an improvement in medication possession rate increasing from 77 percent to 86 percent post the implementation of the program.  One year follow-up study reported adjusted average cost for participating members being $1,300 less compared to the non-participants. 

 (2)     Long Term Savings from Increase Medication Adherence

 Health Alliance Medical Pans, Inc.’s VBID initiative made available to 86,000 fully insured members and dependents a fourth copayment tier called the Value Based Benefit tier addressing members with diabetes, hypertension and asthma.  The new benefit made specific drugs related to the three conditions available for a 10 percent copayment, a copayment less than its second tier $22 copayment.  Under the Value Based Benefit tier, the plan provider shifted lower value drugs to higher tiers by choosing not to cover over-the-counter non-sedating antihistamines that instantly saved the plan provider $2 million.  Although utilization and monthly prescription drug costs increased, medication adherence for diabetes and asthmatics increased 10.6 percent and 32.7 percent, which is likely to generate long-term medical savings. [4] 

 (3)     Savings from Comparatively Lower Rate of Increase in Healthcare Cost

 Also encouraging is the comparatively slower rate of increase in healthcare cost noted by VBID program providers.  For example, IBM reported that the company, as one of the early adopters of VBID for its employee healthcare plans, was able to maintain a health care cost trend at 3% to 4% mark while comparative average healthcare cost trend was 12% and higher.[5]

[1] Houy, M. Value-Based Benefit Design: A Purchaser Guide. National Business Coalition on Health. January 2009.

[2-5] ibid

August 24, 2010 at 9:52 AM 2 comments

Evidence-based radiology — a concept on the cusp

For some years now, payers, academics and clinical practitioners have had concerns about the justifications for clinical practice patterns.   The need for evidence-based practice ranges from formulary design to clinical care to radiology.

“Medical practice is largely based on clinical anecdotes, uncontrolled investigations and expert opinion. The demand for scientific evaluation to guide patient care is increasing because financial resources are limited and because practice based on such influences may be inappropriate. In radiology, the situation is especially problematic…. Few radiology programs address and encourage critical thinking skills.” (Source: Hillman BJ, Noninterpretive skills for radiology residents. Critical thinking: deciding whether to incorporate the recommendations of radiology publications and presentations into practice. AJR Am J Roentgenol 2000; 174 (4):943-946.)

For example,  when clinicians, such as radiologists, health plan administrators, and others try to decide between imaging and interventional options, they may find that textbooks are out of date, guidelines are not specific enough and there are conflicting or apparently unreliable reports in the literature. Expert opinions and policies vary and even the definition of ‘evidence’ is unclear.

Some experts recommend using the ‘consensus of experts’ approach.  However, the reliability and reproducibility of this type of evidence is questionable.  Others recommend the use of guidelines that are based on expert appraisal of the literature.  These are roughly equivalent to a consultation with experts but may not answer our specific question well, be based on strong evidence or take into account new developments and local circumstances.  However, when clinicians and health plan administrators go to the literature, the first problem encountered is the volume of literature being published and, perhaps, a lack of training in how to separate the good studies from the weak ones.  Another problem is determining whether specific clinical decisions and medical policies should be based on the general consensus illustrated by the evidence or following a minority opinion that better applies to a specific situation or sub-group of patients.

One of the issues facing healthcare manufacturers is how to best support clinicians and administrators as they address these challenges.  For healthcare manufacturers, the key questions are 1) What type of data will my customers find most compelling?  2) How will that data best support my marketing efforts and support appropriate adoption of my product? 3) How can I develop the data most cost effectively?  Is a retrospective study or an observational study sufficient?  Is a costly prospective study with a randomized design necessary?  4) What return will I realize from the data I develop?

The first step for healthcare manufactures is to realize the data are necessary.  As comparative effectiveness research becomes more prevalent and clinical decisions are increasingly scrutinized, data is all that clinicians and administrators will find relevant and compelling. 

The next step is to develop an evidence plan early in the product development process.  To the extent possible, the time to develop such data is when drugs are going through clinical trials or diagnostic assays and imaging equipment and applications are under development.   Developing data after FDA approval and product launch could burn the limited commercialization time available before a competitor arrives or patent protection expires.

The evidence plan should be based on the expected return on investment.  If less-costly retrospective and observational studies will drive adoption, though perhaps not optimally, they might optimize ROI.  Potential market blockbusters might warrant costly prospective, multi-center studies that support a lasting and profitable competitive advantage.

The design of specific studies within the evidence plan should be based on the intended audience.  Payers (eg, health plans and hospital administrators) are looking for value.  That is the expected improvement in quality of care, based on specific and measurable outcomes, divided by the impact on cost.  Cost includes that of the drug, device or imaging application as well as any cost offsets (eg, reduction in hospitalizations) directly due to the product.  Providers are more focused on improvements in clinical care and outcomes and, to a lesser degree, cost impact. 

As today’s discussion begins to illustrate, the development of an evidence plan is a complex undertaking that should be well thought out.  Today’s environment and its emphasis on comparative effectiveness, cost management and access to appropriate therapies and procedures makes the development of the evidence plan more critical than ever before.

July 23, 2010 at 12:49 PM Leave a comment

Trends in Provider Networks

Sometimes it seems that the more things change, the more they stay the same.  One of the trends in the 1990s was to narrow provider networks.  The objective was to drive up quality and reduce the cost of care.  This was achieved by limiting member choice to the physicians and hospitals most willing to negotiate favorable rates and able to achieve quality outcomes.

Insurers quickly learned that members preferred choice to lower premiums.  Therefore, the PPO with its broader provider networks but high premiums grew in popularity compared to the HMO.  Today, 60% of workers are enrolled in a PPO, 20% in an HMO.  10% of employees are enrolled in a POS plan, 8% in a high-deductible plan and 2% in a fee for service (FFS) plan.  In contrast, ni 1993, 46% of employees were enrolled in a FFS plan, 21% in an HMO, 26% in a PPO and 7% in a POS plan.

However, premiums for commercial plans have increased significantly.  Premiums increased from $2,196/$5,791 (single/family) in 1999 to $4,824/$13,375 (single/family) in 2009 (per KFF accessed July 18, 2010).  This represents a 120%/130% increase over a 10-year period.  Premiums are expected to increase another 10% this year. ( accessed July 18, 2010).

Now, it seems like the pendulum is swinging back.  The significant increase in premiums and the generally-accepted need to rein in healthcare costs has encouraged insurers to offer plans that limit choice of providers in exchange for reductions in premiums.  Typically, insurers are offering plans that reduce the size of the physician network by half and the hospital network by one third.  In exchange, premiums are lowered by 15%.

These plans are being tested in places like San Diego, New York and Chicago.  While small employers are especially interested, even large employers are offering these plans.   National carriers like Aetna, Cigna, the UnitedHealth Group and WellPoint are desgning and offering  plans with limited networks.

The new health care law offers some protection against plans offering overly restrictive networks, said Nancy-Ann DeParle, head of the office of health reform for the White House. Any plan sold in the exchanges will have to meet standards developed to make sure patients have enough choice of doctors and hospitals, she said.

Ms. DeParle said the goal of health reform was to make sure people retained a choice of doctors and hospitals, but also to create an environment where insurers would offer coverage that was both high quality and affordable. “What the Congress and the president tried to accomplish through reform is to transform the marketplace by building on the existing system,” she said.

This approach is not a long-term fix to the high cost of care.  First, these plans only can be offered in geographic regions with enough providers available for insurers to choose between high-quality and low-quality, high-cost and low-cost physicians and hospitals.  With today’s physician shortages, there are not enough physicians available outside of urban areas to support plans with narrow networks comprised solely of high-quality/lower-cost providers.

Second, even in urban areas, there are not enough high-quality/low-cost physicians to serve all local employees.  Competition might encourage high-cost physicians to lower their fees to gain access to narrow-network plans.  However, many physicians do not have the resources or training to improve the quality of the care they provide. 

Finally, not all employees and employers will select narrow-network plans.  There always will be a portion of employees and employers willing to pay for broad networks, no matter how high premiums rise.  Perhaps labor unions and government plans and other organizations that tend to prefer or offer rich benefits will fall into this group.

Therefore, plans with narrower networks that emphasize higher-quality care are one solution to eliminating long-term costs in the healthcare system.  Other solutions are required to achieve true efficiencies in our healthcare system; efficiencies that eliminate unnecessary care through better clinical outcomes and administrative procedures.  Other solutions include, but are not limited to, value-based insurance design, patient centered medical homes, electronic health records and increased use of preventive care. 

I look forward to watching this trend.  Especially as a small employer in an urban area, I am excited by any option that enables me to offer cost-effective benefits to my employees.  I appreciate any opportunity to reduce the cost of benefits while they continue to enable me to attract a strong workforce and maintain an effective and productive workforce.

July 18, 2010 at 10:52 PM Leave a comment

Value Based Insurance Design: Financial Impact


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; 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 (; 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.


  • 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.


  • 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.’ 


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.

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

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