Value-Based Insurance Design

Tuesday, May 04, 2010

“The University of Michigan Center for Value-Based Insurance Design was established in 2005 to develop, evaluate, and promote value-based insurance initiatives in order to ensure efficient expenditure of health care dollars and maximize benefits of care. The Center is the first academic venue in which faculty with both clinical and economic expertise conduct empirical research to determine the health and economic impact of innovative benefit designs.” http://www.sph.umich.edu/vbidcenter/about.htm

The concept of Value-Based Insurance Design is based around three principles:

“1.• Value equals the clinical benefit for the money spent.

 

2.• Value-based benefit packages adjust patients' out-of-pocket costs for health services on an assessment of the clinical benefit to the individual patient, based on population studies.

 

3.• Thus, the more clinically beneficial the therapy for the patient, the lower that patient's cost share will be. Higher cost sharing will apply to interventions with little or no proven benefit.” The University of Michigan Center for Value-Based Insurance Design

It sounds simple in concept but how would it be applied in reality? First vast quantities of data is needed to identify health care outcomes by various geographic, pathologic, and demographic parameters, i.e., age, gender, race, … etc. Then data must somehow be linked to the locality, physician, hospital, other health care providers, as well as any drugs used by the patient associated with the current medical treatment plan. Such an effect is no less than a massive undertaking to say the least.

The Patient Protection and Affordable Care Act (PPACA) contains several references to “value-based” purchasing programs including; hospital, skilled nursing facilities, home health agencies physician fee schedule, ambulatory surgical centers as well as value-based insurance design. To accomplish the task of implementing “value based” payment systems; the Secretary of Health and Human Services is authorized under the PPACA to collect patient demographic data, provider information, diagnosis, and outcomes. And may develop guidelines for value-based insurance design. Thus, the goal is to reward those providers with lower cost and positive outcomes and to disincent those providers with higher cost and less positive outcomes. At the same time, by amassing an outcomes database by patient, provider, diagnosis, and outcomes, a basis is formed by which health insurance providers can adjust patient out-of-pocket expenses and provider reimbursements to reflect the medical treatment plan outcome.

Consider the patient who has a choice of two hospitals, one has a record of very positive outcomes for the patient’s diagnosis; the other has a record of not so positive outcomes. Depending on which hospital is selected, the patient may have a lower out-of-pocket expense and the hospital may have a higher reimbursement or just the opposite. The same rationale is applied to physicians and other health care providers including pharmaceutical providers. If your new drug is less effective than a generic, you are paid less.