Customized Coverage

There is a way to reduce healthcare costs while improving care. Say hello to value-based insurance design.

Saturday, May 2, 2009
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As healthcare costs nationwide were spiraling out of control, the University of Michigan's solution was to charge employees less for a whole selection of drugs and services.

Through its "Focus on Diabetes" program, the university's 2,500 diabetic employees and dependents receive their insulin or antidiabetic drugs for markedly reduced co-pays, or even for free. The same is true for physician visits related to diabetes, cholesterol-lowering drugs, blood-pressure drugs and drugs to treat depression.

Diabetics also get extensive educational material on how best to manage their health and can receive, for a reduced co-pay or for free, beta blockers, antihypertensive drugs, calcium channel blockers and diuretics.

Sounds like a lot of expense to the university, and it is. But what the reduction of cost-sharing for these specific services does is lowers the barriers to compliance for services that are most valuable for diabetics. It provides a financial incentive for diabetics to do specifically what their doctors want them to do. As a result, patients are healthier, and what U-M spends up front is offset by fewer ER visits and fewer long-term complications from poorly controlled diabetes.

"You can save a pretty substantial amount of money by charging people less or nothing for certain services because you get such a bump in compliance," says Sander Domaszewicz, a principal at New York-based HR consultancy Mercer. "You get multiples of your money back."

U-M's program is what has come to be known as evidence-based or value-based insurance design. The fundamental premise of VBID is that, for different people, different services have different values. A foot exam has a higher value for a diabetic than a nondiabetic, due to the increased incidence of nerve damage in diabetics' feet.

Similarly, statins are more valuable for someone who has had a heart attack than someone with no family history of heart disease. Given this heterogeneity in patients and services, VBID says this: Take the services that have the most value (the right procedure for the right patient) and reduce barriers to compliance by reducing cost. And if necessary, raise barriers on services with low value to compensate.

"Consider colonoscopies," says Dr. A. Mark Fendrick, co-director of the University of Michigan Center for Value-Based Insurance Design. "A first-degree relative of a colon-cancer sufferer should be paid to have one. A 50-year-old person with no family history should get it for free. And a 29-year-old with no family history should pay 100 percent -- and should be fined $500 for taking up her mother's slot."

Every year, healthcare costs go up. It's costing employees more and it's costing employers more just to maintain the current level of healthcare provided. What VBID proposes is this: By customizing benefits so the most valuable services for any one condition cost less to the employee than services of lesser value, companies can make healthcare dollars go further.

Forget uniform coverage. Forget blanket deductibles that cover cholesterol screenings for heart attach patients the same way they cover cosmetic mole removal. This could be a way to improve care while also maintaining or even lowering cost. 

How it Works

In its ideal form, VBID requires a whole lot of customization. Instead of charging $25 for all formulary drugs, VBID establishes that, for person A, all medications for X condition should be $10 or less and all medications for Y condition should cost $40. For person B, it's the opposite: Y meds should be cheap, but X meds should be expensive.

On top of that, you're supposed to consider ancillary diseases because you get more bang for your buck by taking what you know (person A is a diabetic) and using it to improve health in multiple areas (foot care and eye care too, since foot and eye problems are common diabetes complications).

So for diabetics, eye and foot exams should be less expensive -- but for nondiabetics, they should not be.

Say goodbye to the ease of, "Everyone meets a deductible and then is covered at 80 percent."

"It's completely getting away from the one-size-fits-all approach," says Paul Fronstin, senior research associate with the Employee Benefit Research Institute in Washington.

It is complicated, he says, but it doesn't have to be an all-or-nothing proposition. In fact, nobody to date is using a totally value-based design, but many employers and insurance providers are beginning to add value-based elements to their plans.

"When you have good data that increasing compliance decreases long-term cost, go for it -- and don't wait until you have data on everything," says Fronstin. "We can't let perfection stop us. We have to go after the low-hanging fruit."

The lowest hanging fruit of all -- flush with data proving it to have a very high "health bang for your healthcare buck" value -- is diabetes, as U-M is finding. In diabetes, compliance is everything. If patients comply perfectly, they can often be every bit as healthy and symptom-free as nondiabetics. They'll generate fewer emergency-room visits, have fewer complications and consume fewer healthcare dollars.

But when compliance is poor, health goes very bad, very fast.

"We had a guy who couldn't read, so he was loading insulin into a syringe based on what he thought looked right," says Destiny Mattsson, wellness coordinator for the City of Asheville, N.C. This sort of deep noncompliance actually did occur among the Asheville governmental staff prior to the implementation in 1997 of "The Asheville Project" -- a value-based program designed to pick that lowest of all low-hanging fruit, she says.

That early program covered only diabetes, but covered it end-to-end, providing all drugs and supplies for free from dollar one. The idea was to find the people who were not following the suggested health regimen and reduce any barriers they had to compliance. In many cases, the city found that those barriers were financial.

Some patients tested their blood sugar less often or took medications with less regularity because of the cost. And in some cases, barriers were in education. The man who loaded his syringes incorrectly simply didn't know better, and his ignorance was costing him his health -- while costing the city a lot of money.

"He was obviously sick a lot because he wasn't giving himself the right doses," says Mattsson, recalling how the man would end up in the emergency room a few times a year after grossly overdosing on insulin, dropping his blood sugar to dangerous levels.

Once the Asheville Project was in place, the employee was paired with a nurse. The nurse drew a poster with a picture of a syringe and walked him through proper dosing. He began receiving insulin and testing supplies for free, and he was taught how to use them. Today, Mattsson reports that the man is doing fine.

Under The Asheville Project, in addition to receiving all drugs and supplies for free regardless of whether they've met a deductible, participants with any of the covered conditions (currently diabetes, hypertension/hyperlipids, depression, and asthma) see their own pharmacist care managers face-to-face several times a year.

New participants receive around nine hours of class time as they begin the program. The idea is to not just turn participants loose with free meds, but to teach them exactly what to do, and to track their compliance. It's not cheap, but, according to Mattsson, the benefits of the program far outweigh the cost to run it.

"We started paying more for prescriptions, and our employees were seeing their doctors more often," she says. "But, it was costing us less in the end because they were seeing those doctors for typical office visits instead of ending up in the ER. It became standard care, not catastrophic care."

Results are In

The bottom-line financial results have been significant.

"In 1996, before The Asheville Project, we were spending $6,100 per diabetic per year in total healthcare costs," says Mattsson. "In year one of the program, it was $3,500. In year five, we were spending about $4,600 per diabetic, and the national average at that time was about $7,200."

The results look good today, but one problem with VBID -- and a reason why insurers are reluctant to try it -- is that employers such as Asheville and the University of Michigan have to spend first and trust that there will be a benefit on the back end. Increasing spending is a tough sell in today's economic environment, which was exactly why Pitney Bowes' decision to move to a value-based plan felt like a leap of faith.

"At a certain point in time, I had to take a risk and assume that an investment that we were making was going to pay off," says Johnna Torsone, executive vice president and chief human resource officer for the Stamford, Conn.-based company. "A lot of times, that decision is hard to make when you're trying to meet a bottom line. But I had a CEO who was willing to give it a chance."

That mandate from former chairman and CEO Michael J. Critelli sounded, in retrospect, as if it came right out of the VBID playbook. Torsone was asked to reduce costs, but to do so in a way that enhanced employee health. Current healthcare thinking almost sees those as contradictory goals, but Torsone recalls an "a-ha" moment: It's cheaper to keep employees healthy than to get them healthy after they become sick.

"We started focusing on health, not just healthcare," she says. "We took the dollars that we were investing and began trying to find ways to use them to produce the best health today. Healthy employees ultimately cost us less."

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Some of those dollars were invested in preventive care and education. P-B reasoned it could keep employees healthy by paying for vaccines, blood-pressure and cholesterol screenings, prostate-cancer screenings and mammograms.

There are also incentives for employees who commit to a smoking-cessation or weight-loss program. P-B invested in a variety of educational programs (Torsone highlights an allergy course, adding that some people are being wrongly treated for a condition that is actually an allergy), nurse lines, and on-site clinics.

But the really big gains, as with Asheville and U-M, were realized in the way the company chose to manage chronic conditions such as diabetes and asthma, says Torsone.

"Chronic disease was accounting for the bulk of our costs, and a lot of that chronic disease could be mitigated by the design of our plans and by incenting certain behaviors," she says.

The problem was, the old plan wasn't providing those incentives.

"We did an analysis and found that the drugs you would use to keep your asthma under control were in our highest-cost tier of pharmaceuticals. That meant that people wouldn't use them, or they'd cheat -- they'd take them a month and then stop. So we decided to significantly reduce or eliminate the cost of those drugs, and what we found was that our visits to the ER for asthma-related issues went way down."

Today, Pitney Bowes' healthcare costs are 15 percent below its benchmark. That's the same benchmark that, prior to the VBID plan, the company's costs used to match almost exactly. Torsone says she's beyond pleased -- now verging on proselytizing -- about the results of P-B's "kind of complex" healthcare plan.

A Work in Progress

"Is it simple? No," she says. "I can guarantee you we probably spend more on administration than companies with simpler plans, but the payback is so much greater on the back end." And, like anything, there is a learning curve. As the program evolves, Torsone sees administration getting easier as technology is developed to better track who has what conditions and circumstances, and what they should pay for a given service.

The complexity is really only in the processing of transactions anyway, says U-M's Fendrick. For the rest, employers already know what they need to do. They know that healthy chronic-disease patients cost less in the long term than poorly controlled and unhealthy ones, even if the latter are paying some of their own expenses. They know what diabetics, hypertensives and chronic-obstructive-pulmonary-disease patients need to be healthy.

And while the Health Insurance Portability and Accountability Act prevents companies from knowing who these people are, a third-party health management firm has likely already identified and is working with chronic-disease patients. Employers that offer disease-management programs need only reduce barriers to compliance for the people in those programs.

"When people ask me, 'What is the easiest way to implement VBID today?' my response is to tell them to find those services that you are already recommending to patients in disease-management programs and remove the barriers to them," says Fendrick.

This, he adds, sounds obvious but isn't automatically the case. He recently saw an employer offer large monetary incentives to employees who quit smoking, but at the same time dramatically raised co-pays to see behavioral therapists -- who could help them quit smoking.

"In congestive-heart-failure programs, nurses tell people to take some medications that do things not directly related to heart failure, that would benefit their health," he adds. "But often, the co-pays for those drugs have doubled over the past five years. This is an inefficient and misaligned situation."

Misaligned, one-size-fits-all plans that treat all patients as if they were the same do not save money nor do they create optimum levels of health, says Fendrick.

"Healthcare reform discussions are increasingly focused on how escalating healthcare costs impact multiple stakeholders from a financial standpoint," he says. "We can no longer tolerate huge expenditures on medical services that produce no or a very little amount of health for a lot of money."

Value-based designs of significant scope are still very rare, and still largely the domain of large, self-insured employers. The concept is still in its infancy, but companies that have implemented some element of VBID have discovered that the goals of "better care" and "less cost" are not mutually exclusive. If a plan can encourage people to do what's best for themselves, that plan will save money. Prevention costs less than cures.

Pitney Bowes' Torsone says her company makes no apologies for being an outspoken advocate of value-based design.

"We're kind of evangelistic about it," she says. "These principles should be applied to all systems."

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