Benefit Design that Makes Sense

By Howard Beckman, MD, FACP, FAACH, Chief Medical Officer – Chernew and Fredrick1 in a viewpoint piece in the Oct. 25, 2016 JAMA, entitled Improving Benefit Design to Promote Effective, Efficient and Affordable Care, make some valuable points at a time when thoughtful redesign is sorely needed.

The authors describe High Deductible plans as blunt instruments because their first dollar costs, even tied to a health savings account, discourage BOTH high and low value services. They argue for 1) organizing insurance design around value, 2) using reference pricing as is done in Germany and 3) using tiered and narrow networks (which at the present time I feel is also a blunt instrument).

Let’s start with organizing insurance design around value. We know what constitutes high value (effective generic medications for chronic illnesses). We also know much of what is low value (biopsy in all screening colonoscopies, spinal injections for back pain, arthroplasty for OA of the knee and fusion surgery for spinal stenosis). And there is a large grey area that has intermediate or yet to be calculated value. In such a scenario, why should the co-pay or deductible be the same for the clearly high and low value services, especially given the data that higher out of pocket cost reduces adherence.

Reference pricing hinges on determining the core price for a service and reimbursing that amount. As done in Germany, a member is reimbursed for the cost of a generic ace inhibitor. If one demands a branded drug when a generic exists, the insurer reimburses the cost of the generic and the member pays the difference. This applies to medical services as well. The insurer determines the “fair” price of the service (it could be the median price or one determined with a strong consumer advisory panel), and the difference would be up to the consumer to pay. Of course, there would be quality controls to ensure the least expensive provided similar results to the higher priced service but there is increasing evidence that there is little to no correlation currently between quality and cost.

Their third track, tiered products and limited networks is problematic. We have written about this before2 but a few points are that for a population, there are not enough great performers to go around. So many have to be served by the lower tier folks. Better, is a program to identify each practitioner’s cost and quality strengths and weaknesses, and, using accurate comparative data, encourage value improvement for the conditions in which the practitioner could improve?

Designing ways to promote these programs are now within reach. We are learning what services offer higher and lower value and can adjust co-pays and other costs appropriately. Research including patient reported outcomes can help lead the way.

At EagleDream Health (EDH), we are able to explore the relation of price and utilization to the value of services offered by providers. That feedback can be used to reduce disparities in price and service use. Practice Pattern Variation Analysis (PPVA) can be very useful in that analysis.

Finally, combining quality data from clinical records with cost data from claims can provide practitioners with the feedback they need to lower their total cost of care. They need not waste their time on conditions where they are judged to offer value and those conditions vary by practitioner. Providing practitioners the ability to sort through their work and identify where they can improve their value is now available. EDH can run Cost/Quality Fusion scatter plots combining clinical and claims data. Our technology effortlessly creates practice and practitioner variation curves on the components of care judged to be cost drivers. When the cost driver is determined to be a low value service, the path going forward becomes clear. This approach can be used at the ACO, health system, insurer or regional health collaborative level.

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  1. Chernew ME, Fendrick AM. Improving benefit desigh to promote effective,efficient and affordable care. JAMA. 216;316:1651-2.
  2. Greene RA, Beckman HB, Mahoney T. Beyond the efficiencyindex: Finding a better way to reduce overuse and increase efficiency in physician care. Health Aff. 2008;27(4):w250-9.

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