Value-Based Insurance, and Spending Growth and Innovation

1. Value-Based Insurance, and Spending Growth and Innovation Michael Chernew, Ph.D. Harvard Medical School Department of Health Policy

2. Health Spending as % of GDP Long-Term Projections (Pre ACA) % GDP Source: Congressional Budget Office. The Long-Term Outlook for Health Care Spending. http://www.cbo.gov/ftpdocs/87xx/doc8758/MainText.3.1.shtml

3. Our Debt is Unsustainable. Debt / GDP (%) President’s Budget: http://www.cbo.gov/ftpdocs/112xx/doc11231/03-05-apb.pdf

4. Controlling Spending Growth is Imperative Lets try to preserve value (Not kill people)

5. Definitional issues matter • Focus on spending at the population (national) level, not: • Cost per service [i.e. Price]? • Spending per disease? • Increasingly the policy debate focuses on government spending • Taxes • But total spending is the most relevant societal measure • A cost shift is not a savings (but economic consequences of copays differ from those of tax financing)

6. Slowing spending growth Spending High spending, rapid growth Low spending, rapid growth Low spending, slow growth Time

7. Who Will Slow Spending

8. What will slow spending growth • Payment reform • Consumer strategies • Including VBID • Organization of medical practice

9. Payment reform • Pay less • Lower provider updates • Reductions in payments to managed care plans • How will providers respond • Historically they offset lower prices with higher volume • You can’t make up for losses with more volume • Quality effects? • Access effects?

10. Reform payment • Bundle payments (group payment across services and providers) • Episode bundles • Patient bundles (global payment) • Issues • Quality effects • Risk transfer • Downside risk or not • Setting the rate • Updating the rate

11. Payment Reform Does Not Easily Address Consumer Preferences Do we allow patients to ‘buy up’?

12. Bundled Payment May Hamper Innovation

13. Consumer Strategies

14. Big Questions • What role should patients play in determining how health care resources are allocated? • How important are patient preferences? • What role should financial incentives play in patient decisions?

15. Consumer Strategies • Charge patients at the point of service • Increase copayments • High deductible plans • Reform of Medicare supplemental insurance • Tiered networks • Balance bill • Allow physicians to charge above Medicare (or other insurer) price • Premium support • Pay fixed amount towards premium, beneficiary pays rest

16. Challenge to Market Paradigm • Cost sharing reduces appropriate use as much as inappropriate use (Sui et al. 1986) • Copays reduce use of preventive services • Copays reduce use of ‘valuable’ pharmaceuticals • Cost sharing can lead to disparities

17. VBID Strategies • Align copays with value (VBID Classic) • Reference pricing models • If based on value • Tiered Networks • If based on value

18. Summary of cost containment • Bundled payments could work • May fail to accommodate patient preferences • May discourage innovation • Cost sharing strategies could work (particularly at reducing payer spending) • May transfer a lot of risk (or just shift premium cost) • Exacerbate disparities • VBID may mitigate some concerns • Other strategies may be good, but small impact

19. Next Steps • Integrate benefit design w/ payment innovation • Align patient incentives with provider or system incentives • Continue research to define and measure value • Continue research to measure patient responsiveness

20. End