Without getting too mired in the history of health care delivery in the U.S., we can say that we have struggled with the issue of health care costs for decades. Different methods have been tried, abandoned, and tried again under different circumstances. Managed care, capitated payments, fee for service, evidence based medicine, best practices, etc etc etc.

In the PPACA reform legislation of 2010, we are being treated to a couple of new methods, the ACOs and VBIDs, that have been suggested for some time and are now part of the law. I’ll leave ACOs to another post, but for now let’s just consider VBID, even though the two concepts can be interrelated in practice. What is it?

VBID stands for Value-Based Insurance Design. The concept is that some health care treatments are of inherently greater value than others, and therefore the patient should pay less for the most valuable procedures, and more for procedures of less value.

Here is what The University of Michigan’s Center for Value Insurance Design says on the matter:

The basic V-BID premise is to align patients’ out-of-pocket costs, such as copays and premiums, with the value of health services.  This approach to designing benefit plans recognizes that different health services have different levels of value.  By reducing barriers to high-value treatments (through lower costs to patients) and discouraging low-value treatments (through higher costs to patients), these plans can achieve improved health outcomes at any level of health care expenditure.

In some ways insurance plans have utilized elements of this concept for some time:: low copayments to see a doctor versus high out-of-pocket costs to receive treatment in an emergency room. PPACA takes up the case for VBID directly by stipulating that all age-appropriate preventive screenings should not carry any patient cost.

In light of the accepted reality that third party payer systems contribute to over-utilization, it tends to appeal to common sense that connecting the cost to the patient of desired versus less desired forms would lead to lower overall costs. So, does the common sense reaction hold up?  Does it work?

In 2004, Pitney Bowes implemented an early form of a VBID, and reported a $1 million annual savings from reduced complications after lowering copayments for asthma and diabetes medications.  Since then, numerous private and public employers, including the city of Springfield, Oregon, Marriott Corporation, the Midwest Group on Health, Florida Power and Light, Service Employees International Union, UnitedHealth Care, the State of Maine, and the University of Michigan have implemented value-based insurance design approaches. Therefore, the VBID concept has some legs. Are there downsides or limitations?

The short answer is, “of course.” The first of these limitations is that “value” has a large subjective component. From the perspective of a third party payer (ie. an insurance company), value is determined by comparing the clinical outcome of a treatment to its cost. To an individual patient, cost is likely a secondary consideration.

Secondly, with the coming implementation of health insurance exchanges, and the legislated requirement that all plans must be compared on an “apples-to-apples” basis, many VBID plans can be handicapped, or certainly making such a comparison becomes significantly more complicated to the consumer.

Third, providers are not being paid for the quality of their outcomes, but for the volume of their services. The origins of this issue have a lot to do with third party payment systems, but the reality is that for the health care dollar, Americans receive an inefficient result:: a recent report from the Institutes of Medicine concludes that roughly one-third of heath care expenditures are for unnecessary and duplicative services, a result that echoes a Rand study from the early 2000s.

In addition, the matter of verifying “value” is not at all evident. A recent study published in the British Medical Journal stated that half of all medical treatments cannot be ascertained for effectiveness::

“We want to identify treatments that work and for which the benefits outweigh the harms, especially treatments that may be underused,” the authors note. “We also wish to highlight treatments that do not work or for which harms outweigh benefits.” Those that fall into the “unknown effectiveness” category are medical treatments that “for which there are currently insufficient data or data of inadequate quality.”

As with most things associated with health care, there is no silver bullet that can cure all the issues associated with the costs of health care delivery. Are VBIDs the answer or just an element of reform?

For more information, consult the following link::