Values-Based Health Insurance

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Another New Idea?

[By Staff Writers]

According to Mark Fendrick MD and Michael E. Chernew PhD, instead of the one size fits all approach of traditional health insurance, a “clinically-sensitive” cost-sharing system that supports co-payments related to evidence-based value for targeted patients seems plausible.  

The Model

In this model, out-of-pocket costs are based on price and a cost/quality tradeoff in clinical circumstances: low co-payments for interventions of highest value, and higher co-payments for interventions with little proven health benefit.  

Benefit Product Packages

Smarter benefit products and packages are then designed to combine disease management with cost sharing to address spending growth. 

product sales


What do you think of this new health insurance business model; is it revolutionary or evolutionary?


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3 Responses

  1. Porter and Omstead-Teisberg

    Michael Porter and Elizabeth Omstead Teisberg recently stated in their book, Redefining Health Care, that limiting competition is not the solution, but rather, “The only way to truly reform health care is to reform the nature of competition itself.” The offer that this reform should be focused around “value based competition over the care cycle at the medical condition level.”

    Porter explained that, “Because of the lack of effective competition at the condition level, the actual organization and structure of care delivery by most providers is not aligned with patient value. Lack of value-based competition on results has allowed care of a patient to be fractured across numerous specialties, hospital departments, and physician practices, each of which focuses on its discrete intervention.

    Nobody integrates care for the medical conditions as a whole and across the full care cycle, including early detection, treatment, rehabilitation, and long-term management.”

    Submitted by,
    Robert James Cimasi; MHA, ASA, CMP
    Health Capital Consultants, LLC
    St. Louis, MO.


  2. Values Based Health Insurance

    Reference pricing, tiered provider networks and narrow networks—three benefit design strategies that are gaining favor among employers and health plans trying to find ways to slow premium growth.

    While these designs aim to encourage value-informed consumer choices, some perceive them as overly restrictive.

    What do you think?

    Dr. David Edward Marcinko MBA


  3. On VBP

    The basic misconceptions about managed care in many hospital systems and physician groups is often caused by misunderstanding and distrust of value based purchasing (VBP) initiatives and how they work. With the Medicare rules constantly changing physician and hospital reimbursement this adds frustration and more confusion to the mix.

    A recent analysis of past hospital bonuses being wiped out by new hospital penalties makes VBP suspect to many. Physicians are seeing the SGR changes being delayed along with new fines and scrutiny all of which makes the new government sponsored reimbursement programs suspect as well, especially for those on a fast track requiring 85% of reimbursement to be under VBP by 2018. Many providers see this as an unfunded mandate, especially those who face the imperative of building an “insurance company like” infrastructure platform to integrate data and finance.

    For many health plans and employers or their TPAs this VBP is still new. I am hearing employers are delighted to have Medicare leading the charge as they did with DRGs and RBRVS, but they are still a bit mystified as to how the purchasers will build a “provider like” monitoring and management system to track Total Cost of Care (TCOC). While all purchasers are familiar with Per Member Per Month (PMPM) as a key measure of success in managing cost, there will need to be adjustments tied to patient risk and quality to make the capitation or bundles fair and attractive for employees.

    This Insurance-like and provider-like platform merging clinical decision support with financial prospective payment tools is similar to the managed care of the early 1980s and based upon the vison of many good HMOs of the 1970s. Kaiser Permanente as the original community based health plan in the 1950s has expanded to other parts of the country as a pioneer in integrating not only physician and hospitals services but also integrating the financing of these services as a membership organization. In every discussion of integrated delivery networks (IDN) Kaiser is shown as the sustainable example. The reason for Kaiser’s success is that they not only changed how care is delivered but also changed how it is paid for by participating employers and their employees. Therefore, it is not surprising we are now hearing a new term being used by both purchasers and physicians in their discussions with each other and that is “Kaiserfication”.

    We are seeing a rebirth of physician sponsored health plans morphing from Accountable Care Organizations (ACOs) to risk management entities using the tools they have built and skill sets learned over the past decade of clinical integration. This has taught us another new word – “recapacitation”, or the ability to downsize unused, overly expensive services with high use and high need services that are competitively priced and delivered in a consumer concentric manner.

    This recapacitation has triggered many consolidations and has, in a reverse manner, forced employers and payers to build narrow networks of top quality, low cost providers to offer yet another alternative product to their employer clients to select. In other words while providers merge into bigger and bigger health systems, purchasers are carving out subsets of these systems. These purchasers use these narrow networks and direct patient flow by offering forgiveness on copays and deductibles to incent patients in the direction of these narrow networks instead of the broader networks of the past. By using these high performance panels for outpatient business, purchasers can demand that physicians uses select hospitals on a product line by product line basis. This means all ob-gyn may go to one hospital and all cancer care to another. This breaks down the attempts by health systems to control all services in a given geographic area but also puts in place quality parameters for all services, thus making employers confident that the health plan is using their best quality measures to secure better care and better prices.

    All in all managed care of the 1970s has returned with a good twist – quality data, new reimbursement options and new tools for reducing exposure to Preventable and Avoidable Costs (PACs).This is very consistent with Medicare’s vision of Accountable Care and with the recent announcement of moving all reimbursement away from fee for service by January 1, 2018.

    William J. DeMarco MA CMC
    Pendulum HealthCare Development Corporation


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