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Asheville uses value-based insurance design to reduce escalating health care costs

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Sixteen years ago, Asheville, N.C., took on the challenge of trying to reduce the city's escalating health care costs.

At the same time, North Carolina pharmacists were yearning to fill their days with more than counting pills, said Barry Bunting, then a pharmacy manager at Mission Hospital in Asheville.

Leaders of this picturesque mountain community were fed up with the ineffectiveness of the city's self-funded health plan.

“My motivation was largely frustration, because nothing else worked,” said John Miall, then the city's director of risk management. “I thought, "Maybe it's the time to do something really out of the box.'”

So in 1997, the North Carolina Association of Pharmacists and several other pharmacist groups, in conjunction with the City of Asheville, began researching whether specially trained community pharmacists interacting one-on-one with chronically ill city employees could improve the quality of care and decrease health care costs. Pharmacists have an in-depth knowledge of prescription drugs, the diseases and conditions they treat, and how they can be used most effectively by patients.

The result was the Asheville Project, a disease-management approach considered one of the first examples of what today is known nationwide as value-based insurance design.

Since enrolling its first 47 diabetic participants in 1997, the project has inspired numerous spinoff initiatives and imitators, although not all subsequent efforts have matched Asheville's return on investment, which reached as high as $4 in savings on medical services for every $1 spent on the program, Mr. Miall said.

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But the grass-roots initiative incorporated a strategic element that continues to be central to value-based insurance design today. The goal was to align a patient's out-of-pocket costs with a treatment's health benefits.

As employers have adopted value-based insurance design, medications have been the primary target. By 2012, 24% of U.S. employers were offering some type of reduced medication copayment for enrollees with a related chronic disease condition, according to a 2012 survey of 424 U.S. employers by the Pharmacy Benefit Management Institute L.P., a Plano, Texas-based research organization.

Moving forward, though, the value-based insurance design model holds the promise to more effectively achieve medical savings and improve care, if it's applied to a broader array of medical care decisions, said Dr. Mark Fendrick, who directs the University of Michigan's Center for Value-based Insurance Design. Along with steering employees toward high-value care, benefits managers can structure out-of-pocket costs to also discourage treatments of dubious benefit, he said.

“With the combination of carrots and sticks, we can make value-based insurance design programs improve health and reduce costs compared to traditional nonclinically nuanced design,” Dr. Fendrick said. “It's not just about drugs; it's about the entire continuum of care.”

The Asheville initiative relied on the efforts of the city employee participants, as well as the pharmacists.

Participants were required to attend educational classes and counseling sessions with pharmacists about managing diabetes.

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Because Mr. Miall insisted all copays for diabetic medications and related supplies be waived, participants also had to hold up their end of the bargain. To qualify, participants were required to sign a contract agreeing to the counseling sessions.

Data from the Asheville Project's first five years showed that, despite higher prescription costs, overall medical costs decreased due to fewer emergency room visits and other nondrug costs, according to findings published in 2003 in the Journal of the American Pharmaceutical Association. Compared with the year prior to the program's start, total medical costs per patient decreased by anywhere from $1,622 to $3,356 annually during the first five years.

The results in Asheville have been repeated elsewhere. For example, American Health Care, a Rocklin, Calif.-based disease management company, also has studied the model with diabetic employees. For every $1 spent there, including program costs, $4.89 was saved in medical costs over a three-year period, according to results published in 2011 in the journal American Health Drug Benefits.

These studies “were very important to demonstrate that it isn't just something in the water in Asheville,” said Mr. Bunting, who directed the Asheville Project during its first decade, from 1997-2007.

As federal officials and some physician groups such as the American Board of Internal Medicine delve into the relative clinical effectiveness of various treatments, employers can start casting their nets more widely to better capture savings from value-based insurance design, Dr. Fendrick said.

For example, Dr. Fendrick pointed to the “Choosing Wisely” campaign overseen by the American Board of Internal Medicine Foundation. By early 2013, the 17 physician groups involved in the campaign had flagged more than 130 tests or procedures with limited to potentially harmful effects, such as ordering an imaging scan for someone with back pain for less than six weeks.