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Study Urges End to 'Archaic' Principle of Cost-Sharing

By John Reichard, CQ HealthBeat Editor

January 30, 2007 -- One of the premises behind the emerging trend toward "consumer-driven health care" is that overall health costs won't rise as quickly if patients are prodded to shop for better value by requiring them to pay a significant share of their medical expenses. But what if the way benefits are designed fails to steer them to the products and services that offer the best value?

Fixing that problem is the key that will help unlock the savings potential of consumer-driven health care, according to an article posted Tuesday on the policy journal Health Affairs' Web site. And the way to fix it is to charge lower copayments for drugs and lower cost-sharing for services that provide the best value, said researchers from Harvard University and the University of Michigan.

"By using our knowledge wisely and abandoning the archaic principle that all services must cost the same for all patients, regardless of clinical situation, we can move toward a high-value system for all," wrote Michael E. Chernew of Harvard and Allison Rosen and Mark Fendrick of the University of Michigan.

A short-term increase in costs is a potential barrier toward what the researchers call "VBID," or value-based insurance design. Lower out-of-pocket charges could lead to greater use of a drug and higher insurer spending on the product.

But those near-term increases can quickly give way to larger savings by lessening the need for hospitalization, they said. "One year after Pitney Bowes lowered medication copays for asthma and diabetes medications in 2001, the company reported . . . a one-year savings of $1 million," the authors wrote.

Savings also can be obtained by raising out-of-pocket charges for products or services that don't provide the best value, they added.

In another analysis posted by Health Affairs, two managed care industry executives noted that there are other challenges posed by VBID. "More sophisticated clinical thinking must be incorporated into insurance arrangements," observed Troyen Brennan, chief medical officer of Aetna, and Lonny Reisman, chief executive officer of ActiveHealth Management.

Insurers will have to make a commitment to "developing information systems that can turn clinical data into useful consumer information for members and better advice for physicians," they said. But "this prospect is within our grasp," they concluded.

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