In the 1990s, a multidisciplinary team of researchers at the University of Michigan led by A. Mark Fendrick, MD, developed a concept to restructure health benefit designs so they better supported the clinical indications for care. The concept, ultimately named Value-Based Insurance Design (V-BID), was intended to increase consumer adherence with recommended care guidelines by aligning consumer out-of-pocket costs with the potential clinical benefit of certain health services and medications. This brief describes the history of the V-BID initiative at the University of Michigan, its current status of private and public sector implementation, and its future directions.
March 2016
Consumer out-of-pocket costs, such as copayments and co-insurance, are often uniform for all services and medications within a specific pharmacy tier. This payment structure is used despite evidence-based differences in clinical benefit. While increased cost-sharing does reduce the use of marginally valuable treatments, it also decreases the use of highly valuable services like cancer screenings, clinician visits, and drugs for chronic diseases. As a result, consumers may not receive critical preventive screenings, or adhere to prescription medications necessary to manage chronic conditions. As evidence accumulated that cost-related non-adherence was a real and growing problem, U-M researchers hypothesized that aligning consumer out-of-pocket costs with the potential benefit of the service or medication would increase the utilization of services that have been demonstrated to be effective.
In 2001, U-M researchers first published this concept, initially described as benefit-based copay, in the American Journal of Managed Care. The basic premise was to reduce barriers to high-value clinical services and providers, and to discourage the use of services and providers that are of lower value—aligning consumer out-of pocket expenditures with value. V-BID is driven by the concept of clinical nuance, which recognizes that: (1) medical services differ in the benefit provided; and (2) the clinical benefit derived from a specific service depends on the patient using it, as well as when and where the service is provided. With a focus on prescription drugs, researchers suggested that consumer out-of-pocket costs should vary by the evidence-based benefit the medication will provide for a particular consumer. For example, metformin, a drug that has been proven to help patients manage diabetes, should have a lower copayment than finasteride, a drug that promotes hair growth.