Understanding Value: US Payers’ Perspectives

Editor’s note: This is part 6 of a series exploring what value means to the stakeholders in healthcare. Part 1, “Expanding the Value Conversation,” appeared in the May/June 2021 issue, part 2, “Understanding Value in Cancer Care,” appeared in the July/August 2021 issue, part 3, “Understanding Value: The Providers’ Perspective,” appeared in the November/December 2021 issue, part 4, “Understanding Value: Patients’ Perspectives,” appeared in the March/April 2022 issue, and part 5, “Understanding Value: Manufacturers’ Perspectives,” appeared in the July/August 2022 issue.

The concluding article in this series ends with the stakeholders that pay the bills. Central governments perform this function in much of the world, and multiple payers exist in some other countries,¹ but the US system, with its mixture of large and small private insurers, self-insured employers, and federal and state government programs is unique. Regardless of type, payers perform similar functions that provide coverage, promote value, and work to maintain affordability.

Understanding payers requires historical perspective. Health insurance was a product of the contemporaneous arrivals of modern medicine and the industrial revolution. “Sickness funds” offered by employers or labor unions began to appear. The Progressive movement and unions pressured employers to provide medical coverage. Blue plans and health maintenance organizations (HMOs) arose during the 1930s and 1940s. In 1965, Medicare and Medicaid were created to cover the elderly and the poor. The federal government shaped the health insurance market through the HMO Act (1973), Employee Retirement Income Security Act (ERISA, 1974), Medicare Modernization Act (MMA, 2003), and Affordable Care Act (ACA, 2010). With electronic billing, pharmacy benefit managers (PBMs) became intermediaries connecting payers, pharmacies, medical providers, pharmaceutical manufacturers, and patients.²

“The simplest way of describing value would be outcomes over cost.” —Ryan Pistoresi, PharmD, MS

Healthcare evolved beyond the independent practices and hospitals of 1900, when most people could afford the cost. Insurance, originally intended to cover catastrophic expenses, expanded to cover all care. Because it spreads risk across a large pool of members, insurance works when only a few individuals incur catastrophic costs. Over time, this original purpose was forgotten by the public, and health insurers became health plans that paid for routine care.

Payers fund access to providers. As stewards of the money entrusted to them, they try to purchase best value, which involves population management, quality improvement, and contracting with providers, pharmacies, manufacturers, PBMs, and other vendors. Payer pharmacists come from a variety of backgrounds and focus their skills on different aspects of value. The interviewees in this article work in different plans, large and small, HMO, commercial group, employer self-funded, health insurance exchange, Medicare, and Medicaid. Collectively, they describe payers’ vision of value.

Managing care requires both population-level and individual patient perspectives. Ryan Pistoresi, PharmD, MS, is assistant chief pharmacy officer at the Washington State Health Care Authority, which manages the state’s Medicaid plan and the plan that covers state government employees. “When we think of policy, we are looking at the population level,” he explains. “But we also want to make sure that we have opportunities for individuals who may not meet those criteria but have clinical justification. Our clinicians review and approve medications in those unique circumstances.” Those exceptions reflect value to individual patients that may not be evident from the trials on which coverage policy is based.

Omar Daoud, PharmD, senior director of pharmacy at Community Health Plan of Washington, agrees. “To me, value is based on member-focused care. It starts with what we do to bring value to our members, and secondary to that is the value from a financial perspective to healthcare overall. Were there savings? Were there any optimizations? The value is what can be provided to the member in terms of outcome, healthcare—all of that.”

This vision extends beyond the traditional economist’s definition of value to a more person-centered approach. According to an HMO clinical pharmacist, “In healthcare, the simplest way of describing value would be outcomes over cost. It’s challenging to define value because it can vary widely based on individual patients’ circumstances. Sometimes value is determined by patient-reported outcomes. Sometimes it’s defined by a validated marker like overall survival or progression-free survival. It’s trickiest to define for diseases and situations for which there aren’t a lot of options and in rare diseases. Products can appear to be low value because of their very high cost, but there’s a total lack of other therapeutic options.” This is true of newer cancer treatments as well as ultrarare diseases. Some cost millions of dollars—amounts most people couldn’t repay in a lifetime. The value to these patients depends on life circumstances, goals, and the needs of people around them. Payers can add value when they help each member achieve their personal goals.

Managed care pharmacists use sophisticated methods to analyze medical and pharmacy claims. Patrick Gleason, PharmD, BCPS, assistant vice president, Health Outcomes at Prime Therapeutics, a Blues-owned PBM, explains how this works. “Value in healthcare is assessing medications and what impact the medication can have on clinical outcomes, event rates, effectiveness, and safety. I think in terms of numbers needed to treat or harm and the financial impact those events carry from direct medical cost offsets. I wish I could expand that to societal benefits, caregiver benefits, work productivity benefits—I just don’t have the means to do that. So, for those, I rely on other entities like the Institute for Clinical and Economic Research (ICER).³

“We know actual paid amounts with network and other discounts, including market access rebates and volume discounts from the manufacturer. Then we receive medical claims from our Blues plans. For example, I’m looking at the real-world impact of glucagon-like peptide-1 agonists (GLP-1a, eg, Wegovy [semaglutide injection], Ozempic [semaglutide injection]) for weight loss. I’m going back to 2022 and 2021, finding individuals that initiated a GLP1a and excluding those with an ICD-10 code or drug therapy for diabetes. I think these people are using it for weight loss. I’m creating a temporally controlled, propensity score-matched comparison group, who have at least one pharmacy claim for anything, don’t have the criteria for diabetes, and do have an obesity ICD-10 code or obesity BMI Z code. Then I will do a 1-year difference-in-difference analysis of total medical costs of the 2 groups pre- and post-index date, as well as events like bariatric surgery, onset of diabetes, cardiovascular events, and hip or knee replacements. We try to do very in-depth real-world analytics to assess the value of therapies.”  

Quality is closely connected to value in the minds of managed care clinicians. We believe that optimal clinical management applied at the right time to the right patient will save cost in the long run. We may not save with every patient, but across the right population over time, we expect this to hold true. Thus, clinical quality management programs are an integral part of a payer’s tool set. The Centers for Medicare & Medicaid Services (CMS) recognizes this and uses Healthcare Effectiveness Data and Information Set (HEDIS) and Consumer Assessment of Healthcare Providers and Systems (CAHPS) scores in determining reimbursement rates for managed Medicare plans. 

“Value in healthcare focuses on the overall improvement of health outcomes and the value it contributes to whatever we do,” says Saira Jan, MS, PharmD, vice president & chief pharmacy officer at Horizon Blue Cross Blue Shield of New Jersey. “We need to focus on improving outcomes. Health systems look at hospitalizations and emergency room visits. We look at quality measures like HEDIS, so constant improvement is a reflection of what you’re putting in and what you’re getting out. If you look at it internationally, an obvious question is who determines whether outcomes are actually improved and how? “The Dartmouth Atlas international comparisons show healthcare spend and mortality rate comparing different countries; that’s the standard.⁴ For a long time, we just compared ourselves within the United States and not to other countries. You need to understand which geography has prevalence of what medical conditions. You have your baseline programs and then measurements every year. We measure ourselves.”

Managed care pharmacists have an ongoing conversation about value and affordability with their providers. The dynamics vary from plan to plan. “Being a staff model takes profit or revenue out of the equation for our physicians,” the HMO pharmacist notes. “We saw this played out with the infused biosimilars. When provider groups or health systems make revenue on medication, anything that lowers the cost of care for patients can lower their revenue as well. Since our physicians are salaried, they’re not paid based on the quantity of care they provide. With the launch of biosimilars, it was tremendously valuable from the health plan standpoint to have cheaper versions of medications that were just as safe and effective. In the internal model, we made that flip on a dime, no problem. It was all savings and value. But in the external contracted network, those conversations were more complicated because when those medications became cheaper it reduced revenue for those provider groups.”

“Value in healthcare is assessing medications and what impact the medication can have on clinical outcomes, event rates, effectiveness, and safety.” —Patrick Gleason, PharmD, BCPS

Aligning incentives with providers in a network plan like CHPW is more complex. “It’s a cultural thing in terms of identifying and understanding value,” says Daoud. “Once you have that established, I think it’s an approach and a vision and mission that drives value across all lines of business. I don’t see us making decisions around value that are line-of-business specific. I think sometimes we overcomplicate what the provider’s goal is. I don’t think they see value differently. The provider is in many instances payer agnostic. If they get reimbursed, things must be OK, let me treat the patient and not think about other things. They’re trying to take care of whatever that member needs, from a physical, mental, or behavioral perspective. I don’t think that a provider looks up a patient’s health plan before they see them to decide how they’re going to treat or how to manage the patient.

Payment systems can create perverse incentives for providers, as Jan describes. “All these years we reimbursed providers for activities. You see a patient, you get reimbursed for the visit, but not for making sure that the patient is at goals or doing the things that reduce hospitalization and emergency room visits. We are moving toward that, but I think it needs to be a more conscious and intensified approach. So, it’s not the access issue that we have here. We have other issues that are really catering to bad outcomes.

“In New Jersey, we have value-based contracting with a lot of health systems, where I have embedded pharmacists,” she explains. “Even where the pharmacists are not embedded, we work very closely with them to determine value, close gaps, and measure return on investment, translating that into reduction in hospitalization and emergency room visits, using data to do predictive modeling for targeted interventions that drive value. Our pharmacists do case management for high-cost members.” Case managers can create value, helping patients navigate the system, bridging gaps, and ensuring that patients receive all the services they need to achieve the best possible outcomes. These goals are important to payers and providers alike, and payers’ real-world data can play a critical role when they work together with providers.

The health plan may have embedded pharmacists in partner provider groups, but a payer is always dependent on the individual provider’s view. The HMO pharmacist reminds us that, “What our providers have in front of them is a patient. In a lot of ways, they’re much better at bringing the patient perspective. They’re thinking about individual patient care and what could be a good outcome for that member. I believe that having an integrated system allows for a more bidirectional conversation between provider and payer.” A robust primary care system is critical to success because population management always comes down to the individual patient level. 

“In a manufacturing setting, you know that the ultimate customer defines value. What makes defining value complex from a payer perspective is that it isn’t always clear who is the ultimate customer.” —Megan McIntyre, PharmD, MHA

In HEOR terms, value is a ratio of cost to net clinical benefit. Provider and payer each have part of that picture and it takes a partnership to put the pieces together. “I think when the providers are looking at value, they really see the patient in front of them and they look at those circumstances,” Pistoresi explains. “They may not know the value from our perspective because they don’t necessarily know the cost. When we think about value, it’s cost divided by outcome. We may have a shared understanding of that outcome but we don’t have shared visibility of cost. It’s our duty to help guide providers to the most cost-effective option that has the appropriate health outcome.”

“That’s where I think value in healthcare gets complicated,” adds Daoud. “We are trying to solve the complex puzzle of cost management, while driving quality improvement and figuring out how to contract with the provider using value-based payment models. The health plan has a goal of improving its quality outcomes. The provider has a goal of taking care of their members but also staying financially sound so they can continue to take care of those members. That’s where integration between health plan and care delivery is so crucial.”

Employers pay for over half the insured members in the United States. In 2021, they covered 179 million lives (54.7%).⁵ Their knowledge of healthcare and attitudes toward coverage are very diverse. Some, particularly in industries with tight margins, seek low plan cost. Others use rich benefits to recruit and retain top talent. A few have in-house medical directors, pharmacists, and staff and may operate their own plans, bypassing traditional payers and hiring a PBM to assist with the pharmacy benefit. All are feeling the pinch of rising costs and finding their options limited by looming unaffordability.

COVID has brought a new attention to benefits. Companies want to make sure their employees are taken care of and that benefits are equitable. Along with traditional health benefits, there is more attention on wellness, prevention, emotional health, and other factors that impact health. Employers are looking for ways to reduce cost and improve quality without negatively impacting the employee experience. Care coordination and navigation can create a seamless experience that guides members to providers and services that will optimize their care. 

Advised by consultants, employers may carve out separate benefits, selecting a different vendor for each piece. While this may appear logical, it works against holistic population management. Fragmentation is already a serious problem in healthcare; more integration, not separation, is needed. Payers can address this by offering integrated benefit packages that include these specialized vendors in a seamless whole. Employers that want to do the right thing urgently need value explanations that a layperson can understand. Many want to see employer perspective analyses that include productivity, absenteeism, and presenteeism. Early loss from the workforce due to disability takes away skilled mid-level associates. In addition to recruitment and replacement costs, retiring employees take valuable institutional knowledge with them.

Megan McIntyre, PharmD, MHA, vice-president, Pharmacy and Strategic Programs at Premera Blue Cross, brings a different perspective, having assumed her present role after many years of experience in a large health system. “In a health system, the patient was at the top of our strategic plan and that focus was always so visible,” she remembers. “You knew who they were. You could see them. You were one or two hand touches away, so there was a lot closer connection. That showed up in the way we made decisions. You think about value as defined by the patient.” That aligns with the perspectives of pharmacists that have been in the payer world much longer, including my own. We share a common member-centric vision, supported by the Affordable Care Act, which was designed to align payer and provider incentives. In the environment it created, we need each other more than ever.

McIntyre uses her Lean (Kaizen) training to analyze the problem. “ you know that the ultimate customer defines value. What makes defining value complex from a payer perspective is that it isn’t always clear who is the ultimate customer. It could be the purchaser, which in some cases is the patient or an enrollee purchasing coverage for the patient. It could be an employer, and the way they define value is going to be different. An employer might think about value as stretching scarce resources or as opportunity cost trade-off—what they pay for health benefits taking funds away from an IT upgrade or some other business opportunity. Tradeoffs exist at many different levels. An employer might also view value in recruitment or retention strategies for skilled employees. Employers may be thinking about value through different frameworks. ‘What benefits do we cover?’”

Quality is an important emphasis in managed Medicare programs, where the regulatory environment is structured to emphasize it. “It’s weighted differently,” McIntyre notes. “There’s a lot more of the clinical quality outcomes tied to CMS incentives. It brings in more of the managed care whole patient total cost of care perspective, because the incentives are aligned around that.” Medicare’s use of CAHPs scores gives weight to the patient experience, a very important part of healthcare, balancing service versus efficiency and economic value.

An important goal of the multistakeholder conversation is to define common interests and goals. To achieve that, stakeholders must broaden their perspectives. Providers tend to focus on the patient level, whereas payers’ perspectives are usually more aggregate. “I certainly had that sort of framework at times,” McIntyre recalls, “I think that’s one of the differences that exist.” Since moving to Premera, she has diversified her reading list. “I think the ISPOR value ‘flower’ is really interesting.⁶ It starts to go a different way. What I liked about it is that it tried to make other dimensions of value more objective. As payers, we have a more objective mathematical view of value. We look at health benefits, costs, and outcomes. Other things matter to patients, like the value of hope.” Hope is an important element of the provider-patient relationship, one traditionally overlooked by payers.

As the healthcare affordability problem increases, value-based prioritization decisions become more critical. Like their provider colleagues, payers recognize the importance of patients’ perspectives and experience. Robust dialogues with these stakeholders are critical, but payers do not usually have the resources to do much of this. Organizations such as ICER are helping fill the gap, and payers should ask manufacturers to share data from qualitative patient research. Over the next several years, artificial intelligence-based research methods will likely enrich our understanding of what patients are thinking and experiencing. ISPOR is also engaging in robust dialogue with patient representatives, and patient centricity will be the focus of Value & Outcomes Spotlight’s November/December issue.

Regardless of payer type and line of business, quality and value—not cost-cutting—are top of mind for payers. Although they must manage tight budgets, they are well aware that choosing the lowest cost option in the short run does not necessarily return the best value. To be successful, payers, providers, and other stakeholders must work together with focus on long-term results.

References

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2. Watkins JB. Health insurance and managed care. In Watkins JB, ed. Managed Care Pharmacy Practice. Bothell, WA: Managed Care Perspectives, LLC; 2022:23-26.

3. Institute for Clinical and Economic Research. Accessed May 9. 2023. https://icer.org/explore-our-research/assessments/.

4. Dartmouth Atlas Project. International Health Atlases. Accessed May 2, 2023. https://www.dartmouthatlas.org/international-health-atlases/

5. Congressional Research Service. US Health Care Coverage and Spending. Updated February 6, 2023. Accessed May 6, 2023. https://crsreports.congress.gov/

6. Lakdawalla DN, Doshi JA, Garrison LP, Phelps CE, Basu A, Danzon PM. Defining elements of value in health care—a health economics approach: an ISPOR Special Task Force Report [3]. Value Health. 2018;21(2):131-139.