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Study Identifies Unexpected Contributor to Rising Health Costs: Low-Cost Services

Since its inception in 2005, the University of Michigan Center for Value-Based Insurance Design (V-BID) has led efforts to promote the development, implementation, and evaluation of innovative health benefit designs balancing cost and quality. A multidisciplinary team of faculty, including A. Mark Fendrick, MD and Michael E. Chernew, PhD, who first published and named the VBID concept, have guided this approach from early principles to widespread adoption in the private and public sectors. The Center has played a key role in the inclusion of VBID in national healthcare reform legislation, as well as in numerous state initiatives. The basic VBID premise is to align patients' out-of-pocket costs, such as copayments, with the value obtained from health services and providers.
This article was collaboratively written by A. Mark Fendrick, MD, director of the Center for Value-Based Insurance Design (V-BID), and several V-BID Center staff. 

As the US healthcare system searches for ways to cut costs while improving quality, new research published in the October 2017 issue of Health Affairs indicates that addressing low-cost, low-value services may go a long way toward reducing overall health care expenditures.1 The article, titled “Low-Cost, High-Volume Health Services Contribute the Most to Unnecessary Health Spending,” was co-authored by Value-Based Insurance Design Center Director A. Mark Fendrick, MD, and detailed a UCLA-led study that investigated the financial impact of 44 low-value health services in the Commonwealth of Virginia.

The researchers found that the state spent more than $586 million on unnecessary healthcare in 2014, and low-cost services accounted for nearly two-thirds of this amount. As pointed out by the authors, “The cost distribution of low-value care should have important implications for policy makers, healthcare systems, and clinicians struggling to find better ways to reduce unnecessary costs without disappointing patients, disrupting practice norms, or reducing the quality of or access to care.”

One way to improve healthcare quality and efficiency and reduce the use of unnecessary care is to apply the principles of value-based insurance design (VBID), which aligns patients’ out-of-pocket costs with the value of services. Evidence has shown that reducing cost-sharing for high-value services—services with strong evidence of clinical benefit—encourages their use. Similarly, increasing cost-sharing for low-value services can reduce utilization, thereby ensuring more effective care and achieving net cost savings.

However, there are challenges in defining what is meant by “low-value services” and implementing programs to restrict the use of such services. In addition, systematically reducing low-value care has not been perceived as a high priority by clinicians and administrators. An essential first step is determining where there is consensus on defining and measuring low-value care.1 Investments in processes to define low-value care, comparative effectiveness research to identify services that produce harm or marginal clinical benefit, and information technology to implement findings can facilitate meaningful change in the approach to low-value care and support the application of VBID.

To learn more, view the infographic below and visit the V-BID Center Low-Value Care Initiative page.

1. Beaudin-Seiler B, Ciarametaro M, Dubois R, Lee J and Fendrick AM (2016). “Reducing Low Value Care.” Health Affairs Blog.

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