EBRI Issue Brief

Value-Based Pricing for Hospital Outpatient Services: A Demonstration That Merges Cost-Effectiveness Analysis with Real-World Cost Data

Nov 21, 2024 , 21 pages

Summary

Employers have been trying to manage the cost of providing health coverage for decades. Attempted cost control measures include a combination of plan design and cost-sharing changes that affect how much enrollees pay out-of-pocket for health care services and other structural changes to the delivery of health care more generally. Yet, in most years since 1988, the cost of providing health benefits to employees and their dependents has increased more than overall inflation.

One tool that can be used to inform the value of money for health care is “value assessment,” which is a form of economic evaluation that compares estimates of an intervention’s costs with its projected health benefits. However, value assessments tend to be focused on prescription drugs rather than other outpatient health care services. This is true even though prescription drug spending accounted for between 9 percent and 15 percent of U.S. health spending in 2022, while inpatient and outpatient services accounted for between 50 percent and 70 percent of health spending. More generation of evidence on the clinical effects of inpatient and outpatient services — particularly those representing a large share of employer spending — could be of value to employers.

The purpose of this Issue Brief is to offer a demonstration of how employers can use value assessments to compare prices paid for value of hospital outpatient department (HOPD)-provided services relative to the cost paid by comparing published cost-effectiveness analysis (CEA) estimates with real-world cost data. We use the quality-adjusted life year (QALY) and the incremental cost-effectiveness ratio (ICER) in our analysis. The QALY is a measure that integrates the quantity of life in years with the quality of that time in terms of health status. The ICER measures the QALYs gained from the additional costs incurred using the treatment compared with “treatment as usual” (or an alternative intervention). Finally, in CEA, the ICER is routinely assessed according to society’s willingness to pay for a QALY. Value-based prices can be derived using these metrics.

Key Findings:

If spending on a health care service is below a value-based price, then one might consider that price to be worthwhile (or “a good deal”) given society’s willingness to pay for a QALY. If spending is above the value-based price, then one would conclude that the payer is overpaying for the service. It can be argued that a single number cannot adequately capture a society’s willingness to pay for a QALY due to variations in values, assumptions, inferences, and contexts. Despite this challenge, we present our results with respect to a value-based price at the $100,000-per-QALY threshold, since researchers have been gravitating toward this level. We also compare the value-based price with median spending. Our findings are mixed as to whether the value-based price is above or below median spending. Readers interested in the distribution of health care spending and other value-based prices are encouraged to examine the appendix.
In all three carotid artery stenosis screenings, the service was worthwhile at the median allowed amount, as the value-based price was above it.
For both arthroscopic partial meniscectomy services, the value-based price was below the median allowed amount. As a result, payers may have overpaid for these procedures.
For low-back-pain imaging, we combined CT scans and MRIs. Median spending was determined to be below the value-based price, suggesting that payers may not have overpaid for these services.
Median spending for septoplasty for a deviated septum was considerably higher than the value-based price.
Regarding sleep studies, we examined full-night and split-night studies. We found that median spending was below the value-based price, suggesting that payers may not have overpaid for these diagnostic tests.

Findings from this study, and from the field of value assessments more broadly, should be of importance to both sponsors of health benefits and policymakers. While plan sponsors prefer to offer generous health insurance to recruit and retain workers, they have limited resources and must manage costs accordingly. Greater generation of evidence on the clinical and cost effectiveness of health services that represent the largest share of spending can improve plan coverage decision making. Today, evidence on value assessments of most services representing significant costs to employers is lacking. The current evidence that is available suggests that many employers may be overpaying for services relative to the “cost effective” price.

This study was conducted through the EBRI Center for Research on Health Benefits Innovation (EBRI CRHBI), with the funding support of the following organizations: Aon, Blue Cross Blue Shield Association, JP Morgan Chase, and PhRMA.