In the past, incentives were a reactive approach to addressing participation in various health management programs. Today, incentives are the cornerstone of any engagement strategy.
Now the major question is how do we measure the effectiveness of health incentive programs? The health care community requires a common framework and methodology to measure effectiveness—regardless of the type of incentive program.
Traditionally, the focus of incentives— and the yardstick for their effectiveness— has been risk reduction. And while there is plenty of evidence that incentives can deliver meaningful risk reduction, this longer term approach misses a more comprehensive view that can marry immediate, intermediate, and long-term methods to maximize the benefits of incentives programs consistently over time.
The New Incentives ROI Strategy
Health care cost reduction strategies might be broken down into three categories: immediate return on investment (ROI), accepted ROI, and ROI over time. Although incentive programs have traditionally focused primarily on long-term risk reduction tactics that provide a return over time, a true engagement strategy aligns incentives across all three areas. There is little debate about what actions we want people to take to reduce cost in each of these areas. By aligning incentive spending to the actions in these different categories, we can accomplish several things:
Immediate ROI
Immediate ROI includes actions that directly and immediately impact the bottom line, such as switching to generic drugs when clinically appropriate, or for patients who are candidates, using minimally invasive procedures instead of open surgery. According to the Food and Drug Administration, switching to generic drugs provides a 50% to 70% savings over using name brand equivalents. And selection of minimally invasive, rather than open, surgeries for certain patients can translate into thousands of dollars saved. In one recent study, minimally invasive appendectomy and colectomy—both common procedures— were associated with fewer complications, shorter hospital stays, and lower expenditures compared to open techniques. For the colectomy, the average savings provided by minimally invasive procedures was $15,000 compared to open surgery. Currently, the vast majority of the industry is only thinking about this in terms of benefit plan design and formulary development, but if incentives that drive consumer behavior can be layered on top of those approaches, this can translate into immediate, and sometimes quite large, savings.
Example: One IncentOne client, a national pharmacy benefit manager, aligned its incentives program to stress generics as well as adherence to the plan’s formulary. By offering an incentive reward of $20 to drive members to opt for generics in specific drug classes, the company yielded an average cost savings of $68 per generic selection.
Accepted ROI
Health care consumers can take certain actions that have well-accepted benefits— both in terms of the individual’s health as well as in terms of delivering economic savings for the overall health care system. This category of “accepted ROI,” which provides both near, intermediate, and far term benefits, includes actions supported by evidence-based medicine, such as routine cancer screenings and adherence to medication regimens. Such actions can help avoid the expenses associated with the outpatient treatment of illness and with emergency room visits or hospitalizations. A 2007 study conducted in New York City found that, compared to waiting until age 65 for colon cancer screening, screening an average of 10 years earlier would save Medicare at least two dollars for every dollar spent on screening and early treatment, due to earlier detection and treatment of cancer. For medication adherence, in one study that analyzed the cost impact of adherence to medication for common conditions for patients covered by a benefit plan, high levels of adherence to medications for diabetes were associated with lower disease-related medical costs, despite the increased drug costs associated with high adherence: the net savings for a 20% increase in diabetes drug utilization was estimated to be $1,074 per patient and provide an average ROI of 7:1. Incentives can play a large role in making sure patients take many of the actions that fall under this “accepted ROI” category, especially, perhaps, for actions which may be perceived by patients to be a lower priority compared to acute care or even everyday obligations.
Example: A prominent Midwest university aligned incentives to various preventive measures, one of which being prostate cancer screenings. This year they identified three cases of early-stage prostate cancer, representing a potential cost savings. In a recent study that compared cost patterns of prostate cancer treatments in 4,553 newly diagnosed patients, treatment costs for prostate cancer were higher for those who were diagnosed as high risk (representing a later stage of their cancer) compared to those diagnosed at an earlier, low- or intermediate risk stage. For radical prostatectomy, the total cost of medication, hospitalization, and office visits was $32,795 for low-risk patients, versus $54,055 for high-risk patients, a difference of $21,260. These findings, showing that care of low-risk versus high-risk patients is less costly, were similar for radiation treatment and hormone therapy.
ROI Over Time
Traditionally the key focus of wellness programs, this category involves changing of health behaviors—including weight loss/body mass index (BMI) reduction, cholesterol reduction, and smoking cessation—with the expectation that these changes will pay off over time. There is evidence to back up this theory. In one recent study that evaluated the clinical efficacy and cost-effectiveness of a short-term (six-months) worksite cardiac health intervention, not only were significant health improvements achieved in terms of body fat reduction and improvements in cholesterol and blood pressure, but annual claim costs decreased an average of 48% for the 12 months after the intervention, while control costs remained unchanged (-16%)—a six-fold ROI. And, as one recent study looking at barriers to participation in a nutrition- and health-focused worksite wellness program has pointed out, the most commonly reported barrier to participation was insufficient incentives. Whether sponsored by the employer or insurer, incentives are undoubtedly a key part of making wellness programs work.
Example: A Fortune 100 global telecommunications client has a longstanding commitment to employee health and wellness, providing a rich health benefits plan while controlling its health care spending. As part of an effort to sustain momentum in what was an already effective program, the company opted to institute an even more robust incentive plan aligned to various risk reduction programs including nutrition, exercise and smoking cessation. The company saw an average cost of claims for participants in the program of $2,953 as compared to $3,830 for nonparticipants.
As incentive-program designers align incentive spending across immediate, intermediate, and longer term results, we maximize our ability produce both short-term and long-term cost savings and member engagement, while propelling programs toward even greater return over time.
Michael G. Dermer is CEO, president, and co-founder of IncentOne, a provider of integrated incentive solutions. Michael has written numerous articles and is a frequent speaker at health industry conferences, events. and associations including the Disease Management Association of America, the National Association of Manufacturers, and ERISA. He can be reached at 201-372-9250 or mdermer[at]incentone.com.