Consequences for Health Plans

Abstract

Abstract The generalized risk-adjusted cost-effectiveness (GRACE) model measures the value of medical interventions, not “prices” that health plans pay to providers. The question arises as to the effects of a health plan switching from cost-effectiveness analysis (CEA)-based to GRACE-based valuation as they implement “value-based pricing” plans. This chapter first explores some complications arising in the shift from “value” to “price.” It then proceeds with a series of sensitivity analyses showing the effect on a health plan’s aggregate budget (with the health plan’s own mix of treatments) using a variety of combinations of risk-preference parameters. These simulations show that health plans’ total estimated value (and hence budget, if using value-based pricing) can either rise or fall, depending on which combination of risk parameters are used. Because no estimates of these parameters currently exist, these simulations provide specific methods for estimating effects on total value of health care if shifting from CEA- to GRACE-based valuation systems.