In U.S. healthcare experiment, patients pay more for 'bad' medicine NEW YORK (Reuters) - When Tanner Martin, 17, developed excruciating back pain last year, he was sure he needed an X-ray to find out what was wrong. So was his mother, who worried that the pain might indicate a serious injury that could cause permanent disability. But Konnie Martin was no ordinary parent. As chief executive officer of San Luis Valley Regional Medical Center in Alamosa, Colorado, she is at the center of an experiment, known as value-based insurance, that could transform American healthcare. One of the central features of a value-based system is a financial "stick." If patients insist on medical procedures that science shows to be ineffective or unnecessary, they'll have to pay for all or most of the cost. In Tanner's case, when he and his mother went to the medical center, they were invited to watch a short video first. The best approach to back pain like Tanner's, it explained, is stretching, strength-building and physical therapy; X-rays and MRIs, according to rigorous studies, are unlikely to make a difference. If they insisted on the X-ray, they would have to pay $300 on top of the basic cost. They passed on the imaging, knowing they could change their minds if Tanner's condition worsened. After three weeks of therapy, his back was as good as new. "My assumption was that a back injury was always severe, needing intervention," Martin said. I was very misinformed about the need for imaging. The additional cost when patients choose procedures that research shows are unlikely to help their condition is a key element of San Luis Valley's two-year experiment in value-based insurance, the premise of which is that a mix of financial carrots and sticks can steer patients toward medical services that will help them and away from ineffective or unnecessary ones. Healthcare policy wonks have been studying value-based insurance for a decade. For some consumer groups, the concept raises concerns over whether it will deter people from treatment when certain procedures are needed. But the idea has gained momentum since the passage of President Barack Obama's healthcare reform law, which includes provisions to control healthcare spending that now tops $2.7 trillion a year in the United States. About one-third of that is attributed to wasteful or ineffective care. Among the provisions is one that allows state Medicaid programs to adopt value-based designs, as two, in Michigan and South Carolina, have. At least one private insurance plan sold in an "Obamacare" marketplace has done so as well. In addition, Obama's Affordable Care Act encourages doctors and hospitals to form Accountable Care Organizations (ACOs), which are paid more under the Medicare program for older Americans if they control costs while also providing quality care. Some 4 million Medicare enrollees are now in one of the nation's nearly 500 ACOs, and private insurance plans are adopting them as well. Medicare now penalizes hospitals if a patient is re-admitted for the same condition within 30 days. Advocates of value-based insurance say that while focusing on the "supply side" - hospitals and doctors - is a good start, healthcare spending reforms must also involve the "demand" side: patients. "A belief that supply-side-only programs will be the answer to all our problems is crazy," said Dr. Mark Fendrick, director of the University of Michigan's Center for Value-Based Insurance Design and professor of internal medicine. For one thing, they say, patients who know they're on the hook for care that won't benefit them are less likely to badger their providers. "If someone goes to the doctor and really wants antibiotics for a cold or an MRI for back pain, it can take more time to talk him out of it than to order it," said Dr. David Downs, medical director of Engaged Public, the Denver research and consulting firm that designed the San Luis Valley study. Starting in 2014, Engaged Public will scrutinize the two years of data from San Luis Valley to see what effects the novel plan had on healthcare costs and outcomes. The success of value-based insurance's disincentives is far from assured and has some worried over the extent to which procedures would be considered off-limits. "We have reservations about financial obstacles that might keep patients from getting care they need," said Joyce Dubow, senior healthcare reform director at AARP, the research and lobbying group formerly known as the American Association of Retired Persons. AARP is a partner in Choosing Wisely, a program in which medical specialty groups identify procedures - more than 200 so far - that do not benefit patients, according to rigorous scientific evidence. The list is a benchmark for discouraged procedures in value-based insurance plans. "We don't want people getting medical procedures they don't need," Dubow said, "but we don't see Choosing Wisely as a vehicle for benefit design. Many of the items on the list are equivocal and not 'never' procedures. Proponents say they do not impose financial disincentives when the benefits of a procedure are subject to debate, as is the case with screening mammograms. And doctors can use their judgment on when a procedure makes sense. While CT imaging for an uncomplicated headache is not necessary, says the American College of Radiology, it can be used for patients with particular medical histories. Value-based insurance can also pose issues of perceived fairness. Employers have hesitated to introduce the program for fear that "employees will be upset if medical services they think they need come with additional costs, but their colleagues' (treatments) do not," said Downs, as when an X-ray for a broken leg is covered but one for back pain is not. The very idea that some diagnostic tests and treatments might not help patients comes as a shock to many Americans. The Choosing Wisely message is difficult to convey to the many patients who "think that when it comes to medical care newer is better and more is better," said Dr. Yul Ejnes of Brown University's Alpert Medical School. So when patients have more skin in the game (in terms of cost), they're more likely to ask, do I really need this? San Luis Valley Health is self-insured, and the experiment involves only its 725 covered employees and dependents. The experiment puts medical services in green and red "buckets." Green is for procedures that should be encouraged because they are cheap and effective, like vaccines. Red is for expensive ones that, research shows, are usually unnecessary, ineffective or even harmful. They include endoscopy for heartburn, surgery for enlarged prostate and the imaging tests that Konnie Martin's son declined. Engaged Public President Chris Adams had been turned down numerous times by insurers and employers who said consumers would not understand value-based designs with financial disincentives. "It's hard, educating people that there are unneeded, ineffective medical procedures," he said. In 2003, Adams tried to interest a small Colorado insurance company in offering policies that use financial carrots and sticks to steer patients to high-value care. "They said, you can't explain this to consumers," he recalled. A healthcare policy wonk would love it, but consumers won't understand it. The San Luis Valley experiment, which runs through the end of 2013, may indicate whether the idea's time has come. Two years ago, Lee Alsbaugh-LeSueur was taking a fistful of pills every day - anti-depressants, medication for sleep apnea, drugs for chronic pain. But with the decision aids that go with the red-bucket program, she learned about other options. Eating a healthier diet and exercising more helped her sleep better, which lifted her depression. "After 20 years as a nurse, I thought I knew everything," said Alsbaugh-LeSueur. But obviously, I don't. She tapered off the meds, which have side effects, is feeling better and is incurring lower medical costs. As additional provisions of Obamacare take hold starting in 2014, more patients are likely to have value-based plans, experts say. Under the 2010 law, employer-based insurance must cover at least 60 percent of medical costs. As a result, high-deductible policies, which have become very popular with employers because they require families to pay five-figure medical bills before insurance pays a penny, may well fall short, said analyst Sam Glick of management consultants Oliver Wyman, part of Marsh & McLennan. "Employers can't keep shifting costs, or they won't have a qualified health plan," he said, and that may push more to try value-based insurance. One appeal to employers: Value-based insurance design can be a scalpel, not a sledgehammer like high-deductible policies. With the latter, said Mike Thompson, a benefits expert at PricewaterhouseCoopers, "employees use fewer medical services, but many of these services are necessary. Value-based insurance design can get the incentives right. Obamacare also gives states more room to experiment with Medicaid, the joint federal-state healthcare program for the poor. Over the summer the administration issued a final rule allowing states to incorporate significantly more financial carrots and sticks in their Medicaid plans, and they can require patients to shoulder the highest co-pays for procedures on the Choosing Wisely lists, said Michigan's Fendrick. "Our goal," he said, "is enrolling every American in value-based insurance." Reporting by Sharon Begley; Editing by Michele Gershberg and Douglas Royalty