Publications
Benfield Business-Health Leadership
Interview with Jack Mahoney
Value-Based Benefit Design: The Good, the Not So Bad and the Ugly
by Scott Thompson
President, Health Care Practice
The Benfield Group, LLC
VBBD Pioneer Jack Mahoney Shares His Leadership Observations on the Movement
During a distinguished career spanning government, medicine and several large employers, Jack Mahoney, M.D., has earned a reputation for thoughtful, innovative leadership. Jack solidified his reputation when he oversaw the design and implementation of Pitney Bowes’ value-based benefit design (VBBD) as the company’s Corporate Medical Director. After Pitney Bowes moved preferred and nonpreferred asthma, diabetes and hypertension drugs to the lowest level of its tiered formulary, total costs associated with those three conditions decreased.
Jack currently serves as Consultant for Strategic Health Initiatives at Pitney Bowes; Chief Medical Officer at the Florida Health Care Coalition; and Chief Medical Officer for the Center for Health Value Innovation.
Jack recently spoke with Scott Thompson of The Benfield Group about VBBD and business health leadership.
The Good
Scott: When did you realize that you and your team at Pitney Bowes had the opportunity to have an impact on the health and productivity of your employees?
Jack: The very first time I met CEO Michael Critelli when Pitney was recruiting me to work there. Like most employer executives, he cared about health care savings, but I could tell from our conversation that he cared more about the health of Pitney’s population. Even back in the '90s, he understood the importance of and was dedicated to improving the health of our employees.
Scott: You rolled out the Pitney Bowes VBBD initiative in 2002. Looking back, what surprised you most about the discovery of value-based benefit design?
Jack: Our thinking stemmed from the RAND health insurance experiment which found that increasing an individual’s cost share can cause him or her to decrease overall effective and noneffective utilization. What we struggled with at Pitney was how to increase effective utilization and still have a cost-efficient plan. In retrospect, it seems kind of obvious that the combination of disease management and removing financial barriers could give us what we were looking for.
Scott: What was your biggest leadership challenge in the early days of your new approach to remove towering financial barriers to care?
Jack: Changing the mindset of the people who worked in the area, whether it was the PBM or Pitney’s administration folks. Internally, there was some skepticism if VBBD was really going to work, but we overcame that with scientific evidence from the predictive modeling we conducted. The biggest challenge was really the implementation. How do you get your vendors to go along with the new model? Frankly, the PBM was quite cooperative, but they had their doubts. We didn’t have to deal with any of the managed care plans when Pitney rolled out VBBD because we had totally carved out our pharmacy.
Scott: What did you learn about organizational change and the C-suite when Pitney implemented VBBD?
Jack: One of the keys is to use the right language when you’re presenting. We were talking about lowering trend rates and the chief operations officer said, 'Trend rates don’t mean anything to business people, but if you talk about the compound annual growth rate (CAGR) they’ll understand.’ As soon as I started presenting the proposal in CAGRs, everybody said 'Oh yeah, we know what that is.’
A lot of people make the same mistake talking about savings. The C-suite is very skeptical about “savings,” but they get “cost avoidance.” They translate cost avoidance to additional dollars that flow to the bottom line.
An extension of using the right language is using a basic denominator that people understand quickly. For instance, if you translate everything into cost per share or potential upside per share for the finance people, then you know they’re automatically playing with those numbers in their heads to figure out the impact on share price.
When you’re proposing new ideas, the C-suite looks for the depth of your commitment to your idea. One of the things my team did early in the VBBD experiment was claim accountability for the project and own whatever impact the design had on the health care budget. And we used the impact on the budget as one of the metrics for our performance appraisal at the end of the year. While accountability doesn’t guarantee success, it certainly shows that you are committed.
Scott: How did the external VBBD movement begin and did you have a sense of what Pitney Bowes had started at that point in time?
Jack: Not really. We knew what was going on, but never thought of it as anything all that noteworthy. The Wall Street Journal thought differently. After they published an article about the VBBD model in 2004, Mark Fendrick from the University of Michigan contacted us to say he had been writing about the value-based design concept for years. We shared information and the movement went from there.
Scott: Based on your observations, would you do anything differently if you had to roll out the Pitney value-based design all over again?
Jack: Several things. At the time, we thought we were solving a business problem and saw VBBD as a way to make our chronic disease management program work. The Achilles’ heel of the Pitney model is no control group. It never occurred to us that the new model would be a health services experiment. Thinking it over again, I’d put in a control group, and I’ve encouraged others to do so as they start their programs.
I’d also keep better control of the information. A lot of people don’t understand that VBBD didn’t entail just looking at the claims reports and making a decision. The value-based design was really the result of a very rigorous application of predictive modeling.
Scott: What advice would you give other business health leaders about VBBD?
Jack: The first piece of advice is get your data together. Understand what’s really happening in your population. The second piece is figure out what your intervention might be. Figure out how to measure your progress and maintain accountability.
Do the ground work first and then look at the change process. Change is a lot easier when you’re moving in a direction that fits a need within the population. Then you’re facilitating what people should do, not trying to induce something that’s contrary to what people want to do.
The Not So Bad
Scott: No matter how great a plan you have as a leader, not everything goes as planned. What was your biggest surprise when Pitney went forward with VBBD?
Jack: One big surprise was the number of concerns about how the people who did not benefit from the value-based design would react to others receiving cheaper medication. Would they be outraged that the person at the next desk was enjoying an advantage? That outrage never materialized. I’ve talked to a lot of people who’ve implemented VBBD, and though there are allegations about lawsuits or controversy, I can’t find any concrete evidence to verify those rumors.
Scott: What insider observations can you share about the biggest challenges you face in the early, middle and later stages of VBBD?
Jack: The biggest challenge at the beginning was coming face-to-face with the financial trade-offs in the model and trying to balance the loss of rebates, co-payments and co-payment revenue with the expected outcome of improved financial performance. What worked for us was relying on the predictive model.
In the middle stages, the challenge was just keeping a lid on the thing. There was an urge to tinker with the model. My approach has always been methodical. First, you identify a need and then move to fill it. Making changes to the model was not something we could rush into.
A common suggestion was to limit the discounts to the people who are compliant. So if people don’t show up to a monthly disease management meeting, for instance, the drugs go back to the regular payment schedule. My thought is that VBBD has to be a public health model. It can’t be discriminatory about eligibility other than diagnosis.
The challenge now is to validate VBBD. There are still many people who think VBBD is a lot of smoke and mirrors. I can understand the skepticism if you look at just one company’s results. But as VBBD gets more mature and more companies implement designs, the data for what happens are consistent.
Scott: Why do you think there’s so much skepticism about VBBD?
Jack: People may be used to research conducted by double-blind randomized controlled trials or pure health economic or cost-effectiveness research. But the employer world is more experiential and decisions have to be made very quickly. You also have to live with the rules of the road for dealing with employees; you can’t really put people into randomized double-blind studies in the employer world.
Unfamiliarity with VBBD may be limiting its exposure outside the employer health care market. Frankly, the policymakers in Washington, D.C. haven’t embraced the concept. I don’t think they disbelieve VBBD. It’s just outside of their normal experience.
Scott: What do you recommend business health leaders look out for when implementing VBBD?
Jack: Don’t break a promise. Don’t think you’ve got the silver bullet. Don’t ignore other avenues to get to your goal. Think about what you want to achieve. It could be that you can reach your goal simply by communication, a disease management program or an education program. You may not have to go down the total value-based route.
The Personal Side of Dr. Mahoney
Scott: Clearly, the work you did to develop and pursue your ideas about health and health management didn’t happen in a 40-hour work week. It was extracurricular work. What drove you to invest so heavily in pursuing your ideas?
Jack: Intellectual curiosity! I am very interested in what causes people to think they are sick and what they do to seek care for their condition. My curiosity is less about the mechanics of medicine and more about the behavior of health and the behavioral cause and effect. I find these issues to be very interesting problems to solve.
Scott: Are there people you credit for providing you with critical insights, direction or inspiration in your career?
Jack: My time at UCLA, during my Master of Public Health program, was just magical. My advisors and professors were very influential in developing my public health perspective. They restructured my view of medicine. I had been practicing the one-to-one model I learned in medical school, but they taught me what it takes to influence an entire population about health.
The Ugly
Scott: Are there any things related to VBBD that you wish hadn’t happened? Is there a direction people may be heading that is not productive, maybe even dangerous?
Jack: Frankly, what surprises me is the number of people that have put in a value-based design simply based on what they’ve seen in presentations or studies. There’s been a spiral of implementation. I chalk that up to people realizing VBBD isn’t rocket science. When they think the concept through, they see it makes sense and begin to proceed down the pathway.
There is a significant downside to the spiral of VBBD. Many implementers don’t base their decision on data or experience, but on what they have heard externally. I’ve seen some adoption that makes you wonder if the implementers will be able to demonstrate effectiveness. Poorly designed plans call into question the whole concept. VBBD is still in its infancy. It’s still a fragile item and could easily be overwritten by health care reform. For all those reasons, VBBD needs to be treated very carefully in every single implementation to make sure that it’s sensible.
I’m also very concerned about the tendency to dismiss disease management and say it’s not effective. This trend may have a deleterious effect. VBBD doesn’t occur in a vacuum. Pitney Bowes offered its VBBD plan in conjunction with disease management and wellness programs. By dismissing DM you may be dismissing VBBD too or dampening entities’ enthusiasm to really attack chronic disease.
Scott: Do you have any commentary on the different type of VBBD plans employers and health plans have implemented?
Jack: The subject is really how so many people have interpreted the term “value-based” so differently. There are very different definitions out there. For some, value means generic only. For others, it’s the cheapest possible formulary. Pitney Bowes’ intent was a formulary that was going to synergize or promote an improved health experience.
Scott: As VBBD adoption increases, do you get a sense for what makes one organization more likely to succeed than another?
Jack: I think success is more likely when the people involved are clinically oriented and risk takers.
Scott: Any predictions for the future? Are there any ideas or thoughts in terms of where VBBD is heading?
Jack: There are some additional studies in the pipeline. Those will be released within the next year and hopefully that will begin to sway the discussion on the validity of VBBD.
Scott: Any final thoughts?
Jack: Don’t forget that timing matters when you bring new ideas forward. In an economic down cycle, the C-suite is looking at expenses quite a bit more. You might have to frame your approach differently.