What Medicare’s Value-Based Insurance Test Could Mean for Commercial Plans

A new test within the Medicare Advantage program will lower out-of-pocket costs for chronically ill patients who seek high-value services and providers. Supporters hope the project will lead to changes in federal law and become a template for all health plans with sizable cost-sharing, which have become the standard offering from employers and insurers.

But as health insurers eyeball the federal project, policy experts say it needs to have both carrots and sticks to lower unnecessary spending and improve people’s health. Lower out-of-pocket costs for care deemed to be high quality and clinically effective must be paired with increased cost-sharing for services that are viewed as wasteful or not as valuable.

This week, the CMS raised the curtain on its latest voluntary demonstration program, called the Medicare Advantage Value-Based Insurance Design Model. The project will start Jan. 1, 2017, and last for five years. It will not affect the traditional Medicare program. Interested Advantage plans in Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania and Tennessee can participate.

The point of value-based insurance design, commonly called VBID, is to steer patients with expensive chronic illness like heart disease and diabetes toward cost-effective healthcare services that have proven clinical benefits, as well as toward doctors and hospitals that consistently provide those services at a lower cost. Employers and insurers incentivize employees and members by waiving or reducing patients’ copayments, coinsurance and other out-of-pocket costs for certain procedures, services, prescription drugs or networks.

In the Medicare Advantage experiment, VBID plans can also lower cost-sharing for members who participate in disease-management programs, or provide full coverage for “supplemental benefits,” such as nonemergency transportation to primary-care visits or tobacco-cessation programs.

A popular example where VBID could be used is the diabetic patient. Instead of that patient paying for a doctor-recommended eye exam, an angiotensin-converting-enzyme (ACE) inhibitor or insulin completely out of pocket, the health insurer can lower or eliminate the patient’s cost-sharing through a tailored benefit plan. The patient is more likely to get diabetes services or drugs if he or she can more easily afford it, or if it’s free. And research suggests a patient with chronic conditions may avoid costly interventions, such as a hospital admission or a trip to the emergency department, if he or she adheres to care plans.

Only Medicare Advantage members who have diabetes, congestive heart failure, chronic obstructive pulmonary disease, a history of stroke, hypertension, coronary artery disease or mood disorders are eligible for inclusion in the model.

VBID advocates say the strategy builds “clinical nuance” into health plans, especially high-deductible plans, which have strained the budgets of many lower-income people and families. It also better aligns patients with their physicians, who are increasingly paid based on how well they take care of people.

“Clinicians are now being benchmarked on the quality of care,” said Dr. Mark Fendrick, director and co-founder of the University of Michigan Center for Value-Based Insurance Design, the group that led the push for the new CMS experiment. “They’d be much happier to have their patients pay less out of pocket to have those services done.”

Fendrick added, “It’s been a great boon to us to basically say to providers, ‘You’re going to be benchmarked on how many diabetic eye exams you’re going to do.’ So shouldn’t we make it easier for patients to get eye exams? This is a no-brainer to me.”

Some physicians share in his optimism so far. Dr. Joseph Vasile, CEO of the Greater Rochester Independent Practice Association, part of Rochester (N.Y.) General Health System, said VBID plans could prompt Medicare patients to ask more questions about their care and become more engaged in what happens after they leave the doctor’s office. “I see this as a positive,” Vasile said.

Many self-insured employers and insurers have tinkered with VBID in commercial plans for several years. Shipping company Pitney Bowes instituted a value-based insurance plan with reduced cost-sharing for asthma and diabetes drugs. Several self-insured public-employee health plans have concocted similar designs. Aetna has a value-based plan for prescription drugs, and UnitedHealthcare has a specific diabetes health-plan product that lowers out-of-pocket payments for diabetic or pre-diabetic members.

Fendrick and his colleagues have called for VBID in Medicare Advantage for several years, and it won legislative support from both sides of the aisle in Congress. Rep. Diane Black (R-Tenn.) embraced the new project, which is being run through the CMS Innovation Center, a byproduct of the Affordable Care Act.

Black voted multiple times to repeal the ACA and said the law “is built on a grand deception.” Nevertheless, Black said in a statement, “VBID holds the potential to vastly improve delivery of care and will allow providers to lower costs for certain high-value services and treatments that are clinically proven to promote better health outcomes.”

Paul Ginsburg, a professor of health policy and management at the University of Southern California, said there is some cost-sharing in Medicare Advantage plans which could provide savings for beneficiaries. But there “may not be as big of an opportunity as commercial high-deductible plans,” he said.

However, commercial products are Fendrick’s next target. Federal regulations require all enrollees in high-deductible health plans and health savings accounts to fully pay for their prescriptions and treatments until they meet their deductible. The exception is preventive screenings, which now receive first-dollar coverage under the ACA. However, services that treat “an existing illness, injury or condition,” including chronic diseases, have to be paid by patients.

“Let’s not stop that arbitrarily at primary prevention,” said Dr. Joe Smith, chief medical officer of the West Health Institute, a not-for-profit research group that supports value-based insurance designs. “Once you have a disease and we know what secondary prevention can offer, we know the value is really high. We have to make sure you’re not disincentivized to get it.”

Fendrick hopes President Barack Obama’s administration will permit more tests of the “clinically nuanced” cost-sharing in high-deductible plans—some of the most frequently selected ACA exchange products because of their low premiums—and eventually expand the federal rules.

“While patients in those plans are insured, they often don’t have adequate coverage for these high-value services because of the high deductibles and other out-of-pocket costs,” Fendrick said.

An important detail in the federal VBID model is that Advantage members will not lose any benefits or have to pay higher cost-sharing for any services. Insurers can only add benefits or reduce out-of-pocket costs.

That means patients can still access potentially overused or wasteful services for the same prices. Experts believe successful VBID plans need to encourage the use of clinically preferred drugs, tests and treatments, but also discourage overused services that may be unnecessary or actually harmful. The physician-led Choosing Wisely campaign has highlighted a multitude of procedures and services that are viewed as wasteful.

But in Medicare, raising beneficiary costs for any service is a political hot potato. “I think in an ideal world, you’d have the flexibility to do both,” said Amanda Starc, a health economist at the University of Pennsylvania. “I don’t think you’d have much disagreement about that, other than politically.”

Paul von Ebers, former CEO of Blue Cross and Blue Shield of North Dakota who is now a consultant, said many insurers that have experimented with VBID in their commercial plans will likely consider participation in the new Medicare demonstration. Value-based benefit designs mean insurers have to pay more costs than plan members, but companies may view the long-term benefits as a valuable trade-off.

“If people get the right care at the right time, they’re going to be in a more stable state of their disease, and it’ll cost the health plan less,” von Ebers said.

Indeed, the country’s largest Medicare Advantage insurer has already signaled its interest in the new federal pilot program. UnitedHealthcare, the health insurance subsidiary of UnitedHealth Group, operates Medicare plans in each of the seven demonstration states and has 3.5 million Advantage members nationally.

Dr. Sam Ho, chief medical officer of UnitedHealthcare, said the company is “definitely excited about pursuing this opportunity.” The company is reviewing its options.

But interested insurers may encounter some hurdles. Dr. Randy Krakauer, Aetna’s former chief medical officer for Medicare plans who retired this year, said administering benefits that vary for different patients could be burdensome on the back end.

“Sometimes systems weren’t designed for that purpose,” Krakauer said. “It could be a challenge.”

Ginsburg believes Medicare shouldn’t have made the demonstration last so long because private Medicare insurers have the flexibility to experiment with value-based insurance design. “For them to be lowering cost-sharing for potentially high-value services—what’s the risk?” he said. “If they don’t save money, they’ll feel it, and they’ll adjust to it.”

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