Medicare’s value-based insurance design pilot project could pave the way for wider implementation

Using Medicare Advantage’s Value-Based Insurance Design (VBID) model, the Centers for Medicare and Medicaid Services (CMS) is currently testing a wide range of innovations designed to reduce Medicare program expenditures, improve the quality of health care for Medicare beneficiaries and improving the coordination and efficiency of health service delivery.

Overall, the VBID model is intended to help modernize the way Medicare Advantage* plans specifically manage drug benefits. Additionally, the model aims to improve health outcomes and reduce out-of-pocket expenses for Medicare beneficiaries.

Reinforcing experimentation already underway at CMS, last month President Biden issued an executive order on “reducing prescription drug costs for Americans.” Specifically, the order states that the Center for Innovation selects to test new health care payment and delivery models aimed at reducing prescription drug costs while promoting access to “innovative drug therapies.” for beneficiaries enrolled in the Medicare and Medicaid programs.

Housed within the Department of Health and Human Services, the Center for Medicare and Medicaid Innovation (“Innovation Center”) has extensive experience in piloting new ways to pay and deliver health care.

Together, the VBID model and the Executive Order serve to stimulate the use of value-based payment agreements.

Traditionally, VBID refers to the efforts of health insurers to structure the sharing of costs with patients and the use of other formulary management tools in such a way as to encourage enrollees to use the services that are most valuable to them, c ie those that patients can benefit the most from.

Unlike a “one-size-fits-all” cost-sharing approach, VBID aligns cost-sharing (e.g., differential prioritization of co-payments on a formulary) with the clinical benefit of a drug or medical service and not strictly the cost. For example, a high-value drug, such as an antiretroviral drug for HIV, would have nominal cost or no cost-sharing, while a relatively low-value health care service with questionable benefits, such as treatment prostate cancer screening in men over 70 would result in higher cost sharing for patients.

Professor Mark Fendrick, director of the Center for Value-Based Insurance Design at the University of Michigan, is the founding father, if you will, of VBID. Along with other original funders, Fendrick envisioned a clinical evidence-based method that would pave the way for widespread use of value-based form design in the health insurer space.

Among commercial insurers, VBID has not yet become commonplace. However, where VBID has been applied, reducing financial and other barriers to high-value medical interventions has demonstrated improved medication adherence and reduced healthcare costs.

The pilot of the Medicare Advantage plan – the VBID model – could spark a renaissance of VBID in the private and public insurance markets.

In 2022, the VBID model has 34 participating Medicare Advantage plans with a total of 7.8 million beneficiaries enrolled in participating plan benefit packages. And, of the 7.8 million, about 3.7 million receive additional benefits and incentives from the VBID model.

Undoubtedly, VBID would be an improvement over the current system in which the positioning of a drug on the formulary (designation of a cost-sharing tier) and clinical value are generally not correlated. Similarly, in the current formulary management system, there is not necessarily evidence-based use of reimbursement conditions that often apply when a drug is covered, such as prior authorization and step therapy. Prior authorization refers to a requirement by health insurers for patients to obtain approval for a drug before it is prescribed and dispensed. This allows the scheme to assess whether the drug is ‘medically necessary’. Step therapy is often used in conjunction with prior authorization. This refers to when a patient must first fail a recommended treatment before “switching on” to a more expensive treatment.

While these form management tools may contain costs, measures such as step therapy can significantly limit patient access to certain medically necessary treatments. Moreover, these restrictions are often based on cost, not value.

US lawmakers are drafting legislation to limit the use of prior authorization and step therapy. For example, the Massachusetts state legislature is implementing step therapy safeguards. At the end of July this year, the Massachusetts House of Representatives passed H.4929, “An Act Relating to Step Therapy and Patient Safety.” Governor Baker recently signed the bill into law.

While these are noble efforts to remove barriers to access, these laws represent roundabout ways of solving a problem that could be solved more effectively through the implementation of values-based concepts, such as the VBID.

If public (Medicare and Medicaid) and commercial payers conducted systematic assessments of the value of drugs, allocating the most valuable to the lowest cost-sharing levels with fewer restrictions, there might be less need to take cost containment measures such as step therapy to reduce usage.

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