Value-Based Insurance Design and Medicare Part D – A Perfect Match?

Tanisha CarinoMedicare could immediately modernize its benefit structure by incorporating value-based insurance 
design (VBID) into the Part D program.  This benefit design tool maps directly to the new Administration’s goals of improving quality and preventing complications of illness—and, as I’ll point out, it can be implemented without any new legislation.

VBID abandons the traditional approach of uniformly applying cost sharing to health services regardless of their effect on a patient’s health.  Instead, VBID tailors cost sharing—so, the more clinically beneficial the service is to a patient, the lower that individual’s cost sharing for the service.  In some cases, employers such as Marriott and Pitney Bowes have actually eliminated cost sharing associated with diabetes medications and achieved positive cost and quality outcomes.

With more than 26 million enrollees, Medicare Part D is a large target for this type of innovative, quality-focused benefit design.  The 23% of Medicare beneficiaries who have five or more chronic conditions account for 68% of the program’s spending, and there is heavy reliance on medication to treat chronic illness.

A new report that I co-authored with my colleagues at Avalere Health and the University of Michigan Center for Value-Based Insurance Design surveys the Medicare Part D environment and proposes these five policy options for integrating VBID:

Option 1: Reduce cost sharing for specific drugs or drug classesOption 2: Exempt specific drugs or drug classes from 100% cost sharing in the coverage gapOption 3: Reduce cost sharing for enrollees with chronic conditionsOption 4: Reduce cost sharing for enrollees participating in medication therapy management programsOption 5: Reduce cost sharing for chronic condition special needs plans

In addition to laying out these options, we ranked them based on four factors, which will ultimately affect the speed and scope of implementation:  1) the potential size of the Medicare Part D population affected; 2) CMS’ authority to change policy within existing statute and regulation; 3) requirements for implementation; and 4) political support.  We conclude that options 1, 2, and 5 are all immediately doable within current policy, with option 1 (reducing cost sharing for specific drugs or drug classes) having the potential to reach the most Medicare lives.  

Efforts to control costs should not reduce quality of care, and this paper shows that in many cases, the Administration has the authority to act now, even without legislation.

While this paper did not attempt to model any potential savings to the Medicare program, we are working on a follow-up study that will shine more light on the implications of implementing VBID in Medicare. 

Tanisha Carino, Ph.D., Vice President , leads Avalere’s Center on Evidence-Based Medicine.  She directs the firm’s strategic work that assesses current policies to redefine the clinical research enterprise, including investments in comparative effectiveness research.  A frequent contributor to health policy journals, Tanisha also focuses on the evolution of public and private payers’ use of evidence for formulating coverage and reimbursement decisions, and trends in quality improvement initiatives, specializing in the Medicare program.

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  1. The future of better healthcare in the U.S. will depend on changing the norm. The current norm is to make patients pay more out of pocket money for prescription medicines despite having insurance. The trend is such that for some medicines, “insured” patients are paying up to 50% of what uninsured patinets are paying at the drug store counter. The new norm should be value based insurance for prescription medicines that allow patients to purchase or buy in to an insurance product either offered by their employer or the individual market that alloows for minimal co-pays to assure adherence and ultimately offset the medical costs associtaed with inadequate treatment. VBID…the new norm?