value-based insurance design in the medicare...

Value-Based Insurance Design in the Medicare Prescription Drug Benefit /An Analysis of Policy OptionsLisa Murphy / Jenny Carloss / Ruth E. Brown / Erika Heaton / Tanisha Carino, PhD / Avalere Health

A. Mark Fendrick, MD / Michael Chernew, PhD / Allison B. Rosen, MD, ScD / Center for Value-Based Insurance Design, University of Michigan

Takeda Pharmaceuticals North America, Inc., provided funding for this research. Avalere and the Univer-sity of Michigan Center for Value-Based Insurance Design maintained editorial control and the conclusions expressed herein are solely those of the authors.

March 2009 © Avalere Health LLC

Acknowledgements

The authors would like to thank Jan Berger of Health Intelligence Partners for helpful comments on the draft. We would also like to recognize Jenifer Martin, Bonnie Washington, Khoa Nguyen, and Margaret Nowak for their valuable contributions to the study.

TableofContents

2 ExecutiveSummary

5 Introduction

8 Methodology

10 ExploringVBIDintheMedicarePartDProgram •WhyIsVBIDNotaCommonOptionforMedicarePartDBeneficiariesToday?

15 OptionsforImplementingVBIDinMedicarePartD

17 AnalysisofOptions •PotentialSizeoftheMedicarePartDPopulationAffected

•CMSAuthoritytoChangePolicy

•AbilitytoImplementOptions

•PoliticalSupport

27 Conclusion

29 DiscussionandImplications

31 References

34 Appendix

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ExecutiveSummary

Value-basedinsurancedesign(VBID)hasemergedasapotentiallyviableapproachtopromote

healthcarevalue.VBIDabandonsthetraditionalapproachofuniformlyapplyingcostsharingto

healthservicesregardlessoftheireffectonapatient’shealth.Instead,VBIDtailorscostsharing

tothevaluethattheserviceprovidesthebeneficiaryintermsofhealthgainedperdollarspent.

Themoreclinicallybeneficialtheserviceistoapatient,thelowerthatindividual’scostsharing

fortheservice.

GiventhegrowingneedtoincreasethevalueofcaredeliveredintheMedicareprogramand

theexistingevidencesuggestingthatVBIDcangeneratecostsavingsandimprovehealthoutcomes,

there are clear opportunities to explore how to implement VBID within the Medicare program.

ThisanalysispresentsoptionsforadvancingaVBIDapproachwithinMedicare’sprescriptiondrug

benefit(PartD),andspecificallyfocusesondifferentialcostsharingforchronicallyillbeneficiaries

andhigh-valuemedicationsthattargetchronicconditions.

OuranalysisofthecurrentstructureoftheMedicarePartDprogramidentifiedfiveoptions

forimplementingVBIDinthePartDprogram:

Option 1: Reducecostsharingforspecificdrugsordrugclasses

Option 2: Exemptspecificdrugsordrugclassesfrom100percentcostsharinginthe

coveragegap

Option 3: Reducecostsharingforenrolleeswithchronicconditions

Option 4: Reducecostsharingforenrolleesparticipatinginmedicationtherapy

managementprograms(MTMPs)

Option 5: Reducecostsharingforchronicconditionspecialneedsplans(CC-SNPs)

Weevaluatedthefeasibilityofeachofthesepolicyoptionsbasedonfourcriteria:

1)potentialsizeoftheMedicarePartDpopulationaffected(usingdiabetestoestimatetherelative

sizeoftheaffectedpopulationforoptionsthattargetspecificchronicconditions,andhypoglycemics

andinsulinforoptionsthattargetparticulardrugs);2)theCentersforMedicare&Medicaid

Services’(CMS)authoritytochangepolicywithinexistingstatuteandregulation;3)requirements

forimplementation;and4)politicalsupport.

Based on our evaluation, it appears that several options could be successful vehicles

forVBIDinMedicarePartD.Inparticular,Option 1targetingspecificdrugsordrugclassesisan

optionthatCMScanimplementundercurrentlaw,andhasthepotentialtoaffectapproximately

6millionPartDenrolleeswithdiabetes.Infact,atleastonePartDplan,UnitedHealthcare’sSenior

Dimensions,beganexercisingthisoptionin2008.Option 2isalsopresentlyavailabletoplansand,

whileaffectingfewerbeneficiaries,ittargetsthosepatientswithhighannualdrugspendingwho

maybenefitmostfromthistypeofintervention.However,in2009onlythreedrug-onlyprescription

drugplans(PDPs)offergapcoverageforanybrand-namemedications.Asmoreevidenceofthe

benefits of VBID becomes available, policymakers may wish to pursue legislative changes that

wouldcreatenewincentivestoencouragemorePartDplanstoadoptthistypeofbenefit.

Option 5 is also feasible in the current policy environment. However, targeting VBID

toenrolleesinCC-SNPswillhavealimitedimpactontheMedicarepopulation–currentlyabout

268,000beneficiaries,only1percentofPartDenrollment.Duetothesmallscaleofthisoption’s

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impact,Option 5maybeanidealfirststepinimplementingVBIDintheMedicarePartDprogram.

CMSandpolicymakerscouldencourageCC-SNPstoincorporateVBIDintotheirbenefitdesignsand

tocollectdataonadherenceandoutcomesfortheirenrollees.AsCC-SNPsgatherevidenceonthe

valueofVBIDinthispopulation,policymakerscouldconsideradditionalmethodsforincorporating

VBIDintotheMedicarePartDprogrammorebroadly.

Whilenotthehighest-rankedalternative,Option 4presentsaninterestingopportunity

todemonstratethevalueofVBID,despitepotentiallegislativechallengesinauthorizingsuchan

option.Sincethisoptionwouldrequiredifferencesinbenefitdesignforbeneficiarieswithinthe

sameplan,regulatoryorlegislativechangesmaybenecessarytoexemptVBIDfromexisting

PartDrequirementsthatplansmaynotdiscriminateagainstcertaingroupsofbeneficiariesand

thatallenrolleesinaplanmustbesubjecttoauniformbenefitdesign, includingcostsharing.

WhileMTMPspresentlyattractonlyasmallnumberofPartDenrollees—8percentofbeneficiaries

in2007—linkingVBIDtoMTMPparticipationcouldboostMTMPenrollment.Themovecouldalso

positivelyreinforceMTMPeffortstoimprovebeneficiaries’medicationadherencebyloweringor

removingfinancialbarriersforthoseservicesrecommendedbytheprogram.Policymakersmaybe

interestedinexaminingthisoptionfurthertodeterminetheimpactonhealthoutcomesandoverall

costsorsavings.

Finally,whileOption 3hasthepotentialtoreachalargenumberofPartDbeneficiariesand

couldbeacost-effectiveapproachtoimplementingVBID,thepotentiallegislativeandregulatory

changesrequiredappeartobebarrierstoitsimplementation,makingthisalessattractiveoption.

Over the course of the past two years, a diverse group of stakeholders across the

healthcareenterprisehasexpressedsupportforVBID.Becausethepercentageofhealthservices

withunequivocalclinicalevidencetosupporttheiruseunderVBIDprogramsissmallinrelation

to aggregate medical expenditures, even groups that might typically oppose such efforts as

“paternalistic”havebeenreceptivetothisidea.

Overall,politicalsupportforVBIDappearstobestrong,bipartisan,bicameral,andgrowing.

Thepolicychangesidentifiedinthispaperprovidearoadmapforseveralscenariosthatwilladvance

VBIDprinciplesineffortstoimprovehealthandcontaincosts.

Inbrief,thispaperillustratesthatCongress,CMS,andothershaveseveralviableoptions

for the Medicare program to implement VBID in Part D. Each of these options have their own

strengthsandweaknessesbasedonhowmanyMedicarebeneficiariesmaybenefitandhoweasily

theparticularVBIDapproachcouldbeimplementedbyCongress,CMS,andhealthplans.Eachof

thesefactors,moreover,isdynamicandourevaluationoftheseoptionsissensitivetochangesin

theMedicarePartDmarket.

AstheObamaAdministrationandmembersofCongressexplorehealthreformoptions,

itisimportantthattheynotonlyexamineoptionstoincreasecoveragefortheuninsured,butalso

optionstoimprovequalityandcontaincosts.VBIDsimultaneouslyaddressestheobjectivesofcost

containmentandqualityimprovementinthedeliveryofcarebypromoting“fiscallyresponsible,

clinicallysensitive”costsharinginordertomitigatethewell-documentedadverseclinicaloutcomes

associatedwiththecurrent,one-size-fits-allmedicalsystem.Medicareisanidealplacetoimplement

VBIDbecausebeneficiariesareatamuchhigherriskofadverseeventsduetonon-adherencethan

youngerpatientpopulationsandensuringaccesstonecessarycareisafundamentaltenetofthe

Medicareprogram.VBIDisavitaltoolthathasthepotentialtotransformMedicareintoamore

prudentpurchaserofhealthcareservicesthatmeetpatientneeds.

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VBIDisnotamechanismthatwillsolveourhealthcarecrisis.Technologicaladvanceswill

continuetogenerateupwardpressureoncostsandincreasinglystraintheabilityofindividualsand

theiremployerstoaffordsuchcoverage.Thatsaid,comparedtothestatusquoofescalatingcosts

andsuboptimalqualityofcare,theimplementationofVBIDprincipleswouldencouragetheuseof

high-valuecareandultimatelyproducebetterhealthatanylevelofhealthcareexpenditure.

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Introduction

TheUnitedStatesisonaquestforbettervalueinthehealthcaresystem.Researchdemonstrating

widevariationinhealthspendingandthequalityofcarepatientsreceivehasfueledpurchasersof

healthcaretoseekreformoptionsthatgenerateamorefavorablereturnoninvestment(i.e.,more

healthbenefit)fortheirhealthcaredollar.1 Infact,manypolicymakersviewhealthreformefforts

toexpandinsurancecoveragetoAmerica’sunder-oruninsuredwithoutpromotingamorevalue-

drivenhealthcaresystemasshortsightedandunsustainable.

Traditionally, when faced with rising healthcare costs, payers have turned to raising

patients’ share of costs for healthcare services. However, a growing body of evidence suggests

thatdoingsoreducespatientutilizationofbothunnecessaryandnecessaryhealthcareservices,

especiallyforpatientswithchronicconditionswhoalreadyfacehighout-of-pocketcosts.2Studies

havelinkedincreasesincostsharingwithloweruseofessentialclinicalservices,suchasprescription

druguseandvaluablepreventivescreening.3Asaresult,adversehealthoutcomesmayrequirecostly

emergencyroomvisitsandhospitalizations.4Consequently,employers,patients,andpolicymakers

seeksolutionstoreducethegrowthinhealthspendingwithoutsacrificingpatienthealth.

Thesearchforvalueandtheneedtoidentifycostcontainmentoptionsthatdonotresult

inpoorerhealthoutcomesforpatientsismostacuteintheMedicareprogram.Anestimated83

percentofMedicarebeneficiarieshaveatleastoneofthefollowingchronicconditions:diabetes,

arthritis,hypertension,asthma,orheartdisease.5Additionally,the23percentofbeneficiarieswith

5ormorechronicconditionsaccountfor68percentoftheprogram’sspending.6

Value-based insurance design (VBID) has emerged as a potentially viable approach to

promote healthcare value. VBID abandons the traditional approach of uniformly applying cost

sharingtohealthservicesregardlessoftheireffectonapatient’shealth.Instead,VBIDtailorscost

sharingtothevaluethattheserviceprovidesthepatientintermsofhealthgainedperdollarspent.7

Themoreclinicallybeneficialtheserviceistoapatient,thelowerthatindividual’scostsharingfor

theservice.

This innovativebenefitdesignaligns incentivesbyofferingadvantages tobothpayers

andpatients.Byreducingfinancialbarrierstoessentialclinicalservices,patientsaremorelikely

toadheretotheirprescribedtreatmentregimensandappropriatelymanagetheirhealth.Inreturn,

payers may reduce healthcare costs in the long run by helping enrollees prevent costly health

emergencies.8Todate,themajorityofVBIDeffortsthathavegeneratedpositiveresultshavefocused

onreducingcostsharingforprescriptiondrugsusedtotreatchronicconditions,mainlydiabetesand

1 FisherE,etal.“RegionalVariationsinHealthCareIntensityandPhysicianPerceptionsofQualityofCare.”Ann Intern Med144, no.9(2006):641-649.2 Braithwaite,etal.“LinkingCostSharingtoValue:AnUnrivaledYetUnrealizedPublicHealthOpportunity.”Ann Intern Med146 (2007):602-605.3 Newhouse,Joseph,InsuranceExperimentGroup.FreeforAll?LessonsfromtheRANDHealthInsuranceExperiment.Cambridge, MA:HarvardUniversityPress;1993.4 Thomas,CP.“HowPrescriptionDrugUseAffectsHealthCareUtilizationandSpendingbyOlderAmericans:AReviewofthe Literature.”AARPPublicPolicyInstitute(April2008).5 NeumannP,etal.“MedicarePrescriptionDrugBenefitProgressReport:Findingsfroma2006NationalSurveyofSeniors.”Health AffairsWebExclusive26.5(August21,2007):w630-w643.6 Anderson,Gerard.“MedicareandChronicConditions.”NEJM353,no.3(2005):305-309.7 ChernewME,etal.“Value-BasedInsuranceDesign:ByAbandoningtheArchaicPrinciplethatAllServicesMustCosttheSamefor AllPatients,WeCanMovetoaHigh-ValueHealthSystem.”Health Affairs26,no.2(2007):w195-w203.8 FendrickAM,etal.“Value-BasedInsuranceDesign:FiscallyResponsible,ClinicallySensitiveApproachtoMakingTheMostOf HealthDollars.”AJMC13.(June2007):325-327.

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hypertension.Thereductionsinout-of-pocketpaymentsforthesepatientshaveledtoimproved

medicationadherence,betterclinicaloutcomes,anddecreasedhealthcarecoststhroughaverted

hospitalizationsandemergencyroomvisits.15,16TheAppendixprovidesasummaryofrecentVBID

studiesondifferentialcostsharingfordrugsusedtotreatcertainchronicconditions.

GiventhegrowingneedtoincreasethevalueofcaredeliveredintheMedicareprogram

andtheexistingevidencesuggestingthatVBIDcanreducehealthcarecostsandimprovehealth

outcomes, there are clear opportunities to implement VBID within the Medicare program. This

analysiswillpresentoptionsforadvancingaVBIDapproachwithinMedicare’sprescriptiondrug

benefit(PartD),andspecificallyfocusesondifferentialcostsharingforchronicallyillbeneficiaries

andhigh-valuemedicationsthattargetchronicconditions.Asafollow-uptothisstudy,Avalere

HealthandtheUniversityofMichiganVBIDCenterarecollaboratingonasecondpaperthatwill

examinetheimpactofimplementingaVBIDapproachintheMedicarePartDprogram.

AlthoughthisanalysisfocusesontheapplicationofVBIDtochronicconditionmedications

coveredunderMedicarePartD,itisimportanttorecognizethatVBIDhasamuchbroaderapplication

VBIDinPracticeInpractice,therearetwogeneralapproachestoVBID.Thefirstapproachtargetsclinically

valuable treatments, tests, or procedures, such as chronic condition maintenance

medicationsorpreventivemammography,forreducedcostsharingforallenrollees.The

secondVBIDapproachtargetspatientswithspecificclinicaldiagnoses,suchasdiabetes,

andlowerscostsharingforthehigh-valueservicesnecessarytomanagetheseconditions,

suchasinsulinoreyecare.9AlthoughtheapplicationofbothapproachestoVBIDispossible

foranymedicalservice,todatemosteffortshavefocusedonreducingcostsharingfor

prescriptiondrugsusedtotreatchronicconditions,mainlydiabetesandhypertension,

withtheintentofimprovingadherenceanddiseasemanagement.

Employers,includingPitneyBowes,Marriott,andtheUniversityofMichigan,have

championedVBIDinitiativesthatreducecostsharingforchronicconditionmedications

to encourage high-risk patients to manage their disease better 10,11,12,13 Pitney Bowes, for

example, reduced cost sharing for drugs commonly prescribed for diabetes, asthma,

andhypertensionandreportedfavorableresults. In2009,UnitedHealthcarelauncheda

VBID-typehealthplanwithcopaymentreliefspecificallyforbeneficiarieswithdiabetes

mellitus.Foremployeeswithdiabetes,thereductionsincostsharingincreasedmedication

adherence by 20 percent and decreased diabetes-related medical costs by 6 percent.14

GiventhepositiveoutcomesVBIDhasgeneratedfortheseemployersandothers,many

advocatesbelievethebroaderuseofVBIDwouldbenefitthehealthcaresystem.

9 Chernew,Health Affairs.10 CranorC.W.,etal.“TheAshevilleProject:Long-TermClinicalandEconomicOutcomesofaCommunityPharmacyDiabetesCare Program,” JAPA43,no.2(2003):173-184.11 Berger,J.“EconomicandClinicalImpactofInnovativePharmacyBenefitDesignsintheManagementofDiabetesPharmacotherapy.” AJMC13,no.2(2007):S55-58.12 SokolMC,etal.“ImpactofMedicationAdherenceonHospitalizationRiskandHealthcareCost.”Med Care 43,no.6(2005):521-530.13 ResultsfromM-Healthy:FocusonDiabetestwo-yearpilotprogram(unpublishedstudydatareportedinDrug Benefit News) December12,2008.14 Berger,AJMC.15 Sokol,Med Care.16 Berger,AJMC.

thandifferentialcostsharing.TheconceptofVBIDispartofthelargerparadigmshifttovalue-based

purchasing,whichseekstoalignincentiveswithevidence-basedhealthcaredelivery.

ThepotentialpromiseofVBIDintheMedicarePartDprogramissignificant.Onaverage,

thispopulationtakesatleastfiveprescriptiondrugsaday.17However,despitethecentralrolethat

prescriptiondrugsplayinmanagingchronicconditions,lackofadherencetomedicationregimens

isaseriousproblemamongtheMedicarepopulation.18Forexample,anationalsurveyofMedicare

beneficiariesfoundthatnearly20percentofPartDenrolleeseitherdidnotfillaprescriptionor

delayed filling a prescription because of cost.19 Poorly controlled chronic conditions are also

associatedwithhighmedicalcosts.Researchershavefoundthatimprovingmedicationadherence

cancutmedicalcostsinhalfforpatientswithdiabetesandhighcholesterol.20Studiesthathave

examinedthe impactof loweringoreliminatingcostsharingforoutpatientdrugsforMedicare

beneficiaries with chronic conditions report cost savings and improved health outcomes.21 For

example,onestudyfoundthatprovidingfullcoverageofACEinhibitorsforMedicarebeneficiaries

withdiabetescouldgeneratesavingsof$1,606perbeneficiaryperyear.22

PoliticalsupportforbroaderapplicationofVBIDisgainingmomentum.Atthefederallevel,

CongressandsupportagenciessuchastheMedicarePaymentAdvisoryCommission(MedPAC)are

exploringhowtoincorporateVBIDintofederalprograms.Sen.MaxBaucus(D-MT)supportedthe

conceptinhis“CalltoAction”whitepaperonhealthcarereform;23andSen.DebbieStabenow(D-MI)

andRep.JohnDingell(D-MI)hostedaFebruary2009congressionalbriefingonVBID.In2007,MedPAC

discussedimplementingVBIDwithinMedicare.24Mostrecently,abipartisangroupofU.S.Senators

isdraftinglegislationtoadvanceVBIDintheDepartmentofVeteransAffairs(VA).Thispopulationis

particularlywell-suitedtoVBIDbecausetheVA’suseofanelectronichealthrecordssystemprovides

thestructurenecessaryforefficientimplementation;theimpactofreducingcopaymentscanbe

easilytrackedandlinkedtoapatient’smedicaldiagnosis.Stategovernmentsarealsobeginning

toincorporateVBIDprinciplesintotheirbenefitdesignsasawaytopromotehealthybehavior.For

example,MichiganisworkingtointegrateVBIDprinciplesintoitsMedicaidprogrambywaiving

copaymentsoncertainmaintenancedrugsforchronicdiseases.25

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17 WilsonI,etal.“Physician-PatientCommunicationAboutPrescriptionMedicationNonadherence:A50-StateStudyofAmerica’s Seniors.” J of Gen Intern Med22,no.1(2007):6-12.18 Thomas,AARP Public Policy Institute.19 Neumann,Health Affairs.20 Sokol,Med Carep.525.21 Thomas,AARP Public Policy Institute.22 RosenAB,etal.”Cost-effectivenessofFullMedicareCoverageofAngiotensin-ConvertingEnzymeInhibitorsforBeneficiarieswith Diabetes.”Ann Intern Med143(2005):89-99.23 Baucus,Sen.Max.“CalltoAction:HealthReform2009.”(November12,2008)http://finance.senate.gov/healthreform2009/home. html(accessedJanuary5,2009).24 MedPACMeeting.October3,2007.http://www.medpac.gov/transcripts/1003-04medpac.final.pdf(accessedJanuary5,2009).25 “PublicProgramsareUsingIncentivestoPromoteHealthyBehavior.”TheCommonwealthFund.(October11,2007).http://www. commonwealthfund.org/innovations/innovations_show.htm?doc_id=676105

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Methodology

AvalereHealthandtheUniversityofMichiganVBIDCenterconductedthisanalysisfromDecember

2008 through February 2009. We examined published studies on VBID, policy documents, and

otherpubliclyavailablematerialstoinformthedevelopmentofoptionsandtheanalysis.Wethen

identifiedpolicyoptionsforincorporatingVBIDintotheMedicarePartDbenefitbasedonexamples

of employer-sponsored VBID programs, policy options considered for implementation in the

MedicarePartDprogram,andourcollectiveunderstandingofVBIDandMedicarepolicies.

Foreachpolicyoptionidentified,weassessedthesizeoftheMedicarepopulationaffected;

determinedtheCentersforMedicare&MedicaidServices’(CMS)authoritytoauthorizetheoption

withinexistingstatutesandregulations,andwhetherlegislativeorregulatoryactionisrequired;

requirementsforimplementation;andpoliticalsupport.Wethenrankedeachoption’simpactand

feasibilityaccordingtothescaledescribedinTable1.

Table 1. rating scale for options analysis

0 greatest Potential most feasible

Gmoderate Potential moderate feasibility

@ lowest Potential least feasible

PotentialtoImproveMedicare

SizeofMedicarePopulationAffected

Largestpopulationrelativetootheroptionsconsidered

Mid-sizepopulationrelativetootheroptionsconsidered

Smallestpopulationrelativetootheroptionsconsidered

Feasibility

CMSAuthoritytoChangePolicy

Maybeauthorizedundercurrentlawandregulation

MayrequirechangeinCMSregulationsorsub-regulatoryguidance

Mayrequirelegislativechangetoauthorizeoption

AbilitytoImplementPolicy

RequiresminorchangestoCMSandplanoperations

RequiresmoderatechangestoCMSandplanoperations

RequiresmajorchangestoCMSandplanoperations

PoliticalSupport

Highlikelihoodofpoliticalsupport;significantadvantagestopolicychange

Moderatelikelihoodofpoliticalsupport;someadvantagesandob-staclestopolicychange

Lowlikelihoodofpoliticalsupport;significantobstaclestopolicychange

However, it is important to note that this analysis does not seek to assess the value

of medications or distinguish between low- and high-value treatments. These are important

considerationswhenimplementingVBID,butbeyondthescopeofthispaper.Rather,ourgoalis

toidentifypotentialVBIDpolicyoptionswithintheMedicareprogram;evaluateeachoption;and

determinethemostfeasibleoptionswiththegreatestpotentialforimpact.

Wedescribeeachofouroptionsastargetingchronicconditions,butdonotattemptto

definewhichconditionsorclassesofdrugsshouldbethefocusofaVBIDapproachinMedicare.

However,weusediabetesthroughoutthepaperasanexampleofhowanoption’simplementation

mightlook.WeselecteddiabetesduetoitsappearanceintheVBIDliteratureasoneofthemost

commonlystudiedconditions,aswellasthepotentialforpayersandbeneficiariestoseeshort-term

positiveoutcomesandpossiblesavingsforVBIDtargetingdiabetescomparedtootherconditions.

DiabetesisoneofthemostcommonchronicconditionsamongMedicarebeneficiariesandone

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of the most costly, accounting for $11,800 in annual program costs for the average beneficiary

with diabetes.26 Additionally, policymakers have highlighted diabetes as a priority condition for

theMedicareprogramthroughrecentchangesaddingcoverageofdiabetesscreeningtestsand

specifyingdiabetesasoneofalimitednumberofchronicconditionsspecialneedsplans(SNPs)may

target.27,28Donotinterpretouruseofdiabetesthroughoutthispaperassinglingoutthediseaseas

theonlyconditionorclassofdrugsthatVBIDcouldtarget.

Atthesametime,becauseweusediabetesasanexampleinaprimarilyqualitativeanalysis,

wehavenotdefinedthespecificmedicationsthatplanscouldseekoutinaVBIDapproachdesigned

arounddiabetes.Forexample,aplanimplementingVBIDforenrolleeswithdiabetescouldtakea

narrowapproachbyreducingcostsharingfororalhypoglycemicmedicationsandinsulinonly,while

abroaderapproachcouldincludecardiacmedications,antidepressants,orothermedicationsoften

utilizedbydiabetics.Forthepurposesofouranalysis,wehaveusedthenarrowerdefinition,but

PartDplansorpolicymakersinterestedindefiningVBIDmustdecidehownarrowlyorbroadlyto

approachtheissue.

Finally,while thispaper focuseson theVBIDmodelof reducedcostsharing, thereare

manyotherapproachespossibletoimprovebeneficiaries’adherenceandhealthoutcomesinPart

D.Pairingprogramsthatoffercounselingwithpharmacistsorotherchronicdiseasemanagement

initiativeswithVBID’slowercostsharingcouldhaveanevengreaterimpactonbeneficiaryhealth.

26 Tan,Ronnie.“CharacteristicsofMedicareBeneficiarieswithChronicConditions.”Presentationat2007AcademyHealth,June4, 2007.http://www.academyhealth.org/2007/monday/asia1/tanr.pdf27 CMS,“DiabetesScreening:Overview.”http://www.cms.hhs.gov/DiabetesScreening/28 CMS,SpecialNeedsPlanChronicConditionPanel,FinalReport.November12,2008.http://www.cms.hhs.gov/specialneedsplans/

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ExploringVBIDintheMedicarePartDProgram

Medicare’s prescription drug benefit provides coverage of most outpatient drugs for Medicare

beneficiaries.UnlikeotherpartsofMedicare,PartDdrugcoverageisonlyavailablethroughprivate

insuranceplans.EveryonecoveredbyMedicare isentitledto receiveprescriptiondrugcoverage,

althoughenrollmentisvoluntary.

BeneficiarieswhochoosetoobtainPartDcoveragehavetwooptions—enrollinastandalone

prescription drug plan (PDP) that offers drug-only coverage or select a Medicare Advantage

prescriptiondrugplan(MA-PDplan),providingcoverageofbothmedicalanddrugbenefits.Asof

January2009,morebeneficiarieswereenrolledinPDPsthaninMA-PDplans—17.4millionversus8.8

million(Figure1).29

Figure 1.MedicarePartDEnrollment,2009

Mostbeneficiarieshaveaccess toa largeselectionofPartDplans thatvarywidely in

coverage,premiums,andcostsharing,butallplansapprovedbyMedicaremustoffer,ataminimum,

astandardlevelofcoverage(Figure2).Establishmentofthecoverageisdoneonanannualbasis

andincludesaninitiallevelofprescriptiondrugcoverageaswellasprotectionforenrolleeswith

extraordinarily high drug costs, also known as “catastrophic coverage.” In between the initial

coverageperiodandcatastrophiccoverage,enrolleesmayexperienceagapincoveragewherethey

arerequiredtopayfortheentirecostoftheirprescriptiondrugsoutofpocket.Thisisknownasthe

coveragegapor“doughnuthole.”

TotalEnrolledinPartD=26.2million

MA-PD Plans

PDPs

PDPs67%

MA-PDPlans33%

Source:AvalereHealthanalysisofCMSdatafromJanuary2009.

29 AvalereHealthanalysisofCMSdatafromJanuary2009.

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30 CMS,PrescriptionDrugBenefitManual,Chapter6,Section30.2.7.http://www.cms.hhs.gov/PrescriptionDrugCovContra/Down loads/R2PDB.pdf31 ThisformularyrequirementisbasedonsimilarlanguageinthePartDstatute.SocialSecurityAct,Section1860D-11(e)(2)(D)(i).

Figure 2.MedicarePartDStandardBenefitDesign,2009

MostprivateinsurerswhoofferPartDplansusetheflexibilityallowedinthelawtodeviate

fromthestandardbenefitdesign,buteachplanmustmeettheminimumstandardsforPartD

coverageestablishedinlegislationandregulation.Onesuchrequirementstatesthatplanofferings

mustbe“actuariallyequivalent”to,orbetterthan,thestandardbenefitdesign.Mostplanschoose

tocreateanalternativebenefitdesignbyreducingthedeductible,creatingdifferentcost-sharing

tiersfordrugsontheplan’sformulary,orprovidingsupplementalcoverageforsomedrugsinthe

coverage gap. Because of the actuarial equivalence requirement, reducing cost sharing in one

partofthebenefitmayrequireplanstoincreasecostsinotherpartsofthebenefit.CMS,which

overseesPartDimplementation,reviewsplanbenefitdesignsannuallytoensurecompliancewith

allprogramstandards.OnlyplansthathavemetthesestandardsgainpermissiontoofferthePart

Dbenefit.

Similarly,whileprivateplanshavesomelatitudeindeterminingwhichdrugstocoveron

theirplan’sformularyandatwhatcost-sharinglevels,CMSreviewseachPartDplan’sformulary

coverageannually.CMS’formularyreviewprocessincludesanexaminationofthedrugsincluded

ontheplan’sformularyaswellasthecost-sharingtiersonwhichthedrugsareplacedandany

utilizationmanagementrequirements.Aspartofthisreview,CMSexaminestheformulary’scost-

sharingtiers“toensurethattheformularydoesnotsubstantiallydiscourageenrollmentofcertain

beneficiaries.”30,31Ifaplanfailsthistest,theplanmustreviseitsformularycoverageoritwillnotbe

approvedtoofferaPartDplan.

ThereareanumberofinitiativesinPartDfocusedonpromotingbettermedicationuse

forbeneficiarieswithchronicconditions,muchlikethegoalofVBID.Themostprominentinclude

medication therapymanagementprograms (MTMPs)andSNPs.TheMedicarePrescriptionDrug

ImprovementandModernizationAct(MMA)of2003establishedMTMPstooptimizetherapeutic

outcomesofPartDenrolleeswithmultiplechronicconditionsthroughmedicationmanagement.

■ BeneficiaryCostShare■Plan’sCoverage

CatastrophicCoverage

NoCoverage(“doughnuthole”)

PartialCoverage

Deductible

5%coinsurance

100%costsharing

$6,154*

$2,700

$295

*Equivalentto$4,350inout-of-pocketspending

25%coinsurance

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BothPDPsandmostMA-PDplansarerequiredtohaveanMTMPandmusttargethigh-riskpatients

whohavemultiplechronicconditions,takemultiplePartDdrugs,andarelikelytoincurmorethan

$4,000inannualdrugcosts.32Becauseplanshavewidelatitudeindefiningeligibilitycriteriaand

servicesoffered,currentMTMPservicesvarywidelybyplan.MTMPservicescouldincludemedication

reviewsandcounselingservicesthrougheducationalmailings,directphonecalls,and/orface-to-

faceinteractionswithpharmacists.

AlsoinstitutedbytheMMA,SNPsareatypeofMA-PDplandesignedtomeettheneedsof

Medicaresubpopulationsthatcouldbenefitfromspecializedcare.TheMMAgrantedSNPscertain

exceptionsrelativetootherMA-PDplanssuchastheabilityto limitenrollmenttobeneficiaries

whomeetoneofthreecriteria:“dualeligibles”(thosewhoqualifyforbothMedicareandMedicaid),

institutionalized beneficiaries, and those with severe or disabling chronic conditions. SNPs are

requiredtotailortheirmedicalanddrugbenefitstomeettheneedsofthetargetpopulation,ideally

improvingthequalityofcareforthoseenrolleesandloweringoverallcosts.SNPenrollmenthas

grownrapidlysincethebeginningoftheprogram,from603,000enrolleesin200633toalmost1.3

millionin2008.34

WhyIsVBIDNotaCommonOptionforMedicarePartDBeneficiariesToday?WhilePartDplanshavetheflexibilitytodesigntheirbenefitsandformularycoveragetolowercost

sharingforcertainhigh-valuedrugs,fewappeartodoso.However,thereareearlyindicationsthat

plansmaybe interested inVBID.SeniorDimensions,anMA-PDplanoffered inNevadathrough

a subsidiary of UnitedHealthcare, announced in late 2008 that it was reducing copayments for

selectedmaintenancemedicationsfordiabetes,chronicobstructivepulmonarydisease,asthma,

highbloodpressure,andseizures.35Prescriptionsforselectedbrand-namedrugsthatpreviouslycost

$20to$30sawcopaymentsreducedto$3to$5,similartochargesforgenericdrugs.Additionally,

somechronicconditionSNPs(CC-SNPs)maybecharginglowercostsharingfordrugstotreatthe

conditionstheytarget.

Despitetheseexamples,VBIDisnotyetprevalentinthePartDprogram.Inthissection,

wediscussseveralreasonswhymoreplansarenotimplementingVBIDandsuggestoptionsfor

mitigatinganyconcerns.Overall,planconcernsarelikelytofocusontheeffectsofVBIDonplan

enrollmentandthepotentialreturnoninvestment.Theseissuesare interrelated,astherelative

healthofaplan’senrolleescanaffecttheplan’scosts.

First,incorporatingVBIDinthePartDmarketwhereplanscompeteforenrolleesmayraise

concernsaboutadverseselection.36Amoregenerousbenefitdesign,suchasonethateliminatesor

reducescostsharingfortargetedbeneficiariesorselecteddrugs,islikelytoattractnewbeneficiaries

withthetargetedchronicconditionorwhotakethetargeteddrug.Attractingsickerbeneficiaries

mayincreaseaplan’scostsandultimatelyresultinhigherpremiumsforalltheplan’senrollees.

(SNPsmaybelessconcernedaboutadverseselectionthanotherMA-PDplansorPDPs,duetotheir

32 InJanuary2009,CMSreleasedguidanceproposingchangestoMTMPeligibilitycriteriaandrequiredMTMservices,beginning inplanyear2010.However,theagencyhassincewithdrawnthatdocumentforfurtherreview.Itisunclearatthistimehow MTMPeligibility,enrollment,andservicesmightchangeinfutureyears.CMS,“MedicarePartDMedicationTherapyManagement Programs:2008FactSheet.”March19,2008.http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/MTMFactSheet.pdf33 CMS,“2006SpecialNeedsPlan(SNP)EnrollmentReportbySNPType.”http://www.cms.hhs.gov/SpecialNeedsPlans/Downloads/ 06SNP_Enrollment_by_Type11-9-06.pdf34 CMS,MonthlySNPReports,September2008.35 “SeniorDimensionsLowersPrescriptionDrugCo-PaymentsonManyWidelyUsedBrand-NameMaintenanceDrugs.”Business Wire,September24,2008.36 Chernew,Health Affairs,w199-200.

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uniquestructurethatalreadytargetsspecific,high-riskpopulations.)Althoughtherelativehealth

statusofeachplan’senrolleesformpartofthebasisforPartDplanpayments,therisk-adjusted

paymentsdonotfullymitigatetheriskofadverseselection.EvenintheshorthistoryofthePart

Dprogram,severalplansponsorshaveeliminatedmoregenerousbenefitssuchasgapcoverage

becauseofadverseselection.Revisionstothecurrentrisk-adjustmentsystemoradditionalrisk-

adjustedpaymentsmayencouragemorewidespreadadoptionofVBIDinthePartDprogram.

AnotherwaytoreducetheriskofadverseselectionistorequirethatallPartDplansoffer

thesamecoverageforthetargetedbeneficiariesordrugs.Ifallplanscoveredthetargetedconditions

ordrugsequally,noindividualplanwouldbeatgreaterriskforattractinghigh-riskbeneficiaries

thananyotherplan.However, thisstandardizedapproachmayhaveunintendedconsequences,

andshouldbecarefullyconsidered.RequirementsthatstandardizePartDplans’coverageofcertain

drugs limitsplans’abilitytonegotiatewithpharmaceuticalmanufacturersfor lowerprices,and

couldincreaseoverallcoststothePartDprogram.Additionally,limitsonplanflexibilityinoffering

thebenefitcouldnegativelyaffectplans’interestinparticipatinginthePartDprogram.

Second,plansmaybeconcernedthatreducingcostsharingforsomebeneficiariesordrugs

mayrequireplanstoincreasecostsharingforotherdrugsorraisepremiumsinordertoremain

actuariallyequivalenttothestandardPartDbenefit.Plansmaybehesitantto raisepremiums,

however,andrisklosingenrollmentifmembersleavetheplanforother,lower-premiumoptions.

TheriskoflosingmarketshareinthecompetitivePartDmarketcouldbeadisincentiveforplansto

implementVBID.

Third, standalone PDPs, which offer drug benefits only, currently lack the financial

incentivestoincorporateVBIDintotheirbenefitdesigns.Reducingcostsharingfordrugswillnot

onlyincreasedrugcosts,asnotedabove,butprovidesnoreturnoninvestmentfortheseplans.While

MA-PDplans,whichcoverbothdrugsandmedicalservices,maygainsomereturnoninvestment

fromVBIDthroughreducedhospitalizationsoremergencycare,PDPsarenotabletorealizeoffsets

innon-drugspendingassociatedwithmoredrugadherence.ToencouragePDPstoadoptVBID,

significantincentiveswouldberequired.

MA-PDplansarelikelytohavefewerconcernsabouthigherdrugcoststhanPDPs,because

MA-PD plans could realize savings in the medical benefit if enrollees remain healthier because

of improved medication adherence. Though some studies have demonstrated that medication

adherence lowerstotalmedicalcosts,38 there is littleresearchspecificallymeasuringthe impact

ofVBIDonmedicationadherenceandoutcomesintheMedicarepopulation.Duetothislackof

researchinthePartDpopulation,MA-PDplansmaybereluctanttoadoptVBID,absentadditional

incentives.MA-PDplansconvincedofthepotentialforVBIDinthispopulationmaybeconcerned

thatanypotentialcostsavingsavailablefrombettermedicationadherencewouldaccruetoanother

planiftheenrolleechoosestoswitchplans,asPartDbeneficiariesareallowedtodoeachyear.39This

concernmaynotbeasgreatinPartDasinthecommercialmarket,becauseonlyasmallpercentage

ofPartDbeneficiariesswitchplanseachyear.40However,MA-PDplansmayneedtobereassured

37 “SierratoIncurLossonEnhancedMedicarePartDPrescriptionDrugProductOffering.”Business Wire.http://findarticles.com/p/ articles/mi_m0EIN/is_2007_Feb_27/ai_n2730698738 Thomas,AARPPublicPolicyInstitute.39CMSallowsdual-eligiblebeneficiariestochangeplansmonthly,andhasdesignatedspecialenrollmentperiodstoallowother subgroupsofbeneficiariestochangeplansthroughouttheyear.40About6percentofbeneficiarieschangedPartDplansin2008(excludinglow-incomebeneficiaries).CMSPressRelease,“Medicare PrescriptionDrugBenefit’sProjectedCostsContinuetoDrop.”January31,2008.

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thattheywillbenefitfromtheirinvestmentinVBID,potentiallythroughincentivessimilartothose

offeredtoPDPs.

Incentivestoplansfor incorporatingVBID intotheirbenefitdesignscouldtakeseveral

forms.FinancialincentiveswouldprovideadditionalpaymentstoplansthatincorporateVBID,

to offset the potential costs of reducing copays. Legislation may be required to offer financial

incentives,orCMScouldpursuethisapproachusingitsdemonstrationauthority.Additionalrisk-

adjustedpaymentsorfinancialincentivesforallPartDplansbasedonenrollees’adherencetodrug

regimenscouldencouragetheuseofVBIDintheirbenefitdesigns.

CMScouldalsooffernon-financial incentives toencouragegreaterVBIDadoption.For

example,CMScurrentlyusesastarratingsystemonitsMedicarePrescriptionDrugPlanFinderto

ratePartDplans’performanceonanumberofmeasures.CMScouldaddinformationtodenote

whichplansincludeVBIDintheirbenefitdesigns.CMScouldalsochangeitsPartDmarketingrules

tohighlighttheuseofVBID.NewmarketingrulesallowingplanstodiscusstheiruseofVBIDasa

differentiatorfromotherplans,orallowingpharmaciststoeducatebeneficiariesonplansusing

VBID, could provide plans a marketing advantage that may increase enrollment, encouraging

theuseofVBIDinPartDbenefits.However,marketingbasedonVBIDcouldexacerbateadverse

selectionconcerns.Thebestcourseistoconsiderbothissuesintandem.Finally,CMScouldoffer

plans additional flexibility on other Part D requirements, such as the six protected classes, in

exchangeforincorporatingVBIDintotheirbenefitdesigns.Inanyincentiveprogramofferedsolely

toplansincorporatingVBID,CongressorCMSwouldhavetoestablishclearstandardsdefiningVBID

approachesthatwouldqualifyfortheincentives.

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OptionsforImplementingVBIDinMedicarePartD

WhiledesigninganincentiveprogramtoencouragePartDplanstoadoptVBIDwillbeanimportant

task for policymakers, the first step toward more widespread VBID adoption is to identify how

planscouldintegrateaVBIDapproachintotheirbenefitdesigns.Ingeneral,planscanemployVBID

bytargetingcertainpopulationsor identifyingparticularmedications–thetwomostcommon

approaches for implementing VBID in the private sector. Our analysis of the Medicare Part D

program’sstructureidentifiedfiveoptionsdiscussedbelowandinTable2.

Table 2. summary of vbid Policy options in medicare Part d

PolicyOptions Description

1.ReduceCostSharingforSpecificDrugsorDrugClasses

Lowornocostsharingforhigh-valuedrugswouldencourageadherenceamongallenrolleeswhomaybenefitfromadrug,regardlessoftheirchronicconditiondiagnosis

2.ExemptSpecificDrugsorDrugClassesfrom100%CostSharingintheCoverageGap

Becauseadherencemaydeclineasenrolleesareexposedtohighcostsharing,thisoptionwouldofferprotectionwhencostsaregenerallythegreatest–duringthecoveragegap

3.ReduceCostSharingforEnrolleeswithChronicConditions

Targetingenrolleeswithaspecificchroniccondi-tionforlowercostsharing–foralldrugsorjustthosethattreattheparticularcondition–wouldlessentheout-of-pocketburdenassociatedwiththatchroniccondition

4.ReduceCostSharingforEnrolleesParticipatinginMTMPs

EnrolleesparticipatinginPartD’smedicationmanagementprogramwouldbenefitfromreducedcostsharingforspecificdrugs,inaddi-tiontootherpatientoutreachandcounselingonmedicationuse

5.ReduceCostSharingforCC-SNPEnrolleesBasedonthePlan’sTargetCondition

SNPstargetingparticularchronicconditionscouldreducecostsharingfordrugsthattreatthetargetconditionaspartofanoverallmodelofcareaimedatmanagingthechroniccondition

Option 1: reduce cost sharing for specific drugs or drug classes. PartDplans—bothPDPsand

MA-PDplans—couldlowercostsharingformedicationswithhighclinicalvaluerelativetoother

drugsontheformulary.Thisapproachwouldbenefitallenrolleeswhotakethetargeteddrugs,

regardlessofdiagnosis.Additionally,planscouldtargetanyhigh-valuedrugsordrugclassesand

wouldnotnecessarilychoosedrugstotreatasinglechroniccondition.Planscouldplacethesehigh-

valuedrugsonanexistingformularytierthatensuresminimalcostsharing—suchasalow-costtier

traditionallyreservedforgenericdrugs—orcreateaseparatetierthatwouldbelimitedtothehigh-

valuedrugsidentifiedbytheplan.

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Option 2: exempt specific drugs or drug classes from 100 percent cost sharing in the coverage gap.

Planscouldprovidecoverageforhigh-valuedrugsduringthecoveragegap.Thisoptioncouldsimply

extendcoverageofthesehigh-valuedrugsthroughthecoveragegaporworkincombinationwith

Option1toofferlowcostsharingforthetargeteddrugsthroughoutthebenefityear.

Option 3: reduce cost sharing for enrollees with chronic conditions.Planscouldtargetenrollees

diagnosedwithcertainchronicconditions,andlowercostsharingforhigh-valuedrugsthattreat

theparticularconditionforthoseenrollees.Avariationofthisoptionistolowercostsharingon

alldrugsforenrolleeswiththetargetedchronicconditions.Inordertodothis,planswouldhave

to implement processes for identifying qualified patients based on diagnosis. Unlike Option 1,

lowcostsharing—eitherforhigh-valuedrugsorforalldrugs—wouldbeavailableonlytopatients

diagnosedwithcertainconditionsidentifiedbyCMSortheplan.Thoughthisoptionmayaffect

fewerbeneficiariesthanOption1, itmayreduceimplementationcostsduetoitsmoretargeted

approach. Forexample, reducingcost sharing forACE inhibitors forpatientswithdiabetesmay

allow this population to control their chronic condition better than reduced cost sharing for

diabetesmedicationsalone,41andwouldbelesscostlyforplansthanreducingcostsharingforall

patientstakingACEinhibitors.TheabilitytomoreappropriatelytargetinterventionsusingthisVBID

approachmaybemorecost-effectiveandcouldleadtobetteroutcomesthanoptionsthattarget

specificdrugsordrugclasses.42

Option 4:reduce cost sharing for enrollees participating in MTMPs. Thisoptionisanalternative

totargetingenrolleesforVBIDbyinsteadidentifyingpatientswhoareparticipatinginanMTMP.

MTMPenrolleeswouldhaveaccesstolowercostsharingforhigh-valuemedicationstreatingtheir

chronic conditions, in addition to receiving MTMP-related services, a combination that has the

potentialtoimproveadherenceandoutcomessignificantly.

Option 5:reduce cost sharing for CC-SNP enrollees based on the CC-SNP’s target condition.

WhilethepreviousfourapproachestoVBIDcanworkinPDPsorMA-PDplans,CC-SNPs—aunique

typeofMA-PDplan—haveaparticularadvantageforusingVBID:CC-SNPsalreadytargetenrollment

toMedicarebeneficiarieswithparticularchronicconditions. InOption5,CC-SNPswouldreduce

oreliminatecostsharingforspecificdrugsordrugclassesthattreattheplan’stargetedchronic

conditions.

41 Rosen,AnnIntern Med.42 Chernew,Health Affairs.

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AnalysisofOptions

Weevaluatedthefeasibilityofeachofourfivepolicyoptionsbasedonfourcriteria:1)potential

sizeoftheMedicarePartDpopulationaffected;2)CMS’authoritytochangepolicywithinexisting

statuteandregulation;3)requirementsforimplementation;and4)politicalsupport.

PotentialSizeoftheMedicarePartDPopulationAffectedToassesseachoption’spotentialimpactontheMedicarePartDprogram,weestimatedthenumber

ofpeopleaffectedandthepotentialchangeinbeneficiaries’healthoutcomes.Forthepurposesof

thisanalysis,wemakecertainassumptionsbasedoncurrentliteratureandresearchonVBIDand

chronicconditions.Foroptionsthattargetspecificchronicconditions,weusediabetestoestimate

the relative size of the affected population. For options that target specific drugs, we use oral

hypoglycemicsandinsulinasexamples,becauseonlydiabeticsusetheseclassesofdrugs.However,

diabeticsmayuseotherclassesofdrugstomanagetheirconditionandcomorbidities,andplans

targetingspecificdrugsthroughVBIDarenot limitedtodrugsusedtotreatasinglecondition.

Whileallof theoptionscanapplytoamuchbroader rangeofchronicconditionsordrugs, the

selectionofasingleconditionconveysasenseofthemagnitudeoftheimpactanoptioncouldhave

ifapplieduniformlyinthePartDprogram.(Foradditionalinformationonwhywefocusondiabetes,

seeSectionII,Methodology.)

Additionally,toassessthefullpotentialofVBIDwithinMedicarePartD,weassumethat

allPartDplanstakeadvantageofthisopportunity.Finally,webaseourestimatesoncurrentPartD

marketandenrollmenttrends.Dramaticchangesinplanofferingsorbeneficiaryenrollmentcould

altercertainoutcomesofthisanalysis.Theseassumptionsallowforillustrationoftheimpactofa

VBIDapproachonbeneficiarieswithdiabetes,butmaynotreflecttheactualnumberofbeneficiaries

affectedifotherconditionsordrugsgainselectionforlowercostsharing.

ItisalsoimportanttonotethatreducedcostsharingthroughVBIDwillhavealimited

impactonbeneficiarieswhoqualifyforthelow-incomesubsidy(LIS).LIS-eligiblebeneficiariespaya

standardcopaymentamountforPartDdrugs,unlesstheirplan’scostsharingisbelowthatamount.

Forexample,LIS-eligiblebeneficiariesin2009areresponsibleforcostsharingofnogreaterthan

$2.40forgenericdrugsand$6forbrand-namemedications;43ifaplanchargeslowercopayments

thantheLISamount,thebeneficiarypaysthelowercopayment.44LIS-eligiblebeneficiariesenrolled

inplansimplementingVBIDbyeliminatingcostsharingorreducingitbelowtheLISamountswill

beabletobenefitfromVBID,butthoseenrolledinplanswhosereducedcostsharingisabovethe

LISamountswillnot.Duetothisuncertainty,ourestimatesinthissectionincludeallbeneficiaries,

regardlessofLISeligibility,unlessotherwisenoted.

Basedonouranalysisandtheavailableliterature,Options1and3,whichwouldimplement

VBIDthroughareductionofcostsharingforspecificdrugsorenrolleeswithchronicconditionsmay

reachthegreatestnumberofMedicarebeneficiaries(Table3).Amoredetaileddiscussionofhowwe

derivedtheseestimatesfollows.

43 CMS,PrescriptionDrugBenefitManual,Chapter13,AppendixA.http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/ R7PDB.pdf44 CMSFinalRule,CMS4131–FC.IssuedJanuary12,2009.http://edocket.access.gpo.gov/2009/E9-148.htm

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Table 3.RelativeSizeofMedicarePopulationAffectedbyEachOption

PolicyOptionsEstimatedNumberofBeneficiarieswithDiabetesAffected*


6Million


2Million


6Million


<2Million**


<268,000**

*Diabetesisusedasanexampleofachroniccondition;oralhypoglycemicsandinsulinareusedasthedrugclassesthateachpolicyoptionmaytarget.However,eachoptioncouldapplytoanynumberofconditions,drugs,ordrugclasses,andchangestothetargetedconditionsordrugscouldincreaseordecreaseanoption’simpact.**DuetothelackofdataonthenumberofbeneficiarieswithdiabetesenrolledinMTMPsandSNPs,estimatesreflecttotalnumberofbeneficiariesintheseprograms.

Option 1:IfplansimplementingOption1reducecostsharingfororalhypoglycemicsandinsulin,

thenumberofbeneficiariesaffectedwillbenearlythesameasthenumberofbeneficiarieswith

diabetes,becauseonlydiabeticstakethosedrugs.About24percentoftheMedicarepopulation,45

orapproximately6millionPartDenrollees,havediabetes.IfPartDplansweretoexpandOption1to

includespecificclassesofdrugstakenbydiabeticsandnon-diabetics,suchasantihypertensivesor

cholesterol-loweringdrugs,thenumberofbeneficiariesaffectedwouldrisesubstantially.

Option 2:In2009,thecoveragegapappliestobeneficiarieswithtotaldrugspendingabove$2,700

andlastsuntiltheyreach$4,350inannualout-of-pocketspending.46Inapreviousstudy,Avalere

estimatedthat43percentofPDPenrolleeswithdiabetesand33percentofthoseinMA-PDplans

reachedthecoveragegapin2006.47AsimilarstudybytheKaiserFamilyFoundationfoundthat

numbertobemorethanhalf.48Bothofthesestudiesexcludeatleast1.6millionbeneficiarieswith

diabeteswhoqualifyfortheLIS,whichprotectsbeneficiariesfromthecoveragegap.49Ifapplying

these percentages to the total 4.4 million non-LIS Part D beneficiaries with diabetes, this VBID

optionwouldlikelyaffectapproximately2milliondiabetespatients.

45 Tan,AcademyHealth.46 CMS,PrescriptionDrugBenefitManual,Chapter5,http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDMChap5 BeneProtections.pdf47 AvalereHealth,“TheImpactofMedicarePartDonBeneficiarieswithType2Diabetes/DrugUtilizationandOut-of-PocketCosts.” March2008.www.avalerehealth.net48 Hoadley,J,etal.“TheMedicarePartDCoverageGap:CostsandConsequencesin2007.”HenryJ.KaiserFamilyFoundation(August 2008).49 Approximately1.6millionbeneficiarieswithdiabetesaredualeligibleswhoqualifyforMedicareandMedicaid;additionalnon- MedicaidPartDbeneficiariesmayalsobeexemptfrom100percentcostsharinginthecoveragegapduetotheireligibilityforthe LIS.KaiserCommissiononMedicaidandtheUninsured,“DualEligiblesandMedicarePartD.”May2006.www.kff.org

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Option 3:AllPartDenrolleeswiththetargetedchronicconditionwouldbenefitfromVBIDinthis

option.Fordiabetes,thisrepresentsapproximately6millionPartDenrollees.50

Option 4: CMS has reported that approximately 8 percent of beneficiaries, or 2 million people,

participatedinMTMPsin2007.51SinceMTMPsincludebeneficiarieswithotherchronicconditions,

thenumberofbeneficiarieswithdiabeteswouldbelowerthan2million.Inaddition,thisoption

wouldaffectrelativelyfewerbeneficiariesthantargetingallbeneficiarieswithdiabetes.However,

linkingVBIDtoMTMPparticipationcouldboostMTMPenrollment; in2007,7percentofeligible

beneficiaries did not participate in their MTMP.52 Additionally, efforts to increase the scope of

medication-related services provided through MTMPs, coupled with VBID, could have a greater

impactonbeneficiaryhealthcareutilizationandspending.

Option 5:In2009,almost268,000beneficiariesenrolledinCC-SNPs.53ManyCC-SNPsin2009target

diabetes;someincludediabetesandotherchronicconditions,andsomefocussolelyondiabetes.

However,beginningin2010,CMSwillrequirethatCC-SNPstargetonlyoneofaselectionofchronic

conditioncategories,includingdiabetes.54

CMSAuthoritytoChangePolicyWeanalyzedeachpolicyoptiontodetermineanyexistingstatutoryhurdlesthatCMSmayfaceand

the regulatory or legislative changes that would be necessary to implement the suggested VBID

approach.

Thenecessarychangesfallalongaspectrumfromoptionsrequiringnewlegislationto

optionsthatCMScanexecuteadministrativelyunderthecurrentlaw,andthosethatplanscando

todaywithoutanypolicychanges.Basedonouranalysis,PartDplanscanimplementOptions1,2,

and5inthecurrentpolicyenvironment,whileOptions3and4mayrequirelegislativechanges(Table

4).Amoredetaileddiscussionofthelegislativeandregulatoryhurdlesweuncoveredfollows.

50 Tan,AcademyHealth.51 CMS,“MedicarePartDMedicationTherapyManagementPrograms2008FactSheet.”http://www.cms.hhs.gov/PrescriptionDrug CovContra/Downloads/MTMFactSheet.pdf52 Ibid.53 AvalereHealthanalysisofCMS’SNPMonthlyEnrollmentFile,January2009.54 CMS,“SpecialNeedsPlanChronicConditionPanel2008FinalReport.”November12,2008.http://www.cms.hhs.gov/ specialneedsplans/

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Table 4. Policy changes required for implementation

PolicyOptions LikelyPolicyChangeNeeded


Nopolicychangenecessary,butadditionalincentivesmayberequiredtopromotegreateradoption

2. ExemptSpecificDrugsorDrugClassesfrom100%CostSharingintheCoverageGap

Nopolicychangenecessary,butadditionalincentivesmayberequiredtopromotemoregapcoverageoptionsthatcoverhigh-valuedrugs


Examineapplicationofnon-discriminationclause;mayrequireexemptionthroughregulationorlegislation

ExemptVBIDfromuniformbenefitrequirementthroughregulationorlegislation


Examineapplicationofnon-discriminationclause;mayrequireexemptionthroughregulationorlegislation

ExemptVBIDfromuniformbenefitrequirementthroughregulationorlegislation


Nopolicychangenecessary;someCC-SNPsmayalreadybedoingthis

Option 1: No policy change required, but incentives may be needed.PartDplanscurrentlyhave

theabilitytoplacecovereddrugsondifferentformularytierswithvariedcostsharingforeachtier.

Throughthisability,planscouldplacehigh-valuedrugsordrugclassesonlowercost-sharingtiers

toprovidebetteraccesstothosedrugsfortheirmembers.PlanscanimplementVBIDbyreducing

oreliminatingcostsharingforspecificdrugsaslongasaplan’sformularycontinuestomeetCMS’

formularyguidelines,rulesonactuarialequivalence,andotherapplicablePartDstandards.

Asnotedabove,atleastoneMA-PDplanbeganexercisingthisoptionin2008,butmost

PartDplansdonotappeartobeimplementingVBID.InordertoencouragemorePartDplansto

featureaVBIDapproachsimilartoOption1,CMSofficialscouldhighlightthistypeofbenefitdesign

asonethatisnotonlyacceptablebutcouldresultinimprovedhealthoutcomesforbeneficiaries.

CMScouldmakesuchastatementthroughitsregularcommunicationswithPartDplans,viapress

release,orinsubregulatoryguidancesuchastheannualCallLetterortheMedicarePrescription

Drug Benefit Manual. Additionally, to encourage plans, particularly PDPs, to adopt this option

supplementalpaymentsornon-financial incentives,suchasthosediscussed inSectionIII,may

havearole.

Option 2: No policy change required, but incentives may be needed.Similarly,Option2iscurrently

availabletoPartDplanswishingtocovercertaindrugsthroughthecoveragegap.Inordertodoso,

theplanmustofferanenhancedbenefitdesignincludinggapcoverage.Planscanchoosewhich

formularydrugsareeligibleforgapcoveragebytheplan,andcouldselecthigh-valuedrugsordrug

classesforthiscoverage.Beneficiariesintheseplanswouldpaythesamecost-sharingamountfor

theselecteddrugsintheinitialcoverageperioduntiltheyreachthecatastrophiclimit.

In2009,25percentofPDPsand44percentofMA-PDplansoffergapcoveragetobeneficiaries,

butmostofthesecoveronlygenericsinthegap(Figure3).AmongstandalonePDPs,onlythreeplans

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coveranybrand-namedrugsinthecoveragegapin2009.MA-PDplans,whichcouldbenefitfrom

betterhealthoutcomesandlowermedicalcostsforbeneficiarieswithimprovedadherence,aremore

likelytocoverbrandsinthegap;17percentdosoin2009.AswithOption1,plansmaybereluctantto

implementOption2withoutencouragementfromCMSaswellasspecificincentives.

Figure 3. gap coverage among Part d Plans, 2009

Option 5: Within existing CMS authority.Undercurrentpolicy,CC-SNPswouldlikelybeallowed

–perhapsencouraged–toadoptVBIDforthedrugsusedtotreattheplan’stargetcondition.The

purposeofCC-SNPsistoprovidespecializedcarefortheirtargetpopulations.Loweringcostsharing

for the targeted chronic condition may be one method CC-SNPs can use to demonstrate their

focusonbeneficiarieswiththatcondition.ThismayproveespeciallyvaluableastheSNPprogram

iscurrentlysettoexpireonJanuary1,2011,andpolicymakersarescrutinizingSNPstodetermine

whethertheyactuallyprovidemoretargetedcareandimproveenrollees’healthstatuscomparedto

othertypesofMA-PDplans.

AlimitedanalysisindicatesthatsomediabetesSNPsmaybeusingthisapproachintheir

2009benefitdesigns.55Thirty-twoofthe209CC-SNPsofferedin2009exclusivelytargetbeneficiaries

withdiabetes,whilemanyotherstargetdiabetesalongwithotherconditions.56Inexamining28of

theseSNPs’formularies,nearlyhalfchargecopaymentsof$30orlessforallofthediabetesdrugs

theycover(Figure4).Incomparison,fewerthan4percentofotherPartDplans(includingnon-SNPs)

havesuchlowcopaymentsforalloftheircovereddiabetesdrugs.Whilethissmallsampleisnot

representativeofallCC-SNPs’formularies,itmayindicateaninterestincharginglowercostsharing

fordrugsthattreattheCC-SNP’stargetedcondition.

55 AvalereHealthanalysisusingDataFrame®,aproprietarydatabaseofMedicarePartDplanfeaturesand2009PDPandMA-PDplandatareleasedSeptember25,2008,byCMS.56 AvalereHealthanalysisofCMS’SNPMonthlyEnrollmentFile,January2009.

Source:AvalereHealthanalysisusingDataFrame®,aproprietarydatabaseofMedicarePartDplanfeaturesand2009PDPandMA-PDplandatareleasedSeptember25,2008,byCMS.

■ None

■ Generic

■ BrandandGeneric

■ AllFormularyDrugs

0

20

40

60

80

100<1%

24%

75%

PDPsN=1,689

MA-PDPlansN=2,726

1%

17%

27%

55%

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57 CMS,InterimFinalRuleCMS4138-IFC,issuedSeptember15,2008.58 Ibid.59 CMShasprovidedadditionaldiscussiononthemodelofcarerequirementinsubregulatoryguidancedocuments,includingthe 2008and2009CallLetters.CMS,ContractYear2008CallLetter,April19,2007,andCMS,ContractYear2009CallLetter,March17, 2008.http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/CallLetter.pdf

Figure 4.HighestCopaymentsforCoveredDiabetesDrugs,2009

AsanadditionalincentiveforCC-SNPstoincorporateVBIDintheirbenefitdesigns,CMScoulddefine

Option5tohelpCC-SNPsmeettherequirementthattheydesignamodelofcare“tomeetthe

specializedneedsoftheSNPtargetpopulation.”57Themodelofcarerequirementwasestablished

bytheMedicareImprovementsforPatientsandProvidersActof2008(MIPPA),andCMSreleased

furtherguidanceinaninterimfinalrulethathasnotyetbeenfinalized.Inthisregulation,CMS

indicatedthatitwouldnot“endorseanyparticularsetofevidence-basedguidelinesorprotocols,”

butprovidesexamplesoftheelementseachSNPshouldincludeinitsmodelofcare,includingcare

coordinationservicesandanetworkofspecializedproviders.58,59CMScouldaddmoreexamplesof

elementsofaSNPmodelofcare,includingVBID,throughfurtherregulationorguidance.

Options 3 and 4: exceptions to ‘uniform benefit’ requirement may be required.Options3and

4eachproposetoimplementVBIDbyidentifyingasubgroupofPartDbeneficiariesandreducing

costsharingforonlythosebeneficiaries.Inbothofthesescenarios,enrolleesinaPartDplanwill

facedifferencesincostsharingforthesamedrugsbasedonwhethertheenrolleeisamemberof

thetargetpopulation.Allowingdifferencesinbenefitdesignforbeneficiarieswithinthesameplan

mayrequirelegislativeandregulatorychanges.LegislationspecificallydefiningthisVBIDapproach

andexemptingsuchbenefitstructuresfromtheantidiscriminationanduniformbenefitprovisions

wouldmostclearlyestablishtheauthorityofCMStoapproveplanbidsusingVBIDapproachesthat

targetasubsetofplanbeneficiaries.

Source:AvalereHealthanalysisusingDataFrame®,aproprietarydatabaseofMedicarePartDplanfeatures.DatafromNovember2008reflecting2009plans.Graphicsrepresentthecopaymentrangeforeachplan’shighestformularytiercontainingadrugusedtotreatdiabetes.*ChronicConditionSpecialNeedsPlansthatexclusivelytargetdiabetes.**Analysisexcludes1CC-SNPand721otherPartDplanswhosehighesttierfordiabetesdrugsrequirescoinsurance.

CC-SNPsTargetingDiabetes* AllOtherPartDPlans

N=27** N=3,330**

Over$5022%

$0-$1037%

$40-$5030%

Over$5078%

$10-$207%

$20-$304%

$40-$5012%

$ 0-$10: 1%$10-$20:<1%$20-$30: 2%$30-$40: 6%

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60 SocialSecurityAct,Section1860D-11(e)(2)(D)(i).61 CMS,FinalRule42CFR423.265(c)issuedOctober1,2007.http://edocket.access.gpo.gov/cfr_2007/octqtr/pdf/42cfr423.265.pdf62 CMS,FinalRule,CMS-4068-F,issuedJanuary28,2005.http://www.cms.hhs.gov/quarterlyproviderupdates/downloads/CMS4068F. PDF%2063 Beneficiarieswhoareeligibleforthelow-incomesubsidyorchargedalateenrollmentpenaltyarepermittedtohavedifferent premiumsand/orcostsharingthanotherenrollees.CMS,MMA1360D-13(a)(1)(F).

Thenondiscriminationclause,whichpreventsPartDplansfromdesigningabenefitthat

“substantiallydiscourage[s]enrollmentofcertainbeneficiaries,”60maybeseenasanobstacleto

VBID approaches that target a subset of plan enrollees. While the VBID design may encourage

enrollmentofsomebeneficiaries,itispossiblethataformularystructurethatreducescostsharing

forcertainbeneficiariesbutnotothersmaybeinterpretedasviolatingthisprovision.Forexample,a

planthatchargeslowercostsharingforbeneficiarieswithdiabetescouldbeviewedas“substantially

discouraging”theenrollmentofbeneficiarieswhodonothavediabetes.LegislationtoallowVBID

couldclarifytheparametersofabenefitdesignthattargetscertainbeneficiariesasanexceptionto

thisprovision.

Additionally,alegislativechangetoauthorizeOptions3or4shouldaddressthePartD

requirementthatplansprovideauniformbenefittoallenrollees.Infinalregulationsimplementing

thePartDprogram,CMSdescribesrequirementsforprospectivePartDplans,includingarequirement

thateachplan“mustreflectauniformbenefitpackage,includingpremium…andallapplicablecost

sharing,forallindividualsenrolledintheplan.”61Inthepreambletothisregulation,CMSexplains:

“ThismeansthatallenrolleesinagivenPDPorMA-PDplanwillbesubjecttothesamecostsharing

structureandwillbechargedthesamepremiumforbenefitsthePDPsponsororMAorganization

chosetooffer.”62CMSbasedthisregulationonaprovisionoftheMMAthatrequiresplanstocharge

allbeneficiariesauniformpremiumamount.63Whilethelegislativelanguageontheuniformbenefit

doesnotspecificallyrequireequivalentcostsharingforallenrollees,CMSwouldhavetoreviseits

regulatorylanguagetoallowVBIDtargetingcertainbeneficiaries.CMScouldalsoconsiderusingits

demonstrationauthoritytoallowtheseoptions.

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AbilitytoImplementOptionsGiventhehigh likelihood for the implementationofVBID inMedicarePartD,certainoperating

processesmayneedtobealtered.Thissectiondiscussessomeoftheoperationalchangesthat

mayberequired.Asummaryoftheimplementationissuesweidentifiedwitheachoptionappear

inTable5.

Table 5. operational changes required for implementation

PolicyOptions LikelyOperationalChangeNeeded


Plansmaycreatenewformularytierfortargeteddrugs


PlansmustoffergapcoveragefortargeteddrugsPlansmaycreatenewformularytierfortargeteddrugs


Processtoidentifyenrolleeswithparticularchronicconditiondiagnosesandtoselectdrugseligibleforreducedcostsharing


AbilitytomonitorparticipationinMTMPs


None

Each option identifies certain beneficiaries or drugs for reduced cost sharing. Identifying which

beneficiariesand/orwhichdrugs, ifnotspecifiedbyauthorizing legislation,maybe left toCMS

or another entity to determine, or could be left to individual plans to decide. In the event that

policymakerswishtoestablishastandardizedsetofdrugsorconditionstotargetwithVBID,legislation

orregulationscouldnameparticularconditions,drugs,ordrugclassesfortargeting.Alternatively,

policymakerscouldestablishaprocessfordeterminingthetargetedconditionsordrugs,similarto

theprocessCMSusedtodeterminethechronicconditionsforwhichplanscouldcreateCC-SNPs.

However,oncethatlevelofdetail isestablished,CMSmayneedtoprovideplanswithadditional

guidance,particularlyiftheVBIDapproachtargetsbeneficiarieswhomeetcertaincriteria.

Options1and2,whichfocusonspecificclassesofdrugs,mayhavefewimplementation

issuesoncetheidentificationoftargetedclassesofdrugsoccurs.InOption1,planscouldcreate

anewformularytierwithlowornocostsharingexclusivelyforthetargeteddrugs,orplacethose

drugsontheirexistinglowest-costtier.ToimplementOption2,aplanwouldhavetochangeits

offeringto includegapcoveragefor thetargeteddrugsordrugclassesbyaddinggapcoverage

wherenotofferedoraddinghigh-valuedrugstothelistofdrugsincludedinaplan’sgapcoverage.

Option3requiresplanstoidentifyenrolleeswithcertaindiagnoses.PartDplansalready

estimatetheirenrollees’particulardiagnosesandtheirseverityonanaggregatelevel,whichdetermines

therisk-adjustedpaymentsCMSmakestoeachplan.PlanscouldworkwithCMStoassigntheserisk

scoresatan individual levelanduse thosecodesasaproxy forbeneficiaries’ chronicconditions to

determineabeneficiary’seligibilityforreducedcostsharing.Alternatively,planscouldverifyeligibility

throughanotefromthepatient’sprovider,similartotheverificationprocessthatCC-SNPsemploy,

butthismethodwouldimposeahighadministrativeburdenonplansandbecostlytoimplement.

InOption4,planswouldberequiredtoidentifyenrolleeswhoareparticipatingintheir

MTMP.Thoughinitialidentificationmaybestraightforward,MTMPparticipantsmaydisenrollduring

thebenefityear,andplansmaywishtomonitorparticipationtolimitthenumberofenrolleeswho

benefitfromlowcostsharingbutnolongerparticipateintheirMTMP.IndividualPartDplansorCMS

couldestablishaprocessfordeterminingabeneficiary’sparticipationintheprogram,potentially

severaltimesduringtheyear,toensureheorshecontinuestoqualifyforlowcostsharing.

ForOptions3and4,CMSandplansmayneedtoovercomeoperationalchallengesin

determiningwhichcost-sharingamounteachenrolleemustpayforeachprescription.Underthe

currentsystem,allbeneficiarieswithinaplanpaythesameamountforagivendrugunlessthey

qualifyfortheLIS.UnderOptions3and4,plansmusttrackwhichbeneficiariesqualifyforlowercost

sharingandwhichdonot,andchargetheappropriatecostsharingforeachenrollee’sdrugs.Itmaybe

possibletodevelopaprocesssimilartotheoneusedtotrackLIScostsharingtomanagethistask.

Option5mayrequireCMStoidentifystandardsforVBIDnecessaryforfulfillingthe

modelofcarerequirement,andcompareCC-SNPformulariestothosestandardsintheformulary

reviewprocess.

PoliticalSupportTheVBIDapproachesdescribed in thispaperprovideexcitingopportunities forpolicymakers to

addresstherealitiesofspiralinghealthcarecostsandsuboptimalquality,issuesofgreatimportance

totheirmultipleconstituencies.Overthepasttwoyears,adiversegroupofstakeholdersacross

thehealthcareenterprisehasexpressedsupportforthisconcept.Becausethepercentageofhealth

serviceswithunequivocalclinicalevidencetosupporttheiruseunderVBIDprogramsissmallin

relationtoaggregatemedicalexpenditures,evengroupsthatmighttypicallyopposesuchefforts

as“paternalistic”havebeenreceptivetothisidea.

Patient advocacy groups representing individuals with chronic conditions who are

concerned about high cost sharing in Medicare Part D are likely to support VBID in general,

andthemore likelytheirmembersaretobenefitfromVBID,thestrongertheirsupportwillbe.

PharmaceuticalmanufacturersappeartosupportVBIDinconceptbuthaveparticularinterestin

howvalueisdetermined.HealthplanstendtoencouragePartDpoliciesthatprovideadditional

flexibilityinbenefitdesigns,andarelikelytoshowinterestinVBIDinMedicare,asanextensionof

theconcept’srapidlygrowingpresenceintheprivatesector.

PoliticalinterestinOption5islikelytobestrong,asdiscussedinprevioussections.Whileit

appearsthatsomeCC-SNPsmaybeusingaVBIDapproachintheircurrentbenefitdesigns,integrating

VBIDintomoreoftheseplansprovidesCC-SNPsanopportunitytooffermorespecializedbenefitsfor

theirtargetpopulation,demonstratesignificantdifferencesfromotherPartDplans,andpotentially

gatherdataontheimpactofVBIDonMedicarebeneficiaries’adherenceandhealthoutcomes.

Similarly,policymakersarelikelytoviewOptions1and2positively,sincePartDplans

canimplementbothoptionsinthecurrentprogram.Infact,CMSnotedinitsPartDregulations

thatplansshouldconsidertheimpactontotalmedicalcostswhendecidinghowtocoverdrugs

ontheirformularies:“Forexample,totheextentthataparticulardrughasbeenshowntobe

moreeffectiveinpreventingtheneedforhospitalcareorbetteratcontrollingacuteflare-ups

requiringtheuseofotherservices,weexpect[plans]totakethesethingsintoaccountintheir

determinationsofdrugefficacy.”64

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64 CMS,FinalRule,CMS-4069-F,issuedJanuary28,2005.

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While Options 3 and 4 may appear promising, they are likely to be less attractive to

policymakersdue to thepossiblechanges to legislativeand regulatorypolicies,particularly the

uniformbenefitprovision.Additionally,policymakersmaybereluctanttoadoptOption4dueto

potentialpolicychangesregardingMTMPparticipation.MTMPsarestillevolvinginPartD,andCMS

hasindicatedaninterestinchangingguidancerelatedtothestructureofandservicesprovidedby

theseprograms.

Overall,politicalsupportforVBIDappearstobestrong,bipartisan,bicameral,andgrowing.

Thepolicychangesidentifiedinthispaperprovidearoadmapforseveralscenariosthatwilladvance

VBIDprinciplesineffortstoimprovehealthandcontaincosts.

Conclusion

Based on this analysis, it appears that several options could be successful vehicles for VBID in

MedicarePartDandimmediatelyimplemented(Table6).Inparticular,Option1targetingspecific

drugsordrugclassesisanoptionforplansinthecurrentpolicyenvironment,andhasthepotential

toreachalargenumberofPartDbeneficiaries.Option2isalsopresentlyavailabletoplansand,

whileaffectingfewerbeneficiaries,ittargetsthosepatientswithhighannualdrugspendingwho

maybenefitmostfromthistypeofintervention.AsmoreevidenceofthebenefitsofVBIDbecomes

available,policymakersmaywishtopursuelegislativechangesthatwouldcreatenewincentivesto

encouragemorePartDplanstoadoptthesetypesofbenefits.

Table 6. summary of analysis

PolicyOptions

Option 1: reduce cost sharing for specific drugs or drug classes

Option 2: exempt specificdrugs or drug classes from 100% cost sharing in the coverage gap

Option 3: reduce cost sharing for enrollees with chronic conditions

Option 4: reduce cost sharing for enrollees Participating in mtmPs

Option 5:ReduceCostSharingforCC-SNPEnrolleesBasedonthePlan’sTargetCondition

PotentialtoImproveMedicare

size of medicare Population affected

0 G 0 G @

Feasibility

cms author-ity to change Policy

0 0 @ @ 0

ability to implement Policy

0 0 @ G 0

Political support 0 0 G G 0

0GreatestPotential/MostFeasibleGModeratePotential/Feasibility@ LeastPotential/Feasible

Option5isalsofeasibleinthecurrentpolicyenvironment.However,targetingVBIDto

enrollees in CC-SNPs will have a limited impact on the Medicare population – currently about

268,000beneficiaries,only1percentofPartDenrollment.Duetothesmallscaleofthisoption’s

impact,Option5maybeanidealfirststepinimplementingVBIDintheMedicarePartDprogram.

CMSandpolicymakerscouldencourageCC-SNPstoincorporateVBIDintotheirbenefitdesignsand

tocollectdataonadherenceandoutcomesfortheirenrollees.AsCC-SNPsgatherevidenceonthe

valueofVBIDinthispopulation,policymakerscouldconsideradditionalmethodsforincorporating

VBIDintotheMedicarePartDprogrammorebroadly.

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Option 4 also presents an interesting opportunity to demonstrate the value of VBID,

despitepotentiallegislativechallengesinauthorizingsuchanoption.ThepairingofMTMPs’services

focusedonappropriatemedicationusewithlowercostsharingthroughVBIDappearstohavehigh

potential to impactbeneficiaries’adherenceandoutcomes.Loweringor removingthefinancial

barrierstomedicationusewillenhancemedicationmanagement;conversely,MTMPservicessuch

ascounselingbypharmacistscouldgreatlyimproveVBID’ssuccessinimprovingadherenceand

outcomes.WhileasmallnumberofPartDenrolleestakepartinMTMPsatpresent,onecouldargue

thatMTMPparticipantsarethoseinthegreatestneedofaninterventionsuchasVBID.Policymakers

maybeinterestedinexaminingthisoptionfurthertodeterminetheimpactonhealthoutcomes

andoverallprogramspending.

Finally,whileOption3hasthepotentialtoreachalargenumberofPartDbeneficiariesand

couldbeacost-effectiveapproachtoimplementingVBID,thelegislativeandregulatorychanges

likelyrequiredmaybebarrierstoitsimplementation,makingthisalessattractiveoption.

65 TrivediA,etal.“EffectofCostSharingonScreeningMammographyinMedicareHealthPlans.”NEJM358,no4(2008):375-383.

DiscussionandImplications

ThispaperpresentsseveralviableoptionsfortheMedicareprogramtoimplementVBIDinPartD.

PolicymakershavebecomeincreasinglyinterestedinVBIDastheevidencebaseforthemeritofVBID

intheprivatesectorbecomesclearerandMedicarefacescontinuedpressuretogetmorevaluefrom

thefederaldollarsspent.Eachoftheseoptionshavetheirownstrengthsandweaknessesbasedon

howmanyMedicarebeneficiariesmaybenefitandhoweasilytheparticularVBIDapproachcouldbe

implementedbyCongress,CMS,andhealthplans.Eachofthesefactorsisdynamicandouroption

evaluationsaresensitivetochangesintheMedicarePartDmarket.

Thescopeandpurposeofthispaperresultinvariouslimitationsthatcouldbethefocusof

futureanalyses.First,thispaperdoesnotfocusontheincentivesPartDplansmayrequiretoadopt

VBID.Whilewediscusstheneedforsuchincentivesandofferseveralexamplesofincentivesthat

policymakerscouldoffer,thistopicrequiresfurtherresearch.DiscussionswithPartDplansabout

theirinterestandconcernsaboutVBID,andfeedbackontheincentivesthatmightbemostattractive

toplanswouldhelptofurtherinformpolicymakersinterestedinencouragingVBID.

Second, though this paper suggests VBID for high-value drugs and particular chronic

conditions,itdoesnotexplicitlyrecommendwhatthosedrugsorconditionsshouldbe.Whilewe

usediabetesasanillustrativeexampleofanappropriatecondition,othersmayalsobeviable.Itis

alsoimportanttonotethatwhilesomeoptionstargetbeneficiarieswithspecificchronicconditions,

doingsoisnotrequiredforVBIDimplementation.Options1and2,forexample,couldtargetany

drugsordrugclassesdeterminedtoprovidehighvalue.

Third,thispaperdoesnotattempttoprojectcostsorsavingsfromVBIDimplementation.

TodosowithanyaccuracywillrequiremorespecificanalysisofaparticularVBIDproposal.The

potential cost or savings of legislative proposals will play a substantial role in determining an

option’sfeasibility.Whileaquantitativeanalysisisnotincludedinthispaper,AvalereHealthand

theUniversityofMichiganVBIDCenterarecollaboratingonacompanionpiecethatestimatesthe

potentialimpactofVBIDinMedicarePartD.

In addition, this paper does not discuss the measurement or evaluation of VBID after

implementation.WhenincorporatingVBIDintoMedicarePartD,policymakersshouldalsoconsider

providingresourcesformeasuringimpact,allowingstakeholderstoevaluatesuccessesanddrawbacks.

AlthoughthisanalysisfocusedontheapplicationofVBIDtochronicconditionmedications

coveredunderMedicarePartD,thereispromiseforVBIDinotheraspectsofMedicare.Alternative

applicationsofVBIDwithinMedicarecouldincludelowercostsharingforhigh-valuehospitaland

providerservicescoveredunderMedicarePartsAandB.Forexample,exemptingfemalebeneficiaries

from cost sharing for mammography could encourage better adherence to the U.S. Preventive

ServicesTaskForcerecommendationthatwomenover40getregularscreeningmammography.65

AstheObamaAdministrationandmembersofCongressexplorehealthreformoptions,

it is important that theynotonlyexamineoptions to increasecoverage for theuninsured,but

alsooptionstoimprovequalityandcontaincosts.VBIDsimultaneouslyaddressestheobjectives

ofcostcontainmentandqualityimprovementinthedeliveryofcarebypromoting“fiscally

responsible, clinically sensitive” cost sharing in order to mitigate the well-documented adverse

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clinicaloutcomesassociatedwiththecurrent,one-size-fits-allmedicalsystem.66Medicare isan

idealplacetoimplementVBIDbecausebeneficiariesareatamuchhigherriskofadverseevents

thanyoungerpatientpopulationsandensuringaccesstonecessarycareisafundamentaltenetof

theMedicareprogram.VBIDisavitaltoolthathasthepotentialtotransformMedicareintoamore

prudentpurchaserofhealthcareservicesthatmeetpatientneeds.

VBIDisnotamechanismthatwillsolveourhealthcarecrisis.Technologicaladvances

will continue to generate upward pressure on costs and increasingly strain the ability of

individuals and their employers toaffordsuch coverage. That said, compared to the status

quoofescalatingcostsandsuboptimalqualityofcare,theimplementationofVBIDprinciples

wouldencouragetheuseofhigh-valuecareandultimatelyproducebetterhealthoutcomesat

anylevelofhealthcareexpenditure.

66 FendrickAM,etal.“Value-BasedInsuranceDesign;A‘ClinicallySensitive’ApproachtoPreserveQualityandContainCosts.”AJMC 1 (2006):18-20.

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