Medicare’s Value-Based Insurance Design Pilot Could Pave Way For Broader Implementation

Through the Medicare Advantage Value-Based Insurance Design (VBID) Model, the Centers for Medicare and Medicaid Services (CMS) is currently testing a broad array of innovations designed to reduce Medicare program expenditures, enhance the quality of healthcare for Medicare beneficiaries, and improve the coordination and efficiency of healthcare service delivery.

Overall, the VBID Model is intended to contribute to the modernization of the ways in which Medicare Advantage* plans, in particular, manage the pharmacy benefit. In addition, the VBID Model aims at improving health outcomes and lowering out-of-pocket costs for Medicare beneficiaries.

Reinforcing experimentation already underway at CMS, last month President Biden issued an executive order on “lowering prescription drug costs for Americans.” Specifically, the order stipulates that the Innovation Center select for pilot testing new healthcare payment and delivery models aimed at decreasing 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 piloting novel healthcare payment and delivery arrangements.

Together, the VBID Model and presidential executive order serve to stimulate the use of value-based payment arrangements.

Traditionally, VBID has referred to health insurers’ efforts to structure patient cost-sharing 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, that is, the ones patients can benefit from the most.

In contrast to a “one-size-fits-all” patient cost-sharing approach, VBID aligns cost-sharing (for example, differential tiering of co-payments on a formulary) with the clinical benefit of a drug or medical service and not strictly the cost. For instance, a high-value drug, such as an antiretroviral medication for HIV, would have a nominal out-of-pocket cost or no cost-sharing at all, whereas a comparatively low-value healthcare service of questionable benefit, such as prostate cancer screening for men older than age 70, would have higher patient cost-sharing.

Professor Mark Fendrick, Director of the University of Michigan’s Center for Value-Based Insurance Design, is the founding father, if you will, of VBID. Along with other original backers, Fendrick envisaged a method grounded in clinical evidence that would pave the way for widespread use of value-based formulary 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 reduction in healthcare spending.

The Medicare Advantage plan pilot – the VBID Model – could trigger a revival of VBID in both 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, approximately 3.7 million are receiving additional VBID Model benefits and incentives.

Unquestionably, VBID would constitute an improvement relative to the current system in which the positioning of a drug on formulary (designation of a cost-sharing tier) and clinical value are usually not correlated. Nor in the present formulary management system is there necessarily evidence-based use of conditions of reimbursement 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 of a drug before it is prescribed and dispensed. This allows the plan to evaluate whether the medication is “medically necessary.” Step therapy is often used in conjunction with prior authorization. It refers to when a patient must fail first on a recommended therapy before “stepping up” to a more expensive treatment.

While these formulary management tools may contain costs, measures like step therapy can severely limit patient access to certain medically necessary treatments. Moreover, these restrictions are often cost- and not value-based.

Lawmakers in the U.S. are drafting legislation aimed at curbing the use of prior authorization and step therapy. For example, the Massachusetts state legislature is implementing step therapy guardrails. In late July of this year, the Massachusetts House of Representatives passed H.4929, “An Act Relative to Step Therapy and Patient Safety.” Governor Baker recently signed the bill into law.

Despite being noble efforts to eliminate barriers to access, such laws represent roundabout ways of addressing a problem that could be more efficiently resolved by implementation of value-based concepts, such as VBID.

If payers in both the public (Medicare and Medicaid) and commercial sectors conducted systematic value assessments of drugs, assigning those with most value to the lowest cost-sharing tiers with fewer restrictions, there may be less need for blunt cost containment measures such as step therapy to reduce utilization.