INCREASING QUALITY AND STEMMING COSTS THROUGH VALUE BASED INSURANCE DESIGN A. Mark Fendrick, MD

Kathryn Spangler Mari Edlin

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ABOUT VBID HEALTH

Value Based Insurance Design Health specializes in designing and promoting health benefits plans and payment strategies that get more health out of every health care dollar spent. The U.S. spends $2.6 trillion on health care – everyone agrees we should be getting more “health” out of that investment. VBID Health provides streamlined, Value Based Insurance Design consulting services to facilitate creation and adoption of VBID plans and payment policies that increase patient, employee, and enrollee health. VBID Health assists employers ranging from Fortune 100 companies to City Governments, health insurance plans, and health systems in designing clinically nuanced health care benefits packages. For more information, visit vbidhealth.com

About the Authors A. Mark Fendrick, MD, is a professor of internal medicine and health management and policy at the University of Michigan, where he also directs its Center for Value-Based Insurance Design (V-BID). He is a past scholar of the Robert Wood Johnson and the Charles Dana foundations and has consulted for government, health insurance providers and the health care industry. Dr. Fendrick is a graduate of Harvard Medical School and holds a degree in economics from the University of Pennsylvania.

Kathryn Spangler is a partner in VBID Health and senior advisor to the University of Michigan’s Center for Value-Based Insurance Design. In addition, she serves as a cabinet member of the Patient-Centered Primary Care Collaborative, Advocacy and Public Policy Committee. Ms. Spangler is former deputy health policy director of the U.S. Senate Health, Education, Labor and Pensions (HELP) Committee.

Mari Edlin, a graduate of Stanford University, has more than 30 years of experience in journalism and business writing. Specializing in health care, she has been a freelancer since 1988. Ms. Edlin writes regularly for Managed Healthcare Executive, Drug Topics and California Healthline. She is a member of the Association of Health Care Journalists.

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Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Value Based Insurance Design: The Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Incorporating VBID Into State Health Reform Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Case Studies Supporting VBID Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Validating VBID Through Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Opportunities to Increase Quality and Lower Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 The Focus on Health Insurance Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Options for Promoting VBID Through Health Insurance Exchanges . . . . . . . . . . . . . . . . . . . . . . . 31

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

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EXECUTIVE SUMMARY It has been almost a decade since the concept of Value Based Insurance Design (VBID) entered the health care vernacular. Its strategies—encompassing drug benefits, provider preferences, treatment options, wellness programs, Patient-Centered Medical Homes (PCMHs) and Accountable Care Organizations (ACOs)—are gaining more attention from state and commercial health plans and employers. VBID’s reach is penetrating benefit designs to drive the purchase of high-value drugs and services and potentially decreasing long-term, health care costs—strategies that are applicable to Medicaid expansion, reforming state employee health plans, and creation of health insurance exchanges, as outlined in the Patient Protection and Affordable Care Act (ACA). Nearly 250,000 Marylanders are expected to become newly insured as a result of expanded Medicaid eligibility and the creation of subsidized health insurance products offered through the Maryland Health Connection (MHC), which provides education, eligibility and enrollment assistance for the Maryland Health Benefit Exchange (MHBE). In preparation for creating the Maryland exchange, in 2009 the Maryland General Assembly passed legislation (Senate Bill 637), requiring the Maryland Health Care Commission “to study the options to implement the use of value-based health care services to increase efficiencies in the Comprehensive Standard Health Benefit Plan in the small group health insurance market.”1 In addition, Maryland passed the Maryland Health Benefit Exchange Act of 2011 that requires the exchange board to explore the feasibility and desirability of engaging in selective contracting with insurers that promote many VBID strategies—PCMHs, managing chronic diseases and encouraging healthy consumer lifestyles. Although states are focused on satisfying the requirements set by the Department of Health and Human Services (HHS) for implementing the ACA, they could learn some lessons from the successful experiences of VBID in practice as exemplified by Whirlpool; CareFirst, Maryland’s largest insurer; IBM; Oregon’s public benefits programs; Blue Shield of California’s Blue Groove; Connecticut’s Health Enhancement Program; and Maine Community Health Options.

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Wicks EK, Rodin D, Struger-Fritsch D, Murray T. “Value-based Benefit Design and Value-based Purchasing in the

Maryland Small Group Market.” Prepared for the Maryland Health Care Commission. December 2009.

Nearly 250,000 Marylanders are

expected to become newly insured as a result

of expanded Medicaid eligibility and the

creation of subsidized health insurance.

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This white paper outlines the potential for incorporating VBID strategies into state health reforms and state exchanges. It will focus on the following:

Company, insurer and state efforts that confirm the merit of VBID.

Effects of VBID on utilization, costs, quality of care and health outcomes.

Options for promoting VBID in health insurance exchanges.

Incorporating VBID into other reform efforts.

VALUE BASED INSURANCE DESIGN: THE CONCEPT VBID is an innovative solution to maximizing health outcomes with available health care dollars. The basic premise of VBID is to align consumer incentives and payment strategies with value by reducing barriers to high-value health services and providers (“carrots”) and discouraging the use of low-value health services and providers (“sticks”). When carrots and sticks are used in a clinically nuanced manner, VBID improves health care quality and controls spending growth. The concept of clinical nuance recognizes that: 1) medical services differ in the benefit provided; and 2) the clinical benefit derived from a specific service depends on the patient using it, as well as when and where the service is provided. The primary objectives of a VBID program are:

Obtain the greatest positive health impact from medical expenditures.

Shift the focus of the health care debate away from cost alone to also include the clinical value of health services by restructuring health benefits and payment policies.

Minimize the lack of adherence to evidence-based services that may result from across-the-board increases in cost sharing levels.2 unnecessary or wasteful.

Carrot VBID programs reduce cost sharing for services that have strong evidence of high clinical value—typically primary preventive services and treatments for chronic diseases. Multiple peer-reviewed studies demonstrate improved clinical outcomes in VBID incentive programs.3 From the payer's perspective, the cost of incentive-only, carrot-based VBID programs depends on whether the added spending

2 Fendrick AM. Value-Based Insurance Design Landscape Digest. July 2009.

3 “The Evidence for VBID: Validating an Intuitive Concept.” V-BID Center Brief. University of Michigan Center for

Value-Based Insurance Design. November 2012.

Carrot VBID programs reduce cost sharing for

services that have strong evidence of high clinical value.

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on high-value services is offset by a decrease in adverse events, such as hospitalizations. While these high-value services are cost-effective and improve quality, few actually save money. Four studies assessing VBID's impact on resource use and cost concluded that the added costs attributable to the modest increases in targeted high-value services did not raise aggregate direct medical costs over the medium term, but few reported net savings.4 However, research suggests that non-medical, economic effects, such as the improvement in productivity associated with better health, can substantially impact the financial results of VBID programs.56 While significant cost savings are unlikely with incentive-only, carrot programs, a VBID program that combines reductions in cost sharing for high-value services and increases in cost -sharing for low-value services can both improve quality and achieve net cost savings.

Evidence suggests significant opportunities exist to save money without sacrificing high-quality care. For example, the Congressional Budget Office estimates up to 30% of the care in the United States is unnecessary or wasteful. Judiciously combining the carrot and stick approaches, VBID programs can tap into these potential savings while ensuring quality and increasing patient safety. These estimates of waste have prompted a growing movement to both identify and discourage the use of low-value services. For example, the U.S. Preventive Services Task Force (USPSTF) places a D grade on low- value services.

Additionally, the American Board of Internal Medicine Foundation, in association with Consumers Union, launched Choosing Wisely, an initiative for which medical specialty societies identify commonly used tests or procedures whose necessity should be questioned and discussed.7 More than fifty medical specialty societies have or will identify at least five low-value services within their respective fields. These types of initiatives are prompting conversations between patients and doctor, and have the potential to achieve substantial cost savings. If the recommendations of a recent top five, overused clinical services list across three primary care specialties were implemented in practice, estimated savings would be more than $5 billion.8

4 Ibid.

5 Fendrick AM, Jinnett K, Parry T. “Synergies at Work: Realizing the Full Value of Health Investments.” Integrated

Benefits Institute. University of Michigan Center for Value-Based Insurance Design, National Pharmaceutical Council; 2011. Cited Nov. 30, 2012. 6 Nicholson S, Pauly MV, Polsky D, Sharda C, Szrek H, Berger ML. “Measuring the Effects of Work Loss on

Productivity With Team Production.” Health Economics. 2006;15(2):111–23. 7 http://www.choosingwisely.org/

8 Kale MS, Bishop TF, Federman AD, Keyhani S. "Top 5 Lists Top $5 Billion. Archives of Internal Medicine. Dec. 14,

2011;171(20): 1856-57.

The Congressional Budget Office

estimates up to 30% of the care in the

United State is unnecessary or

wasteful.

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In addition to utilizing the growing list of low-value services for stick VBID programs, some VBID strategies also vary reimbursement rates and patient cost sharing based on whether the provider is considered to be high or low value. A recent report from the Commonwealth Fund Commission estimated that $189 billion in savings to Medicare would result if there were the development of “a value-based design that encourages beneficiaries to obtain care from high-performing care systems.”9 Reference pricing and centers of excellence are additional examples of tools to align financial incentives with value at the provider level.10 Tiered or narrow network designations based on price and quality are additional strategies gaining momentum nationwide. As evidence-driven approaches to identify high- and low-value services and providers are coupled with carefully designed strategies for consumer education and communication, VBID programs will only continue to grow in acceptance and use.

9 “Confronting Costs: Stabilizing U.S. Health Spending While Moving Toward a High-Performance Health Care

System.” The Commonwealth Fund Commission on a High-Performance Health System. January 2013. 10

Robinson JC, MacPherson K. “Payers Test Reference Pricing and Centers of Excellence to Steer Patients to Low-Price and High-Quality Providers.”Health Affairs, 2012;31( 9):2028-2036.

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INCORPORATING VBID INTO STATE HEALTH REFORM INITIATIVES VBID is applicable to a myriad of health care reform initiatives, including ACOs as developed by Blue Shield of California and the PCMHs adopted by IBM, Whirlpool, CareFirst and Maine Community Health Options—all illustrated below. The benefits of ACOs and PCMHs are manifold: emphasis on primary and preventive care, a decrease in overall medical costs, better outcomes, increased access to care, incentives to encourage better health and wellness and improved care coordination and follow-up. Both of these models exemplify the objectives supported by VBID.

The state should pursue an open and transparent process to determine whether and to what extent to encourage health plans to include VBID elements. The process should:

Use multiple data sources to identify health care quality gaps that exist in Maryland.

Determine the specific clinical areas and services with the greatest potential benefit from VBID implementation.

Establish a panel of experts (including consumer advocates) to guide the process and inform the selection or designation of high- and low-value services within the defined clinical areas or identified gaps.

o Consider utilizing evidence followed by clinical specialty societies or advocacy groups, such as the American College of Cardiology, the American Society of Clinical Oncology, the American Heart Association and the American Diabetes Association, to identify high-value services;

o Consider using the USPSTF recommendations for designating high- and low-value preventive care; and

o Consider the Choosing Wisely initiative as an additional mechanism for defining low-value care.

Facilitate a strategic discussion about how the VBID program interacts and complements other elements of state health reform, including payment reform and adoption of health information technology.

Educate providers and effectively communicate with consumers about the basic tenets of VBID and why the state is embracing the concept.

Effectively communicate the implementation process.

Lend itself to regular, rigorous evaluation.

Update the high- and low-value lists as new evidence becomes available and as the state learns more about what elements of the program are working and what elements need improvement.

The state should pursue a public comment period to solicit suggestions and input from stakeholders, including consumer advocates and health care payers, during each step of the process.

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Another concept that promotes VBID objectives is the State Innovation Models (SIM) Initiative that the Centers for Medicare and Medicaid Services (CMS) launched last year to encourage innovation in the development of new payment and delivery system models that improve health and promote efficiency. Awardees deemed “model testing states” received grants ranging from $33 million to $45 million to coordinate their reform strategies across multiple payers and plans.11 Many SIM awardees are planning to create “supply-side” initiatives focusing on pay-for-performance, bundled payment structures, global budgets and ACOs. Some states with experience implementing VBID have indicated they will couple these “supply-side” initiatives with “demand side” strategies to increase consumer education and awareness about the pros and cons of receiving certain preference sensitive services.12 SIM grantees have the perfect opportunity to take advantage of VBID principles by aligning consumer incentives with improved reimbursement policies. This integration could play out by waiving patient cost sharing if patients receive services from a recognized PCMH; improving management of chronic diseases by using the benefit design to encourage and enable patients to receive high value services; using reimbursement policies to reduce use of dangerous and wasteful care; creating incentives for shared decision making for preference-sensitive conditions; and increasing adherence of high-value prescription medications.13 As states submit their implementation plans for the SIM grants, many are striving to coordinate payment reforms across multiple payers. The goal is for state Medicaid programs, state exchanges and state employee health plans to synchronize their reimbursement policies to send a clear signal to providers. For example, in partnership with the American Academy of Family Physicians and the American College of Obstetricians and Gynecologists, the Choosing Wisely initiative strongly discourages scheduling elective, non-medically indicated inductions of labor or cesarean deliveries before 39 weeks gestational age. If multiple payers collaboratively decide to stop paying for these potentially harmful practices, it is highly likely that providers will adhere to this higher level of patient care—increasing adoption of such policies, leading to better care and lower cost. In addition to implementing VBID in payment reform and state innovation models, state Medicaid programs are also exploring the VBID concept. CMS recently finalized rules giving state Medicaid programs greater flexibility to vary enrollee cost sharing for drugs, as well as for certain outpatient, emergency department and inpatient visits.14 If VBID principles are used to set enrollee cost-sharing levels, Medicaid programs can improve the quality of care, remove

11

“The State Innovation Models Initiative: An Opportunity to Align Payer and Consumer Incentives.” V-Bid Center Brief. May 2013. 12

Ibid. 13

Ibid. 14

“Medicaid and Children’s Health Insurance Programs: Essential Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes, and Premiums and Cost Sharing; Exchanges: Eligibility and Enrollment.” Final Rule. Centers for Medicare and Medicaid Services. July 15, 2013.

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waste and mitigate the legitimate concern that non-nuanced cost sharing may lead individuals to forgo clinically important care. Traditionally, state Medicaid programs have consisted of carrot-based programs. The flexibility in the new rule gives states the option to also incorporate sticks to enhance personal accountability, discourage patient use of targeted low-value services, and address concerns that indiscriminate “across-the-board” increases in patient cost sharing reduce the utilization of high-value services. VBID programs that include both carrots and sticks may be particularly desirable for states facing budget challenges.15 For example, New Mexico was recently granted an 1115 waiver from CMS. In an effort to prompt individuals to accept greater accountability for their health care decisions, New Mexico Medicaid recipients will face higher copayments for certain services. Enrollees will also be offered incentives to earn points redeemable for gifts if they take certain steps for better health such as seeing a dentist, completing a prenatal care program or managing chronic diseases. Additionally, the program features will expand care coordination for all beneficiaries.16 The State of Michigan also recently passed legislation to expand the state’s Medicaid program. Michigan’s law embraces the VBID concept by permitting health plans to waive co-pays "to promote greater access to services that prevent the progression and complications related to chronic diseases." Health plans may also reduce enrollee contributions for meeting certain healthy behavior goals or addressing unhealthy behaviors such as alcohol and tobacco use, substance use disorders and obesity. The law explicitly calls for the creation of a clinically nuanced design, requiring the program to "design and implement a copay structure that encourages the use of high-value services, while discouraging low-value services."17

CASE STUDIES SUPPORTING VBID PRINCIPLES All of the case studies presented in this report have incorporated VBID elements into their benefit designs—incentives to use high-value services, elimination of barriers to accessing higher value services and an emphasis on primary and preventive care. The programs are evolving; some are already showing better health outcomes and lower costs, as well as indicating improved member and employee satisfaction, appropriate utilization of care and more member engagement. Whether the entities in the case studies are states, private insurers or corporations, they share many of the same objectives:

15

“New Regulations Permit Use of Value-Based Insurance Design in State Medicaid Programs.” V-BID Center Brief. July 2013. 16

“New Mexico Centennial Care. Centers for Medicare and Medicaid Services Special Terms and Conditions.” Approval Period: Jan. 1, 2014 through Dec. 31, 2018. p28. 17

“Senate Substitute for House Bill No. 4714.” Section 105D (1)(f). Aug. 27, 2013. p7.

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Redesigning benefits to achieve value.

Improving outcomes and population health.

Moving the health care system toward more coordinated, primary care.

Emphasizing prevention.

Implementing member and employee incentives to promote wellness and health.

Increasing member engagement.

Removing barriers to treatment for chronic diseases.

Reducing costs over time.

Encouraging utilization of the most cost-effective medications.

Rallying support from all stakeholders, including patients, payers, providers, employees and the community and encouraging their feedback

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CASE STUDY STATE OF OREGON

Description: The Oregon Public Employees’ Benefit Board (PEBB) provides benefits to about 51,000 state and university system employees and their dependents. The Oregon Educators Benefit Board (OEBB), which like PEBB is a part of the Oregon Health Authority (OHA), provides benefits to about 55,000 employees (and dependents) of public school districts, education service districts and community colleges in the state. These two boards design and purchase medical plans that cover approximately 280,000 individuals.

Initiation of Program/Strategy: 2006 Program Objectives: Use value-based design to:

Moderate use of preference-sensitive procedures—those in which a patient’s preferences and values play a critical role in the decision, such as low back pain, early-stage breast cancer, prostate cancer and hip and knee arthritis.

Reduce use of brand-name prescription drugs where generics are shown to have equal efficacy at lower costs.

Program Features: Both PEBB and OEBB have developed a variety of Value Based Insurance Designs associated with medications, clinical procedures and health engagement models. As a first step in 2006, PEBB eliminated cost sharing for 17 preventive services endorsed by the USPSTF, including screenings for colon,

cervical, breast and prostate cancers; vaccinations; and health risk appraisals, along with covering tobacco and weight management programs. OEBB followed suit two years later. PEBB introduced VBID into its pharmacy program in 2009, creating a value tier for prescription drugs used to treat chronic conditions. Employees receive these drugs at no cost. Since the inception of the tier, approximately 30% of all prescriptions filled by members enrolled in PEBB’s PPO plans are for value medications that have no member cost sharing. Value drugs, or “maintenance” drugs, offered by PEBB under the Kaiser Permanente HMO require a $1 copayment. OEBB followed in 2010 with a similar drug program, offering a lower copayment for certain medications used for asthma, heart conditions, cholesterol, high blood pressure and diabetes. In 2009, PEBB began offering Weight Watchers® as a covered benefit for employees for up to four 13-week sessions annually. In 2012, the board extended the benefit to spouses and domestic partners and a year later to dependent children age 10 and older. PEBB and OEBB adopted an additional cost tier into their PPO plan designs in 2010 and 2011, respectively, which applies to services that are thought to have alternatives that may provide equal or better outcomes with less cost and risk.

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Many treatments on the additional cost tiers align with Choosing Wisely. This campaign lists specific, evidence-based recommendations physicians and patients should discuss to help make wise decisions about the most appropriate care based on individuals’ situations. The lists have been prepared by specialty societies representing more than 500,000 physicians. Services on the tier are subject to an additional copayment, which must be paid in addition to a member’s plan deductible, regular copayment or coinsurance. The additional copayment does not accrue to the plan’s out-of-pocket maximum. The primary objective of the tier is to serve as an incentive for members to learn about potential alternatives and discuss these options with their providers, resulting in shared decision making. Joan Kapowich, administrator for both boards, says the additional cost tier is similar to levels created on drug formularies enabling members to apply step therapy prior to accessing more expensive services. “Many purchasers will choose the path of least resistance and increase traditional cost sharing rather than add copay disincentives to their value-based benefit programs to avoid employee pushback,” Kapowich says. “The goal of an additional tier is to encourage consideration of several treatment options but not be so high as to make treatment unaffordable for lower income employees.” If services cost less than $500, then a $100 copayment is required; for services costing more than $5,000, the copayment is $500.

The services include upper endoscopy, spine surgery for pain, knee and hip replacement, knee and shoulder arthroscopy, sleep studies and high-technology imaging. Two other procedures, viscosupplementation of the knee for osteoarthritis and gastric bypass surgery, recently joined the tier for both boards. PEBB introduced its Health Engagement Model (HEM) in 2012, to support employee wellness. Participants need to commit to three initiatives within an established timeframe:

Complete a health risk assessment. Employees had to undertake the appraisal prior to the start of the 2013 plan year to receive a monthly incentive of $17.50 ($35 for couples.)

Complete two health actions based on results of the health assessment.

Members who decide not to participate pay $100 more for the standard deductible amount. HEM is expanding options for health actions in 2013, adding a gym subsidy program ($15 a month reimbursed per member and spouse/partner if they attend a gym 12 times a month) and an online cognitive behavioral program called MoodHelper at no cost to 1,000 members in a pilot. PEBB also reimburses employees for completing the evidence-based Living Well with Chronic Conditions program, a workshop providing tools for living a healthy life with chronic conditions, and the Diabetes Prevention program.

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The PEBB also established an occupational, team-based health promotion program called Health Team Healthy U for members at no cost. The PEBB HEM also has offered a medical home since 2006, and a patient-centered primary care home (PCCH) model since 2010. About 65% of members participate in these plans and receive lower premiums and copayments in the medical home and lower cost sharing, down from 15% to 10%, in the primary care model. The OEBB program instituted a number of plan design changes in 2013, that align with the PEBB program, among them no-cost substance abuse treatment, reimbursement for the Living Well and Diabetes Prevention Program and modification of the value drug tier, moving from a low barrier of $4 per prescription to $0. OEBB created a Healthy Futures program in 2013, similar to PEBB’s engagement model for employees and spouses/partners. It offers a lower deductible if employees take a health risk assessment, participate in tobacco cessation or weight loss programs and complete two other healthy actions, such as the Living Well program. Results: “Our 2012 claims experience in PEBB is lower, which coincides with the beginning of HEM, but we cannot yet say anything about causation,” Kapowich says. “Offering all the options for actions at no cost contributed to its success of the program.”

Participation in HEM in the first year was 70% and 77% in the second year.

PEBB spent $43 million less on health care in 2012 than expected so the average premium cost increase per employee for 2014 should be flat. The medical trend cost for PEBB’s self-insured plan decreased from 8.75% to 7.5%.

For the OEBB program, weight management and the Additional Cost Tier have improved health and kept costs in tow. The Healthy Futures program is too new to have generated any results.

There also was a 15% to 30% reduction in utilization of imaging and participation in sleep programs and a flattening of the cost of arthroscopy.

Lessons Learned

Ensure that participants understand that the health of the entire population could improve tremendously through evidence-based programs, which could positively affect health care costs.

Leverage the value of peer support.

Be flexible about adding or eliminating program elements to align with program goals.

Joan Kapowich: Joan.kapowich@state.or.us

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CASE STUDY CONNECTICUT’S HEALTH ENHANCEMENT PROGRAM (HEP)

Description: The State of Connecticut has 57,000 full-time employees who may opt for the State Employee Health Plan, while non-state government entities, such as municipalities and boards of education, may enroll in the Connecticut Partnership Plan. All of these employees are eligible for participation in the Health Enhancement Program. Initiation of Program/Strategy: October 2011

Objectives:

Address a $3.8 million projected budget gap in fiscal year 2012.

Drive primary care through a reduction in copayments and lower premiums.

Program Features: HEP requires employees and dependents to receive age-appropriate, preventive care services, including primary care visits, vision exams, two annual dental cleanings, mammograms, colorectal cancer screenings and cholesterol screenings.

Members and their families with diabetes, asthma, chronic obstructive pulmonary disease (COPD), heart disease/heart failure, high cholesterol or hypertension receive free office visits and reduced pharmacy copayments for treatments related to their condition. Copayments for prescriptions are reduced or eliminated, and deductibles are waived. Participants may be required to participate in a disease education and counseling program for their particular condition.

State employees who enroll in HEP avoid a health insurance surcharge of $100 a month, and those with a targeted chronic condition also are eligible to receive an incentive payment of $100 a year for achieving all HEP requirements in a given year. If HEP enrollees do not comply, they may be disenrolled. HEP sends out regular reminders to avoid the situation. Results: According to State Comptroller Kevin Lembo, HEP has accomplished the following:

About 98% of the approximately 57,000 eligible Connecticut state employees and retirees voluntarily enrolled in HEP. After 15 months of follow-up, an estimation of more than 99% of employees has complied with the program.

Monthly primary care visits increased from about 12,000 in July 2011 (prior to HEP launch) to about 21,000 in May 2012 (after it started). Specialty care visits decreased from about 24,000 in July 2011 to about 19,000 in May 2012. Monthly emergency room visits dropped from about 3,500 in July 2011 to about 2,700 in May 2012.

Medical trend for HEP enrollees decreased from +13% in fiscal year 2011 to +3.8% in fiscal year 2012.

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Although there has been an increase in primary care utilization for HEP participants, Thomas Woodruff, director, health care policy and benefit services for the state, says that at the same time, the state negotiated better pricing for pharmacy benefits and shifted maintenance drug costs from 30-day prescription fills at retail pricing to 90-day fills at mail order pricing. The pharmacy trend remained flat despite increased use of drugs to manage chronic disease. For retirees, the reduction in trend was largely driven by lower prescription drug costs. To further drive down drug costs, Connecticut introduced a Group Waiver Plan that increased federal subsidies for Medicare-eligible retiree prescription drugs. Since prescription drug costs are a larger part of total costs for retirees than for active employees, the combination of lower prices and increased subsidies drove retiree costs down, Woodruff says. There is evidence that adherence to medications for heart disease, blood pressure, cholesterol and diabetes has modestly improved since HEP’s launch, Woodruff says. Lessons Learned: “We were surprised by what people will do for $100,” Lembo says. “Employees who said they would never comply with the program’s requirements did not want to face a $100 penalty. “On the other hand, we were surprised that a core of people refused to see a dentist at least once a year for a cleaning, but were willing to pay $2,600 for health insurance and even more for a colonoscopy,” he continues.

Other lessons are:

Develop a collaborative approach to designing and implementing programs such as HEP.

Form partnerships to take advantage of claims data to determine who is not in compliance with HEP and use that information to roll out an extensive education program.

Give HEP participants 18 months to comply.

Create a more interactive member portal.

Kevin Lembo: comptroller.lembo@po.state.ct.us; Thomas Woodruff: Thomas.Woodruff@po.state.ct.us

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WHIRLPOOL CORPORATION

Description: Based in Benton Harbor, Michigan, Whirlpool is the world’s leading manufacturer and marketer of major home appliances with 70,000 employees worldwide. Initiation of Program/Strategy: 2010 Objectives:

Align adherence with treatments.

Drive chronic condition maintenance and improvement.

Decrease “bad” spends, such as duplication of services, emergency room visits and hospital readmissions.

Create an integrated approach to health care by creating a partnership between Whirlpool and the community.

Program Features: Whirlpool developed a three-year PCMH pilot in 2010 to improve provider capabilities. It currently has 1,214 participants continuously enrolled out of a pool of 2,800 eligible plan members in its Findlay, Ohio, manufacturing facility. They receive improved access to coordinated care, follow-up and individualized care planning. The 42 physicians in the medical home earn incentives for each PCMH participant and are responsible for lifestyle and chronic condition management. The company implemented VBID for managing coronary artery disease, asthma and COPD in 2013, preceded by diabetes in 2010. The

program provides no-cost coverage for office visits, lab tests and screenings, medical supplies, medications, counseling and tobacco cessation. Employees can earn quarterly incentives for utilizing preventive services and for achieving positive lifestyle changes. Susan Pavlopoulos, senior manager, global benefits for Whirlpool, says 75% of plan members participate in this program. The company, Pavlopoulos says, plans to provide incentives for completing biometric screenings and health risk assessments in 2014, and for reaching and/or making progress in achieving specific biometric goals, such as body mass index, glucose and blood pressure, in 2015, as Whirlpool moves toward an outcomes-based plan design. After imposing a 15% to 20% flat coinsurance with a member deductible with no differentiation between tiers, Whirlpool created a five-tier formulary based on clinical evidence and cost effectiveness. Tier 0 is a zero-dollar category (100% plan-paid) including generics and some branded drugs targeting chronic disease, while tier 4 requires a 100% member-paid coinsurance. In addition, Whirlpool offers incentives to employees who choose minimally invasive procedures rather than open surgery and waives coinsurance if employees use specific labs for screenings and radiology.

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Results:

In 2012, 19.8% of plan members used tier 0, while 65.2% were on drugs in tier 1, which require a 10% coinsurance. Between 2010 and 2011, medication utilization increased for three types of diabetes drugs, ranging from 40% to 48%. Similar results were found in 2011 and 2012.

The five-tiered formulary also has increased medication compliance for oral diabetes drugs, insulins, cholesterol-lowering drugs and anti-hypertensive medications from 2010 to 2011. In addition, the generic dispensing rate for anti-diabetic medications rose from approximately 50% in the first quarter of 2010 to >65% in the fourth quarter of 2012.

Whirlpool reported an increase in testing rates for Hb(Alc), lipids and microalbumin in 2010 compared to pre-program results, along with a decrease in office visits (4%) and a 114% increase in diabetes education classes.

Over the three-year period, preventive office visits and screenings were much higher and emergency room rates much lower for medical home members versus non-medical home members in the comparator group analysis.

Lessons Learned:

Spend sufficient time studying cost drivers, access barriers, medication non-adherence, culture of the population and change management.

“Some employees feel we should pay for all of their health care so it is important to develop a well-defined list of value services and communicate clearly how utilizing these services and medications can improve health,” Pavlopoulos says, “along with explaining how to take advantage of these benefits.”

Keep wellness and health improvement front and center through communication, including online consumer portals, health care information booths and partnering with physicians.

Susan Pavlopoulos: susan_a_pavlopoulos@whirlpool.com

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CAREFIRST BLUECROSS BLUESHIELD

Description: CareFirst BlueCross BlueShield (CareFirst), an independent licensee of the Blue Cross and Blue Shield Association, is a not-for-profit health care company serving 3.4 million members in Maryland, the District of Columbia and portions of Northern Virginia. Initiation of Program/Strategy: CareFirst began offering its HealthyBlue products in October 2010, and the Patient-Centered Medical Home (PCMH) and Total Cost and Care Improvement (TCCI) Programs started in January 2011. Objectives: The HealthyBlue product portfolio complements the PCMH and TCCI program efforts, which share objectives. The programs are bolstered by and supportive of VBID strategies.

Encourage closer, more engaged relationships between primary care physicians (PCPs) and their patients, who have or are at high risk for chronic diseases.

Promote prevention and wellness strategies benefitting the total population of patients, including increasing awareness of health status, educating members about healthy lifestyles and offering incentives for healthy behaviors.

Target long-term cost savings and slow health care cost trends through quality improvement.

Program Features: As the region’s largest private payer, CareFirst undertook the PCMH and TCCI as a way to tackle the continuing steep increases in health care costs occurring in its service area. The PCMH is the core of the larger TCCI Program. It rewards PCPs for providing, coordinating and managing quality, efficient and cost-effective health care services for CareFirst members, with a focus on those with or at risk for multiple chronic diseases. The PCMH provides the central organizational building block (the Medical Care Panel)—either a 10-person group practice of PCPs or its virtual version formed by a number of PCPs in solo practice or in small, independent group practices who voluntarily agree to work together and who practice in the same geographical region—as well as the key incentive system built upon a global outcome and patient-centric accountability structure. It encourages and provides data to inform physicians in making value-based decisions, such as when and to whom to refer a patient, while encouraging the provision of high-quality care. PCPs and nurse practitioners deliver care through the PCMH to 20 sub-regions within CareFirst’s service area. A regional care coordinator, who manages five to 15 local care coordinators in that region, directs each sub-region. The local care coordination teams understand the communities and people where they live and are able to provide appropriate resources and services.

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TCCI includes 10 distinct program elements—ranging from hospital transitions of care to home-based services and enhanced monitoring—serving CareFirst members at every stage through wellness, acute illness and recovery. The PCMH and TCCI programs rely on all parts of the health care delivery system—hospitals, free-standing clinics, pharmacies and other allied providers that are part of the extremely large network of providers under contract with CareFirst. Approximately 3,800 providers in the PCMH serve 1.2 million members, while one or more elements of TCCI touches all 3.3 million CareFirst members. CareFirst’s HealthyBlue products combine the best features of HMO, PPO and consumer-driven health benefit designs in innovative ways by promoting stronger relationships between members and their PCPs; providing members with strong financial incentives to improve or maintain already healthy lifestyles; working with PCPs to obtain high-quality, cost-effective referrals to specialists; and cooperating with PCPs to establish and comply with care plans if patients have multiple chronic diseases or are at high risk for serious medical problems. HealthyBlue incorporates VBID through cost differentials based on place of service. Members who elect to have surgery in ambulatory surgery centers (freestanding centers) will pay a lower cost share than if they select a hospital-based surgery, which is more expensive. In addition, members who choose to visit a physician office on a hospital campus are subject to an additional facility copayment.

Results: HealthyBlue HealthyBlue data clearly show a higher level of engagement between members and PCPs and better outcomes compared to CareFirst’s non-HealthyBlue members, including the following:

HealthyBlue members are more likely to select and visit PCPs.

HealthyBlue members complete health self-assessments at rates dramatically higher.

Rates for HealthyBlue members visiting PCPs to complete health and wellness evaluations have climbed steadily since program inception.

HealthyBlue members have higher generic drug utilization rates.

PCMH The PCMH program is demonstrating strong results both in improving quality and reducing expected health care costs:

Health care costs for members in the PCMH were $98 million less than the company projected. The results represent a savings of 2.7% on the total projected 2012 health care costs for PCMH-covered members and improve upon the 1.5% savings against projected costs registered by the program in 2011.

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Overall, quality scores for PCMH panels rose by 9.3% from 2011 to 2012. Quality scores for panels that earned Outcome Incentive Awards (OIAs) were 3.7% higher than for panels that did not earn them. OIAs are based on panel savings against projected 2012 total health care costs and performance on quality measures

Costs for emergency room visits, hospital admissions, medical and pharmacy per member per month and outpatient facility visits were lower for members in the PCMH.

Primary care panels earning OIAs achieved an average 4.7% savings against expected 2012 care costs. Panels that did not earn OIAs registered costs that averaged 3.6% higher than expected; however, that was an improvement over the previous year of 4% higher than expected.

As many as 74% of panels that earned OIAs in 2011 earned them again in 2012, meaning their patients registered lower than expected total health care costs for two consecutive years. About 66% earned them in 2012.

On average, panels earning OIAs will see an increase in their reimbursement level of 29 percentage points. This increase is in addition to a 12 percentage point increase paid to all participants that continue to remain in good standing in the PCMH program.

Lessons Learned: HealthyBlue

Member education is critical to getting consumers to consider and enroll in products that incorporate VBID elements. “Members tend to only consider the premium price and deductibles before choosing a plan,” says Lindsey Lucas, CareFirst director of strategic marketing. “We want to provide transparency so that no one is caught off-guard about what benefits are offered, the potential for cost savings and how they can reduce their risk of extra costs.”

VBID features focused on members/patients must be kept simple enough for consumers to understand and utilize.

Market feedback from members, accounts, brokers and salespeople is invaluable in shaping and refining value-based benefit designs.

It is important to mitigate the perception that high-value providers are of lower quality than other providers because they require no or lower copayments for services.

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PCMH

To build strong physician patient relationships, nurse care coordinators need to be truly local. Geographic proximity is essential to fostering these relationships effectively.

Nurse care coordinators must not only be only clinically competent, but also be able to engage with physicians and patients to build trust.

Physicians are eager for data that will allow them to provide better care for their patients. The data must be readily accessible and delivered in a format that allows them to “drill down” into patient information.

Incentives need to be thoughtfully aligned to ensure that physicians are motivated to actively seek lower costs while improving quality.

John O’Brien: john.o’brien@carefirst.com

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IBM CORPORATION

Description: IBM is a multinational computer and information technology corporation headquartered in Armonk, New York, with 433,000 employees worldwide. Initiation of Program/Strategy: 2004 Objectives:

Ensure providers are appropriately reimbursed for providing services.

Align health care services with population needs.

Program Features: IBM has a noted track record in the integration of VBID into its health care employee benefits, starting in 2004 with cash rebates for participation in wellness programs. Two years later, IBM decided to offer preventive care services covered at 100% and added no-cost primary care services in 2010, which include in-network primary care visits with internists, family practitioners, general practitioners and primary osteopaths. In 2008, IBM joined with six health plans and Taconic IPA in New York’s greater Hudson Valley to form a PCMH pilot. Called the Taconic Health Information Network (THINC), it is currently running under its own power. THINC developed: 1) an electronic health record; 2) a health information technology infrastructure; 3) the Hudson Valley Medical Home Project; 4) care management for high-risk patients delivered by six nurse care managers in 12 practice sites to improve cost

and quality; 5) value/outcome measurement, including quality, utilization, patient satisfaction and evaluation of success; and 6) value-based reimbursement indicating a transition to outcomes-based payment. The multi-payer strategy promotes patient-centered, coordinated care and ties reimbursement to quality of care. Results:

IBM saved $191 million in health-related costs through a $79 million investment made in wellness and preventive care between 2004 and 2007. These savings from health promotion efforts have resulted in increases in the company’s health care costs measuring in the low single digits.

After two years of the THINC pilot, Capital District Physicians Health Plan in Albany, one of the participating insurers, realized a 24% decrease in hospital admissions and a 9% drop in overall medical cost increases, resulting in a savings of $32 per member per month.

The impact of IBM’s emphasis on primary care—resulting in better health and fewer costs—on its $2 billion budget for global health care.

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Lessons Learned: IBM has learned what strategies work and what the company could perhaps do differently. The following indicates some insight into IBM’s experience with all of its projects:

Medical homes require continual quality improvement.

Leadership, benchmarking and transformation support are critical.

Value and outcome measurement are incredibly time-consuming and elicit a concern over the reliability of utilization data at the individual physician level.

IBM expresses concern over whether it can identify an outcome-based reimbursement model that fits what the company does well and is synergistic with individual groups’ ACO and medical home initiatives.

Evaluation results take time to materialize.

Susan Stuard: sstuard@thinc.org

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BLUE SHIELD OF CALIFORNIA/BLUE GROOVE Description: Blue Shield Of California is a San Francisco-based, non-for-profit health plan serving more three million people. Blue Groove is a three-tiered, value-based program for large employer groups offered by Blue Shield of California. Initiation of Program/Strategy: Blue Groove started with a member pilot in mid-2012, followed by an offering for employees on Jan. 1, 2013. There are 3,500 members/employees in the program. Objectives:

Combine supply-side process improvement and best practices—ACOs and PCMHs—with demand-side strategies, such as VBID, wellness and member engagement, to drive down cost and improve quality.

Drive adherence to high-value services that may ultimately result in fewer hospitalizations, emergency department visits and exacerbated conditions despite high utilization of these services.

Provide an opportunity for Blue Groove participants to choose health care services based on how much responsibility they want to assume in improving their health.

Program Features: Blue Shield of California offers three levels of Blue Groove programs to employer groups:

Basic Blue Groove, a PPO with a large provider network, targets people who do not want to fully participate in health and wellness programs. Their out-of-pocket costs will be greater than for participants in the other two tiers.

Main Blue Groove, a narrower network of physicians that is built upon an ACO infrastructure. Its members receive richer benefits for lower out-of-pocket costs than in the basic program.

Care+ Blue Groove, which addresses people with chronic conditions, such as diabetes, hypertension and cancer, who utilize a PCMH network championed by a primary care physician and his or her care team. They provide coordinated and integrated care based on evidence-based protocols. The lowest out-of-pocket costs and richest benefits are associated with this product.

Employees and their partners can receive premium discounts if they engage in a baseline biometric screening, falling within healthy parameters, and complete a wellness program, regardless of the medical plan in which they are enrolled. Blue Groove employees receive the same discounted premium but also have access to richer benefits if they complete the same requirements as non-Blue Groove participants.

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Lessons Learned: Participation levels for biometric screenings are about 75% for employees not enrolled in Blue Groove, while the rate is 93% for those in the program. Enrolled members can earn $500 a year deposited into a health reimbursement account to offset deductibles and copayments by complying with evidence-based protocols outlined in a customized care plan. Although Blue Shield has built other plans on top of an ACO network, Main Blue Groove is less expensive. Results: Thus far, Blue Shield does not have sufficient data to determine how well its Blue Groove programs are operating. However, Michael O’Neil, vice president, product and market alignment for Blue Shield of California, anticipates that employers could realize a one-time premium reduction of at least 10%, future premium trends of 5% or lower and a significant improvement in quality of care.

O’Neil says the health plan’s experience developing an ACO for 42,000 members of the California Public Employees’ Retirement System (CalPERS), which saved $15.5 million in 2010 and $7 million in 2011, served as an impetus behind creating Blue Groove.

He also believes that Care+ Blue Groove needs to expand its network to mitigate the hesitation and confusion associated with finding a new physician when individuals switch to a value-based program.

Michael O’Neil: Michael.oneil@blueshieldca.com

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MAINE COMMUNITY HEALTH OPTIONS (MCHO)

Description: Maine Community Health Options (MCHO) is one of 24 consumer-operated and oriented plans (CO-OP) in development nationally and the only nonprofit health insurance plan in Maine. Based in Lewiston, MCHO serves the entire state through a model of partnership with consumers, health professionals and businesses. Net revenues will repay start-up financing, as well as lower premiums and enhance benefits. Initiation of Program/Strategy: January 1, 2014; enrollment will begin Oct. 1, 2013. Objectives:

Support the integration of behavioral/medical health.

Increase member engagement.

Provide the right care at the right time in the right place to improve health more quickly.

Increase patient safety. Program Features: MCHO’s approach aims to drive wellness and promote health; leverage local care management; promote shared decision making, enabling patients to choose treatments based on their personal values and preferences; and ensure transparency. Through its Chronic Illness Support Program, MCHO has incorporated VBID into management of four chronic diseases: diabetes, hypertension, COPD and asthma.

Members with these conditions pay nothing out-of-pocket or receive a reduced rate for office visits, both primary care physicians and specialists; medications; laboratory and diagnostic screenings; and targeted durable medical equipment. Patients have access to in-home biometric monitoring related to COPD and congestive heart failure at no cost, as well as a home visit to assess environmental allergens for those with severe asthma. The cost of the first three outpatient visits to a behavioral care professional for counseling or treatment is waived to “enhance access, help overcome any stigma and remove financial constraints for obtaining care,” says Maggie Kelley, director, Care Management and Quality for MCHO. Behavioral health services are also covered when provided on the same day as medical visits to facilitate increased access to care. Kelley says the CO-OP supports participation in tobacco cessation, weight management and nutrition programs. For those trying to quit smoking, MCHO provides coverage for unlimited quit attempts, including no out-of-pocket costs for nicotine replacement therapy (when prescribed by a provider) and up to three months of Chantix, a non-nicotine prescription medicine. Kelley says that the MCHO program is focused on increased engagement in 2014, and does not apply “sticks” to any members that may fail to manage chronic conditions. However, MCHO’s higher than customary emergency department copayments are meant to make

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members think twice about heading to the hospital emergency department for something that could be addressed in a less expensive setting. MCHO also supports Maine Quality Counts’ Choosing Wisely campaign, which is focused on encouraging physicians, patients and other health care stakeholders to think and talk about medical tests and procedures that may be unnecessary.

In addition, the CO-OP plans to support a PCMH pilot as part of Medicare Multi-Payer Advanced Primary Care Practice and in Community Care Teams. They are multi-disciplinary, integrated care management teams that work closely with PCMH practices to provide enhanced services for the most complex, most high-needs patients in the practice. Results: Since the program will not officially begin until 2014, there are no results to report. Lessons Learned:

Chronic disease support programs using VBID strategies necessitate strong operations management, including providing a seamless structure for pharmacy and medical claims payments and making sure that members are fully aware of benefits so they can take full advantage of the enhanced benefits.

Determine how to best integrate behavioral health services in alignment with a VBID approach and discern what behavioral health services should be covered at no cost to members.

Decide which medications to cover for tobacco cessation—non-FDA-approved such as the electronic cigarette or only FDA-approved. MCHO chose the latter.

Maggie Kelley: mkelley@maineoptions.org

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Key Case Study Takeaways An examination of these commercial and state case studies indicate that they have many traits in common, from their objectives and program features to their results and challenges. In summary, the examples described here illustrate lessons learned from the organizations’ experiences:

Reliance on evidence-based, value-added services when redesigning benefits and choosing appropriate interventions.

Keeping medical decisions in the hands of clinicians.

Being flexible in the face of changing evidence-based, clinical guidelines.

Importance of buy-in from all stakeholders.

Supporting communication with members and employees.

Valuing participant experience.

Empowering members and employees to embrace VBID strategies.

Ensuring there is a human element included in member programs.

Recognizing that changes may be difficult to accept initially but education can pave the way.

Being responsive to feedback from employees. As VBID strategies drive successes for companies and non-commercial enterprises, there is also potential to utilize many of these VBID approaches in the health insurance exchanges.

VALIDATING VBID THROUGH EVIDENCE The value of VBID is somewhat intuitive, one that rests on incentives (carrots) to improve quality of care and reduce undesirable acute care utilization and more recently as VBID takes hold, the use of disincentives (sticks), both of which could reduce wasteful spending and lead to long-term savings. Many of the case studies listed above indicate the positive impact of VBID on medical cost trend as in the case of the Oregon Public Employees’ Benefits Board and in health-related costs for IBM; an increase in primary care visits and decreases in specialty care and emergency department visits in Connecticut’s Health Enhancement Program; and an increase in utilization of high-value drugs, a higher testing rate for testing glucose and lipids and improved adherence to these drugs for Whirlpool employees. Other examples not covered in this report also make an evidence-based case for the implementation of VBID. Addressing the effects of VBID programs, a review of 13 peer-reviewed, observational studies reveals improved adherence (average of 3% over one year), along with lower out-of-pocket spending for drugs. However, the studies do not indicate significant changes in overall medical

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spending when more generous coverage is provided perhaps, because the literature review is limited to short-term effects of VBID and is only focused on health spending.18 Other literature indicates that increases in patient cost sharing adversely affect compliance with recommended high-value services and might even lead to more hospitalizations, morbidity and mortality, as well as higher overall health care costs. For each 10% increase in cost sharing, prescription drug spending decreases by 2% to 6% and could cause increased use of medical services.19 The inverse rings true too. Lower cost sharing is associated with higher rates of adherence, resulting in an opportunity for incentive-driven programs to pay for themselves by reducing hospitalizations and emergency department visits. Blue Cross Blue Shield of North Carolina eliminated generic medication copayments and reduced copayments for brand-name medications. A study showed that the program improved adherence to medications for diabetes, hypertension, hyperlipidemia and congestive heart failure.20 Sponsors of Aetna-administered plans also eliminated copays for select generics and branded drugs for patients with a history of acute myocardial infarction. Results indicate a reduction in insurer spending by $5,271 per year despite increased pharmacy spend (difference not statistically significant) and a decrease in patient spending by $99 per patient per year, along with improved adherence, (4.4 to 6.2 percentage points) in all drug classes.21 The Mayo Clinic removed all cost sharing for primary care and preventive services, including colorectal screenings and mammograms; increased cost sharing for specialty care, imaging and outpatient procedures; and expanded primary care capacity. Patients still used the same amount of primary care and preventive services, but decreased the use of specialist office visits (0.2 to 0.7 fewer visits per person) and reduced their use of diagnostic testing, imaging and outpatient procedures.22 Finally, Pitney Bowes, a VBID pioneer, eliminated copays for a selected group of generics and brand name drugs targeting employees with a history of diabetes and vascular disease and

18

Lee JL, Maciejewski M, Raju S, Shrank WH, Choudhry N. “Value-Based Insurance Design: Quality Improvement but no Cost Savings.” Health Affairs. July 2013;32(7):1251–1257. 19

Goldman D, Joyce G, Zheng Y. “Prescription Drug Cost Sharing: Associations With Medication and Medical Utilization and Spending and Health.” Journal of the American Medical Association. July 4, 2007;298(1):61–69. 20

Maciejewski ML, Farley JF, Parker J, Wansink D. “Copayment Reductions Generate Greater Medication

Adherence in Targeted Patients.” Health Affairs. November 2010;29(11). 21

Choudhry NK, Avorn J, Glynn RJ, Antman EM, et al. “Full Coverage for Preventive Medications after Myocardial Infarction.” New England Journal of Medicine. Dec. 1, 2011; 365(22):2088-2097. 22

Shah ND, Naessens JM, Wood DL, Stroebel RJ, Litchy W, Wagie A, et al. “Mayo Clinic Employees Responded to

New Requirements for Cost Sharing by Reducing Possibly Unneeded Health Services Use.” Health Affairs. 2011;30(11):2134-41.

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reduced copays for some branded anti-platelet drugs. The company realized a decrease in the rates of physician and emergency department visits and hospitalizations; an increase in adherence (5.9 to 7.1 percentage points); and no increase in overall spending in the first year of intervention despite more generous coverage.23

OPPORTUNITIES TO INCREASE QUALITY AND LOWER COSTS BY ENCOURAGING VBID IN MARYLAND As indicated in the “Executive Summary” of this white paper, Maryland is poised to incorporate VBID elements into its state reforms and state insurance exchange. Both the actions of the Maryland General Assembly, which supports exploration of VBID in the small group insurance market, and a requirement by the Maryland Health Benefit Exchange Act of 2011 to engage in selective contracting with insurers that promote many VBID strategies, indicate the state’s commitment. Maryland already has examples of insurers who plan to offer qualified health plans with some VBID elements in the exchange. CareFirst, as mentioned in one of the case studies, provides members with HealthyBlue Advantage and HealthyBlue 2.0 that incorporate no-cost preventive services and generics, along with wellness incentives. CareFirst also gives members the opportunity to participate in a PCMH. Evergreen Health CO-OP opened its doors in October 2012. Its Exclusive Provider Organization plan option, one of two, is built on a PCMH model to deliver primary care at neighborhood health centers staffed by family physicians, nurses, health coaches and social workers. The approach relies on preventive care and incentivizes its doctors for quality of care, not for volume. As Maryland works with CMS to pursue a State Innovation Model implementation grant, there are many opportunities to inject VBID into the plan and ultimate design. For example, the state intends to strengthen the Community Integrated Medical Home program through a more coordinated reimbursement strategy and greater emphasis on public health and community providers. The state can strengthen these elements by utilizing the benefit design to make it easier for patients to get access to high-value services, for example, by waiving cost sharing if patients visit designated high value providers. The plan could also reward patients that utilize consumer decision support tools that help enrollees understand the pros and cons of receiving certain services (like MRIs or surgery for low back pain or various treatments for prostate cancer). Additionally, the plan could reward beneficiaries with chronic conditions for creating and completing action plans with the assistance of community health workers and care managers.

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Choudhry NK, Fischer MA, Avorn JL, Lee JL, Schneeweiss S, Solomon DH, et al. “The Impact of Reducing Cardiovascular Medication Copayments on Health Spending and Resource Utilization.” Journal of the American College of Cardiology. 2012;60(18):1817–24.

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These are examples of plans with laudable strategies and goals. As Maryland works to incentivize more plans to offer innovative VBID elements that increase quality and decrease costs, a number of options exist.

THE FOCUS ON HEALTH INSURANCE EXCHANGES Seven million people are expected to enroll in individual and small group exchanges in 2014, as predicted by the Congressional Budget Office, with the number increasing to 26 million by 2022.24 State exchanges, which will be operational by Jan. 1, 2014, preceded by enrollment on Oct. 1, 2013, will provide a marketplace for individuals and small businesses to compare and purchase private health plans meeting state and federal standards. Exchanges also will provide low-to-moderate income individuals access to public coverage programs. The ACA required every state to establish an exchange by Jan. 1, 2013. States unable to meet the regulatory requirements defaulted to a federally facilitated exchange. In addition, HHS allowed states the option of choosing a state partnership exchange with the federal government, in which they may assume responsibility for plan management functions, in-person consumer assistance programs or both; HHS will perform the remaining functions. Based on actuarial value, the plans in the exchange will offer four tiers of services—bronze, silver, gold and platinum—representing the percentages paid by the plan and the enrollee. In addition, certain preventive care is available without any cost sharing. Additionally, employers and insurers are allowed to offer up to 30% of the value of the premium for group plans as an incentive to achieve certain wellness and health goals. Although the ACA established minimum standards for the benefits provided by insurers in the exchanges, the law still allows exchanges an opportunity to offer flexible benefit design to promote quality improvement and greater efficiency. Some stakeholders suggest that VBID could offer a more clinically nuanced alternative to traditional benefits plans, in contrast to potential premium hikes that might shift costs to consumers through higher out-of-pocket expenditures for health care services without recognizing the relative value of the services.25 The Institute of Medicine also supports VBID and the idea of clinical nuance. The report, Essential Health Benefits: Balancing Coverage and Costs states “the committee believes that

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“CBO’s February 2013 Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage.” Congressional Budget Office. February 2013. 25

Corlette S, Downs D, Monahan CH, Yondorf B. “State Insurance Exchanges Face Challenges in Offering Standardized Choices Alongside Innovative Value-Based Insurance.” Health Affairs. February 2013(32:2).

Seven million people are expected to

enroll in individual and small group

exchanges in 2014.

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the essential health benefits package should become more fully evidence-based, specific and value-based over time.” The committee also noted, “Benefit design and its subsequent administration can be instrumental in addressing the cost and quality of services and care delivered. Insurers and employers are experimenting with an array of medical management and cost-sharing designs (e.g., value‐based insurance design).26 As the deadline for the launch of exchanges approaches, states have expressed their concerns, including lack of preparation time; a complicated regulatory climate; control over insurance markets; consumer outreach and enrollment; coordination of efforts with other agencies including interoperable information technology systems; consumer awareness of the exchanges; affordability; and funding and resources.27 On the other hand, exchanges are expected to increase the number of insured individuals, improve the quality of health care, decrease costs and reduce disparities by enabling consumers to select health plans and providers that offer the most value.

26

“Essential Health Benefits: Balancing Coverage and Costs.” National Academies of Sciences. Institute of Medicine. Oct. 6, 2011;23. 27

“Health insurance Exchanges and State Decisions.” Health Affairs. July 18, 2013.

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OPTIONS FOR PROMOTING VBID THROUGH HEALTH INSURANCE EXCHANGES One of the most important tasks before states policymakers implementing the ACA is to build health insurance exchanges that will inform consumers, incentivize healthy behavior and help balance plan comprehensiveness and affordability. VBID is one concept that brings all of these goals together. As attention shifts from the logistics of exchange building to issues of quality and cost, it is important to note that VBID can add value to exchanges by encouraging smarter health care spending in order to provide comprehensive health benefits at lower costs. Several options exist for incorporating VBID into the Maryland Health Benefits Exchange and into other state exchanges. The listing below begins with the least aggressive strategies and moves on to more comprehensive and aggressive strategies. These options, however, are not mutually exclusive and could be pursued simultaneously or used as stepping stones to each other:

OPTION 1: Allow or encourage benefit design flexibility for plans that include

VBID elements. In contrast to requiring all exchange plans to offer the exact same set of benefits with similar copayment and coinsurance structures, this option would allow or encourage clinical nuance.

Pros: encouraging innovation. Variation in benefits can make comparison shopping difficult for consumers. As a result, exchanges may elect to standardize benefit designs for plans seeking to participate in the exchange. One potential undesirable outcome of standardized benefit packages is the stifling of innovation, such as clinically nuanced value-based designs that promote efficiency and better health. For instance, a plan varying cost sharing for high-value clinician visits, laboratory testing or imaging services might also run afoul of standardization rules. Even if designed with care, cost-sharing standardization requirements are unlikely to keep pace with advances in clinical evidence. Exchanges could strike a middle ground between flexibility and standardization by allowing carriers to offer VBID plans alongside required standard plans. The exchange could also develop a list of “pre-approved” VBID options.

Cons: adverse selection. Building a new approach to delivering health care is no easy task. Although there is evidence of successful implementation of VBID strategies by insurers, companies and state entities, as illustrated by the case studies in this paper, VBID presents challenges to the exchanges. For example, VBID plans could create adverse selection concerns by attracting patients with chronic conditions that incur higher claims costs. Plans in the exchange should be cautious when providing VBID elements—especially incentives—which could

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disproportionately attract higher risk patients. Risk adjustment mechanisms at the state and federal level can help mitigate these adverse selection concerns.28

OPTION 2: Allow or encourage insurers to market VBID plans to consumers with

specific conditions, such as diabetes and asthma. These plans would include VBID features directly related to managing chronic diseases, such as diabetes (United HealthCare offers a diabetes plan to some clients) or congestive heart failure.

Pros: lower costs. Effectively targeting consumers with specific chronic conditions and providing appropriate incentives could be less costly for plans than it would be to offer the same benefit to all enrollees regardless of condition. For example, dropping the copayment on all hypertension drugs means the insurer will spend more money on the patients who were already adherent just to gain improved outcomes for the subset that is not.29

Cons: administrative complexity and potential discrimination. It could be administratively difficult to administer such a program; however, it is expected that as electronic health records and integrated data systems become more prevalent, it should become easier to target clinically appropriate care to specific patient populations, increasing the potential to improve patient outcomes.30 Additionally, some members that do not have chronic conditions may feel they are being unfairly discriminated against because they do benefit from receiving the added benefits. However, educating consumers and insurers on how VBID works could help mitigate disparities between those who are charged less and those who are charged higher copayments for the same service. Informing consumers and insurers about the benefits of the model should create more acceptance. Finally, and as mentioned above, targeting particular groups could exacerbate adverse selection concerns by disproportionately attracting enrollees with chronic conditions.31

28

“Strategies for Health Insurance Exchanges to Promote Value-Based Insurance Design.” V-BID Center Brief. October 2012. 29

Buttorff C. Tunis S, Weiner J. “Improving Value and Investing in Prevention: Encouraging Value-Based Insurance Designs in State health Insurance Exchanges.” White Paper from the Department of Health Policy & Management of the Johns Hopkins Bloomberg School of Public Health and the Center for Medical Technology Policy. Nov. 14, 2011. 30

Fendrick AM, Smith DG, Chernew ME. “Applying Value-Based Insurance Design to Low-Value Health Services.” Health Affairs. November 2010;29(11):2017-2021. 31

Chernew ME, Rosen, AB, Fendrick AM. “Value-Based Insurance Design.” Health Affairs. March 2007;26(2):195-203.

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OPTION 3: Allow plans to offer a blend of carrots and sticks and give these

types of VBID plans more regulatory latitude. Exchanges could allow or encourage health plans to impose incentives and disincentives in VBID plans. For example, a VBID plan that combines sticks and carrots may eliminate copays on insulin, eye exams and hemoglobin A1c tests for patients with diabetes, and also increase copayments on drugs designed to increase hair growth for baldness or wart removal procedures (services typically considered “preference sensitive.”)

Pros: increased patient safety. Higher cost sharing for harmful services and services of uncertain benefit can discourage the use of unnecessary care and increase patient safety. Disincentives for certain services can also help produce VBID plans that decrease cost.

Cons: difficulty determining “low value.” It can be hard to determine which services are of high- or low-value. The latter is the harder to define. The challenge lies in the strength of cost-effectiveness evidence, the target population, the level of clinical evidence and weighing benefits relative to costs. Lack of evidence is due to limited use of randomized trials, incomplete reported data potentially causing publication bias and use of total cost rather than plan sponsor cost.32

OPTION 4: Highlight and promote plans incorporating VBID elements when

consumers search on the exchange website. Overwhelming choice may lead to suboptimal plan selection, and consumers searching for coverage on the exchange might find dozens of options from which to choose. Accordingly, exchanges must carefully consider how they will communicate and display coverage options. Consumers are heavily influenced by presentation, and research shows that defaults are critically important. In determining an exchange’s choice architecture—that is, how it will present options to consumers—exchanges can highlight plans’ use of VBID. Under this approach, a plan that features extensive use of VBID might be displayed more prominently than a plan that contains few VBID elements. Exchanges could also use symbols to denote VBID plans, much as they might use other symbols to denote plans with limited networks or other features.33 34

OPTION 5: Promote plans that couple consumer incentives with innovative

payment models that reward value over volume. Some innovative VBID plans pair

32

Neumann PJ, Auerbach HR, Cohen JT, Greenberg D. “Low-Value Services in Value-Based insurance Design.” The American Journal of Managed Care. April 2010;16(4). 33

Zhou C, Zhang Y. “The Vast Majority Of Medicare Part D Beneficiaries Still Don’t Choose The Cheapest Plans That Meet Their Medication Needs.” Health Affairs, 2012;31(10): 2259–65. 34

“Choice Architecture: Design Decisions That Affect Consumers’ Health Plan Choices.” Kleimann Communication Group. Consumers Union. 2012.

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consumer incentives such as reduced cost sharing for high-value services with payment models that reward high-quality providers in efficient settings. Combining these “demand side” levers with “supply side” levers produces a “one plus one equals three” equation. These narrower networks within a network are being coupled with performance-based contracts, bundled care/episode payments and shared risk and savings. As illustrated in this white paper, CareFirst’s PCMH and Blue Shield of California’s Main Blue Groove and Care+ Blue Groove, which offer an ACO infrastructure and a PCMH network, respectively, are examples of high-performance networks that encourage members and employees to choose more efficient providers.

Pros: increased efficiency and lower costs. Using benefit designs to steer patients to the highest value providers is one way to increase the quality of care and lower costs.

Cons: alienating popular providers. Some popular providers may not be considered high value—either because they are very expensive or they don’t meet certain quality metrics—or both. Yet, given their popularity, patients still seek plans that include these providers as in-network providers, which could prevent some enrollees from picking narrow network plans that exclude certain providers.

OPTION 6: Recognize VBID designs in plan quality ratings. The ACA requires all

exchanges to rate carriers’ efforts to promote quality. Quality ratings, as determined by the exchange, could consider VBID designs insofar as they encourage patients to use evidence-based, high-value services. State exchanges can recognize the impact of value-based designs by assigning higher ratings to plans that include VBID features. For example if a plan offers incentives when enrollees use consumer decision support tools, that plan may receive an extra star (or portion of a star) in a star rating system. Additionally, states could deem plans offering certain VBID elements as meeting certain quality benchmarks.

Pros: This kind of approach could make it easier for consumers to recognize VBID plans.

Cons: It could be both difficult to establish criteria on which to base a star rating and difficult to implement such a program administratively.

OPTION 7: Require all qualified health plans seeking certification by the

exchange to offer certain VBID elements. The ACA requires all new plans to cover certain preventive services without imposing any cost sharing. This includes routine immunizations and services rated as “A” or “B” by the USPSTF. This means that all plans sold on the exchange will include some important VBID elements; however,

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there are many other evidence-based VBID features that exchanges (especially those functioning as “active purchasers”) might require all qualified health plans to deploy. For example, exchanges could require plans to cut copayments for cholesterol control medication for at-risk individuals or lower financial barriers to recommended services such as hemoglobin A1c testing and eye examinations for individuals with diabetes. The specific requirements the exchange places on qualified health plans to offer VBID elements could be determined through an open and transparent, multi-stakeholder process, as outlined on page 5.

Pros: This approach would greatly increase adoption of VBID.

Cons: This aggressive of an approach may preclude some plans from participating in the exchange. Additionally, researchers are still acquiring evidence about what works.

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A recent survey from BDC Advisors, a health care consulting company, shows that narrow, tailored and high-performance networks will substantially differ from their 1990s’ predecessors, focusing on reducing cost as well as maximizing value and providing sustainable affordability. Some health plans and employer groups have adopted these narrower networks within a network to encourage members and employees to choose more efficient and cost-saving alternatives. Aetna developed its Aexcel network of specialists more than eight years ago, inviting physicians who meet Aetna’s standards for clinical performance and efficiency and who charge less than normally for certain services. The health plan has extended the model to include hospitals and anticipates savings of about 1% to 4% for plan sponsors.1 In 2012, Fallon Community Health Plan and Steward Health Care System, both based in Massachusetts, established an insurance plan called Steward Community Care, a limited network product for small businesses promising premium savings of at least 20%. The network includes 10 community hospitals and 2,200 primary care physicians (PCPs). Similarly, in 2012 Health Net of Arizona developed ExcelCare in conjunction with Banner Health Network to lower costs and improve the patient experience for small and large employer groups. Serving Maricopa County and parts of Pinal County, the HMO network has 2,650 PCPs and specialists, along with its hospital system and like Steward Community Care, anticipates 20% savings. Home improvement company Lowe’s created a partnership with the Cleveland Clinic in 2010, in which the company will fly any employee and dependents to the clinic for cardiac surgery and pay for a spouse or other companion to stay in Cleveland during the surgery. Lowe’s expects that the cost of the arrangement including surgery will cost less or the same if the surgery were done in a traditional local setting.1 In 2011, PepsiCo contracted with Johns Hopkins Hospital in Baltimore for a similar arrangement. The company will allow employees and dependents to travel to the hospital from anywhere in the country for cardiac or complex joint surgeries. It will pay for deductibles and coinsurance for the procedures, travel, hotel and meals.

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CONCLUSION States, health plans and businesses that have aligned consumer incentives with value by reducing barriers to high-value services and providers (carrots) and discouraging the use of low-value services and providers (sticks) have already deployed the essential elements of VBID. The first VBID efforts applied primarily to the use of high-value medications, but VBID has evolved into a model that has shown its mettle by transforming the way health care is delivered. It has emerged from early beginnings with the Asheville (N.C.) Project and its pharmacist-led disease management program for diabetes to its incorporation into the new insurance exchanges. In between has been the development of ACOs and PCMHs, tiered provider and service networks, incentives for using preventive services, copayments for services and providers aligned with value and wellness programs. In addition, VBID is playing a role in expanding state Medicaid programs, reforming state employee health plans and creating health insurance exchanges. Maryland is on the right track for integrating VBID principles into a myriad of reform efforts, including creation of the Maryland Health Benefit Exchange. The interest is confirmed through the state’s 2009 enactment of legislation requiring the exchange commission to explore options for implementing value-based health care services and from the Maryland Health Benefit Exchange Act of 2011. The Act requires the exchange to engage in selective contracting with insurers that promote many VBID strategies. The ultimate test of health reform will be whether it provides coverage that promotes access to care, improves health, and addresses rapidly rising costs. Instead of focusing exclusively on aggregate spending, or how much is spent, attention should be turned to how well we spend our health care dollars. As such, clinically nuanced, value-driven strategies that encourage the use of clinically effective care and discourage the use of low-value services can help contain costs and improve enrollee health outcomes.

VIBD is playing a role in expanding state Medicaid program,

reforming state employee health plans

and creating health insurance exchanges.