Podcast: What's Happening with Value-Based Insurance Design? w/ Mark Fendrick

Hello and welcome to Health Affairs This Week. I am your host, Jeff Byers. We're recording on 02/06/2025. Before we begin, I wanted to remind listeners that we released a new health policy brief last week titled implications of public policies for LGBTQI plus population health in The US. Check that out.

Also, coming up this month, we have an insider event where Stacy Dusetzina and Laura Tolan will host a thirty minute virtual event outlining the new drugs at the Medicare negotiating table. This event will feature a fifteen minute q and a with Stacy and Laura as well. So if you're into that, please check the show notes and sign up for that. And if you're into podcasts, and I know you are, since you're listening, we are going to be doing a live taping of A Health Policy, our other show, on March 12. Rob Lott will chat with Yashaswini Singh on her upcoming paper in the March issue of Health Affairs discussing, private equity's effect on physician turnover.

So we'll be taping that on March 12, and you can, come listen, submit questions, and all that good stuff. And then we'll publish the episode on our regular channel afterwards. So, something new, I would try them. It'll be interesting to see. Please show up.

And today to discuss value based insurance design, I'm joined by Mark Fendrick from the University of Michigan's Center for Value Based Insurance Design. Mark, welcome to the program.

It's a pleasure to be here.

Yeah. So you are wearing we're recording this on February 6, and you are wearing Philadelphia Eagles, some swag. So either by the time listeners hear this, you're gonna be very happy or very disappointed. So do you wanna give any quick, either or scenarios or sound bites of what we can use just in case of what happens?

No. Exactly right. Fly eagles fly.

Fantastic. So, the news of the week that we're discussing is, the Medicare Advantage value based insurance design is set to end this calendar year. So, you have been noted as the godfather of value based insurance design. So why VBID? What can you tell us about VBID?

Yeah. Before we talk about the unwinding, Jeff, I think it's really important to talk about the motivation for value based insurance design and particularly in the Medicare program. So although many folks who are not in Medicare like yourself think that once you age into the program or have disability needs to be in the program that you're no longer have financial obligations at the point of service. Turns out that one third of Medicare beneficiaries report it was very difficult to afford health care costs, and it's well established that out of pocket cost related non adherence leads to lower use of those services I beg my patients to do, potentially leading to future health complications and greater spending over time. So we have worked not only in the Medicare space, but my colleague, Michael Chernu, and I of Harvard Medical School have been trying to mitigate the impact of these out of pocket costs and structural barriers, and basically came up with this idea of value based insurance design.

But instead of setting consumer cost sharing based on the cost of the service, such that cheap things are cheap and expensive things are expensive, in value based insurance design, cost sharing is set such that high value services, the out of pocket costs are low or none, and cost sharing would then be added on to those services that don't make Americans healthier. Medicare has implemented several VBID programs in addition to the MA VBID demo, some of which, your listeners know about, the Affordable Care Act provision that eliminates cost sharing for specific preventive services. A lot of people know about the $35 monthly out of pocket cap on insulin products. And very excited we're a month into the $2,000 maximum out of pocket expense cap for those in Medicare who use prescription drugs. So anything that lowers out of pocket cost burden for the things that make people healthier would fall typically into the v bid realm.

And so what's different with this MA version or this MA model?

The MA v bid model, when implemented almost a decade ago, was the first ever to allow Medicare Advantage Plans to lower cost sharing for specific services or specific providers as opposed to what had been classic in Medicare is something called uniform benefit design. So you realize that some people may benefit from a certain type of screening, or diabetic patients may benefit more from an eye exam than those without diabetes. But because of the uniformity rule, which was implemented in 1965, it was impossible to say, I'm gonna make it easier for you because you have heart disease or you have cancer or you have diabetes to get a certain service than someone who doesn't. So this was in fact the motivation in the fact that we wanted to have easier access for certain services for certain people as opposed to making it blunt for everyone else. The issue, of course, with any model under the Centers for Medicare and Medicaid Innovation or CMMI is that the regulation state very clearly that CMS has to terminate models that increase cost to the Medicare program.

And the evaluations of the MAV bid model show significantly increased cost, billions of dollars, in fact, leaving CMS no viable option to continue. I will say, Jeff, the key point here to me is, one, is I did not go to medical school to learn how to save people money. Uh-huh. And second, really importantly, is that all of the specific services that we incentivize in the MA VBID model, whether it be clinician visits, drugs, diagnostic tests, all of those things, Jeff, are cost effective, meaning you have to spend money to get the health. And very, very, very, very few things in medical care save lives and saves money.

So I've waited for a decade to be able to say on your show, my colleague Michael Chernu has said for years to kind of temper down the idea that anything that leads to more utilization of high value services will save money. He would say, remember that if you buy more things that don't save money, you will not save money. And I'll explain why, the reasons why the MAB bid model cost, CMS so much. But this was absolutely no surprise to us, and we completely predicted from the beginning that, again, increasing access to services that don't save money would be highly likely to save money.

Right. Yeah. From the actual, press release, I believe, CMS noted the excess cost of this model were, quote, unprecedented in CMS innovative center models. And they noted that cost for 2,300,000,000.0 and 2,200,000,000.0 in recent years. So, yeah, can you go over why, you might be seeing that kind of thing?

So let me first, because I went to med school to make people healthier as opposed to save or make people money, I just wanna make sure it's extremely clear that the evaluations of the MAV BIT program report that the main goals, at least for me, that, improved adherence to high value services and better patient outcomes were achieved. Right? So we don't know exactly whether that $4,000,000,000 that you cite was high or low value for the health benefits that we actually gained, but that would be the evaluation that I would argue for. So for instance, I know everyone who reads health affairs and and follows all the health, Affairs podcasts and programs are aware of the fact that we have these very high cost but high value prescription drugs to treat obesity. And if you look at the numbers from the Congressional Budget Office, kind of the same type of people who presented that $4,000,000,000 that you gave, we know that to achieve these healthcare goals, it costs us incremental dollars to do that.

So we have to figure out, is it worth the 4,000,000,000, in my opinion, on the MAV bidemo in terms of the health care gains that we achieved? But to answer your specific question about the financial implications of the MA VBID model, there are really two main drivers for the added expenditures to the Medicare trust funds. First is risk adjustment, and the second is higher plan rebate payments. I'm not gonna go into the very kind of sophisticated and complicated formulas that CMS uses to pay MA plans based on risk adjustment, But it should come as no surprise given that particularly early on, the MA VBID demonstration focused on specific chronic conditions that MA plans actually sought to identify individuals who had those conditions. And given those conditions often led to higher spending, these patients also had higher risk scores, which again led to CMS paying higher payments.

The point about the risk scores is really important because as a clinician, if the accurate coding of these chronic disease patients actually led to interventions that led to better health, I think that spending on risk scoring is quite good. However, if these coding changes were just to identify patients who are already getting those treatments but to lead to higher revenues or payments, that spending, in my opinion, is not beneficial. So what we don't know, Jeff, is whether we'll get to rebates in a second, the same reason. We don't know that these billions of dollars going out are actually helping patients or just helping the plants.

And, you know, one thing that you just mentioned struck a chord with me, and maybe it's related, maybe it's not, you can let me know, is that there has been some fraud in the MA marketplace. I believe we had another podcast on that recently. Are these things related?

Again, I I I follow the issues of fraud, waste, and abuse in Medicare and commercial plans quite closely. Like all things, and it ties to the idea of value based insurance design, it depends. No one really knows just yet what has been the health outcomes tied to the coding. We know the coding is real. So if you see a code that someone's getting some intervention that's supposed to happen every ten years, like a colonoscopy, and gets it every month, that would certainly raise a fraud red flag.

But if in the case of a very common disease condition that fell under the MAV bid model, If, more patients were screened for, diagnosed with, and treated well for diabetes, for instance, right, those interventions are all cost effective and not cost saving. So if you told me that a population of either undiagnosed or not completely well treated diabetic patients had better quality metrics and outcomes and led to increased spending on those things, I would say that's a terrific outcome. If the process only led to people who are already well controlled in diabetes getting upcoded for things that they had not been coded for previously, I'm less enthusiastic about the clinical benefits of that additional spend.

Well, we can get into rebates or we can discuss you mentioned at the top of the program a lot of different VBID designs, and then we're talking about the sunsetting of the MA model. What is actually working in those other models?

If you look specifically that if you make people pay less for something, they buy more of it, and you want people to buy more of those things, which is the basic tenet of VBID programs, we have seen not only in Medicare that there is now a robust evidence base, Jeff, that, you know, as my my mother said, you know, this is really a a question that doesn't need to be researched. But in fact, because there are people who are somewhat skeptical about the role of out of pocket costs, it should come as no surprise that there is a robust benefit base that demonstrates that VBID interventions that lower out of pocket costs increase adherence to high value services, reduce disparities because those who benefit most from reductions in cost sharing are those who typically are financially insecure or for underserved populations. And most importantly, the studies that look specifically at patient centered outcomes show that the more people use things that are supposedly very good for their health, the healthier they are. What's really interesting is that as much as I would like to think that these VBID programs were actually lower expenditures, it's only in very rare circumstances that if you buy more things that save money, you'll actually save money.

And our initial actuarial modeling that we did for CMMI and others before the MA VBID model was actually introduced, there are some situations like clinical chronic conditions like congestive heart failure that have high rates of preventable hospitalizations. So because those offsets are easily determined and measurable, those would be the interventions, Jeff, I'd say, if you need to save money, go on specific areas. But if you look at other conditions, like diabetes, for instance, you get close to cost neutrality, but the more people you find, particularly those with mild diabetes with very few offsets, it takes a very, very long time to incur savings for the incremental costs you made to make them healthier, which I would want us to do anyway regardless if it saved money or not.

Well, as we wrap up our discussion quickly on the VBID portion, like, what's next? What what can we expect here?

What you'll see in the press release from CMMI regarding the unwinding the MA VBID demo, I think they infer, if not explicitly say, that this is not the end of value based insurance design. And for those who filed the MA VIBIT demo, there were a lot of things that were not classically considered value based insurance design, but things we're very excited about, like food is medicine and transportation. But there's ways to make the MAV demo better. One, by, allowing a longer time period to assess those clinical offsets that save money. And second, which I think is very important, is that the initial regulations around the MA V BID model did not allow any implementations of things to spend less on the things we shouldn't be buying.

So there's a lot of interest in the current administration around the measurement and reduction of low value care because, for better or for worse, there's billions of dollars that Medicare spends, Jeff, that I wouldn't buy even if it were free. So the way to get the MAV bid model to cost neutral is not to wait twenty years to prevent a heart attack, but stop buying those things like pre op testing for low risk surgery or back imaging for people who need physical therapy and allowing us to rob low value care Peter to pay high value care Paul is a way to make that move forward. The other thing, too really worth mentioning is in the first Trump administration, we kind of applied this more of the good stuff, less of the bad stuff in a concept called VBID x. There's a nice, health affairs forefront that describes this idea that you sit down with clinicians, patients, and actuaries, and you put some things in the high value column and make them less expensive, understanding your cost will go up, and you use those actuaries to make, benefit design and payment in such a way that every dollar you spend more on, say, insulin, the less you spend on things you don't need, like vitamin d testing.

Yeah. We'll put the link to that forefront piece in the show notes. That that was a previous piece, and I know you have another piece on rebates and risk scoring to be published next week, but it's this week. Like, we're recording on the sixth. It's supposed to be published next week.

So we'll also put a link in the show notes for that. As we wrap up, you mentioned the first Trump administration. So you focus have focused your career on out of pocket costs. Is there anything that you can tell us that you forecast for the second Trump administration that might relate to out of pocket cost?

Yeah. As anything about this administration ties to one of my favorite quotes from Yogi Berra, who said predictions are dangerous, particularly those about the future. But I I will say that, the first Trump administration did implement, particular VBID policies that lowered out of pocket costs. Many people don't know that the $35 insulin co pay cap for which the Biden Harris administration talked a lot about was actually implemented as a pilot, in the Trump administration called the Part d Senior Savings Model. They also implemented for commercial plans IRS notice 02/2019 dash '45, which allowed for the first time certain high deductible health plans to cover specific chronic disease services, including several medication classes before the plan was deductible was met, and this impacted millions of Americans who were able to get those services at usual cost sharing as opposed to having paid full price if deductible still exists.

We also hope that the Trump administration will implement Medicare's $2 drug list model, which was announced in the previous administration, which offers low cost and standardized prices for over a hundred generic drugs that just about everyone in Medicare who takes any drug uses. So we're optimistic as, you know, the Trump administration has always said that lowering prescription drug costs was a priority, and, we hope to build on not only what they did in the first administration, but to find this very, very rare, Jeff, bipartisan political support for a health care idea that patients shouldn't have to have a bake sale to afford their insulin, nor they should have an online fundraiser to pay for a cancer drug that was designed to treat their tumor. So we're optimistic we'll make incremental steps to lower out of pocket costs while the grown ups argue what the prices should actually be.

Well, thanks for that. As, as former editors of my work know when asking about if I'm gonna hit a deadline, You know, the answer is the same with this. Time will tell. So with that, Mark Fendrick, thank you for joining us today on Health Fairs This Week. If you, the listener, enjoyed this episode with references to the Eagles and Yogi Berra, send it to the Draft King in your life.

Thanks, and we look forward to seeing you next week.

Thanks so much for having me.