Bundled payment entails paying a single price for all services delivered as part of an episode of care for a specific condition. It is seen as a promising way to slow the growth of health care spending while maintaining or improving the quality of care. To implement bundled payment, policy makers must set base payment rates for episodes of care and update the rates over time to reflect changes in the costs of delivering care and the components of care. Adopting the fee-for-service paradigm of adjusting payments with uniform update rates would be fair and accurate if costs increased at a uniform rate across episodes. But our analysis of 2003 and 2007 US commercial claims data showed spending growth to be highly skewed across episodes: 10 percent of episodes accounted for 82.5 percent of spending growth, and within-episode spending growth ranged from a decline of 75 percent to an increase of 323 percent. Given that spending growth was much faster for some episodes than for others, a situation known as skewness, policy makers should not update episode payments using uniform update rates. Rather, they should explore ways to address variations in spending growth, such as updating episode payments one by one, at least at the outset.

Value-based insurance design reduces patient copayments to encourage the use of health care services of high clinical value. As employers face constant pressure to control health care costs, this type of coverage has received much attention as a cost-savings device. This paper's examination of one value-based insurance design program found that the program led to reduced use of nondrug health care services, offsetting the costs associated with additional use of drugs encouraged by the program. The findings suggest that value-based insurance design programs do not increase total systemwide medical spending.

BACKGROUND: Diabetes affects over 20 million Americans, resulting in substantial morbidity, mortality, and costs. While medications are the cornerstone of secondary prevention, many evidence-based therapies are underutilized, and patients often cite out-of-pocket costs as the reason. Value-based insurance design (VBID) is a 'clinically sensitive' refinement to benefit design which links patient cost-sharing to therapy value; the more clinically beneficial (and valuable) a therapy is for a patient, the lower that patient's cost-sharing should be. We describe the design and implementation of MHealthy: Focus on Diabetes (FOD), a prospective, controlled trial of targeted co-payment reductions for high value, underutilized therapies for individuals with diabetes. METHODS: The FOD trial includes 2,507 employees and dependents with diabetes insured by one large employer. Approximately 81% are enrolled in a single independent-practice association model health maintenance organization. The control group includes 8,637 patients with diabetes covered by other employers and enrolled in the same managed care organization. Both groups received written materials about the importance of adherence to secondary prevention therapies, while only the intervention group received targeted co-payment reductions for glycemic agents, antihypertensives, lipid-lowering agents, antidepressants, and diabetic eye exams. Primary outcomes include medication uptake and adherence. Secondary outcomes include health care utilization and expenditures. An interrupted time series, control group design will allow rigorous assessment of the intervention's impact, while controlling for unrelated temporal trends. Individual patient-level baseline data are presented. DISCUSSION: To our knowledge, this is the first prospective controlled trial of co-payment reductions targeted to high-value services for high-risk patients. It will provide important information on feasibility of implementation and effectiveness of VBID in a real-world setting. This program has the potential for broad dissemination to other employers and insurers wishing to improve the value of their health care spending.

Summary: Value-based insurance design (VBID) has emerged as a potentially viable approach to promote healthcare value. VBID abandons the traditional approach of uniformly applying cost sharing to health services regardless of their effect on a patient’s health. Instead, VBID tailors cost sharing to the value that the service provides the beneficiary in terms of health gained per dollar spent. The more clinically beneficial the service is to a patient, the lower that individual’s cost sharing for the service. Given the growing need to increase the value of care delivered in the Medicare program and the existing evidence suggesting that VBID can generate cost savings and improve health outcomes, there are clear opportunities to explore how to implement VBID within the Medicare program. This analysis presents options for advancing a VBID approach within Medicare’s prescription drug benefit (Part D), and specifically focuses on differential cost sharing for chronically ill beneficiaries and high-value medications that target chronic conditions.

BACKGROUND: Increasing patient cost sharing is a commonly employed mechanism to contain health care expenditures. OBJECTIVE: To explore whether the impact of increases in prescription drug copayments differs between high- and low-income areas. DESIGN: Using a database of 6 million enrollees with employer-sponsored health insurance, econometric models were used to examine the relationship between changes in drug copayments and adherence with medications for the treatment of diabetes mellitus (DM) and congestive heart failure (CHF). SUBJECTS: Individuals 18 years of age and older meeting prespecified diagnostic criteria for DM or CHF were included. MEASUREMENTS: Median household income in the patient's ZIP code of residence from the 2000 Census was used as the measure of income. Adherence was measured by medication possession ratio: the proportion of days on which a patient had a medication available. RESULTS: Patients in low-income areas were more sensitive to copayment changes than patients in high- or middle-income areas. The relationship between income and price sensitivity was particularly strong for CHF patients. Above the lowest income category, price responsiveness to copayment rates was not consistently related to income. CONCLUSIONS: The relationship between medication adherence and income may account for a portion of the observed disparities in health across socioeconomic groups. Rising copayments may worsen disparities and adversely affect health, particularly among patients living in low-income areas.

This paper estimates the effects of a large employer's value-based insurance initiative designed to improve adherence to recommended treatment regimens. The intervention reduced copayments for five chronic medication classes in the context of a disease management (DM) program. Compared to a control employer that used the same DM program, adherence to medications in the value-based intervention increased for four of five medication classes, reducing nonadherence by 7-14 percent. The results demonstrate the potential for copayment reductions for highly valued services to increase medication adherence above the effects of existing DM programs.

When everyone is required to pay the same out-of-pocket amount for health care services whose benefits depend on patient characteristics, there is enormous potential for both under- and overuse. Unlike most current health plan designs, Value-Based Insurance Design (VBID) explicitly acknowledges and responds to patient heterogeneity. It encourages the use of services when the clinical benefits exceed the cost and likewise discourages the use of services when the benefits do not justify the cost. This paper makes the case for VBID and outlines current VBID initiatives in the private sector as well as barriers to further adoption.

OBJECTIVES: To document the rise in copayments for patients in disease management programs and to call attention to the inherent conflicts that exist between these 2 approaches to benefit design. METHODS: Data from 2 large health plans were used to compare cost sharing in disease management programs with cost sharing outside of disease management programs. RESULTS: The copayments charged to participants in disease management programs usually do not differ substantially from those charged to other beneficiaries. CONCLUSIONS: Cost sharing and disease management result in conflicting approaches to benefit design. Increasing copayments may lead to underuse of recommended services, thereby decreasing the clinical effectiveness and increasing the overall costs of disease management programs. Policymakers and private purchasers should consider the use of targeted benefit designs when implementing disease management programs or redesigning cost-sharing provisions. Current information systems and health services research are sufficiently advanced to permit these benefit designs.