Michael Chernew June 7, 2016

Variation in Value of Services Not all services improve health Choosing wisely Schwartz, A et al. (2014) –42% of beneficiaries received one low-value services detected by more sensitive measures –About 2.7% of spending Variation in price for same service –Site of care

Tools to Promote Value Payment Reform Benefit Design

Payment Reform

HHS Targets % of FFs linked to APMs 85% of all FFS linked to quality or value % of FFS linked to APMs 90% of all FFS linked to quality or value

Payment Need not Rise with Value

Sovaldi example Sovaldi is a novel treatment for Hepatitis C –Better quality –Cost effectiveness was estimated at $47,304/QALY  Should we pay more? Source:

In FFS providers do not capture downstream savings ACOs do capture downstream savings  If primary care lowers spending higher payment may be needed in FFS but maybe not in ACOs  Measures need not be aligned across programs Scope of payment matters

Barriers to Payment Reform in Medicare Uniform national rules –Cannot negotiate or tailor programs Different programs bump into each other –ACOs and episode payment Political concerns –Integrating supplemental coverage Laws/ rules –Free choice of physician

Benefit Design

Standard Benefit Design Options Deductibles –Patient pays full amount up to a deductible amount Coinsurance –Patients pay a percentage of the price Copayment –Patients pay a fixed amount

Medicare Benefits Structure Incomplete Significant gaps in coverage –No coverage for long term care services, dental care, eyeglasses, hearing aids, etc. (KFF, 2014) No limit on out of pocket costs (Cubanski et al, 2014) Separate deductibles for Parts A, B, D

Alternatives Medicare “Essential” (ie: “Part E”) –Comprehensive benefits to beneficiaries _ lower deductibles and limit on out-of-pocket costs (Davis et al, 2013) Combined Parts A and B with a single deductible and OOP max (Ginsberg and Rivlin, 2015) Integrated Medicare plan with options to incorporate a supplemental plan

MA “uniformity” requirement  a plan’s benefits and cost sharing must be uniform across plan enrollees MA-VBID model allows plans to offer supplementary benefits to enrollees with CMS-specified conditions to encourage use of high value services  targeted enrollees can never receive fewer benefits than other enrollees MA-VBID Model Source: Fact-sheets/2015-Fact-sheets-items/ html

Role of Medicare Advantage Advantages –Greater flexibility –Local knowledge –Flexibility in benefit design Disadvantages –Inability to set prices –Patient churn

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