1. F. Randy Vogenberg, PhD, RPh
Institute for Integrated Healthcare,
Sharon, MA
Co-Leader, Midwest BGH Employer Initiative on Biologics & Specialty Pharmacy
Copyright © 2011 Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc. All rights reserved. 1
(3)-04/11-SGR 1

2. 2

3. Value-Based Insurance Designs For Sustainable Health Improvement3 3

4. Terminology
A variety of terms are used in the literature to describe this health management strategy:
Value-based insurance design (VBID)1
Value-based benefit design (VBBD)2
Value-based design (VBD)3
This program will use the term VBID
1. Fendrick AM. Value-based insurance design landscape digest. July National Pharmaceutical Council. Accessed February 10, 2011.
2. Houy M. Health plan capabilities to support value based benefit design. National Business Coalition on Health. Accessed February 10, 2011.
3. Nayer C et al. Leveraging the value of health: a decision matrix for value-based designs. Accessed February 10, 2011. 4 4

5. Motivation for Value-Based Insurance Designs5 5

6. Value-Based Insurance Design: Employer Perspective
Definition1
Value-based insurance design uses evidence of effective procedures, treatments, drugs, and providers and appropriate incentives/disincentives to design health benefits that:
Motivate those covered to alter their behavior in a positive manner or engage in a health management activity
Encourage the use of a provider or specific health care service, test, or drug that is shown to be more effective or provide higher quality than other options
Discourage the use of health care services, tests, drugs, and providers when the evidence does not justify the cost or their use
1. Boress L. Employers’ readiness to adopt value-based benefit strategies. Presentation to the Chicago Chapter of the International Society of Certified Employee Benefit Specialists; May 2008; Chicago, IL. Midwest Business Group on Health. mbgh.org/templates/UserFiles/Files/2008/Benchmarking/MBGH_Employer_Survey_May2008.pdf. Accessed November 9, 2009. 6 6

7. Nonadherence: Clinical and Economic Impact
As many as 60% of chronically ill patients have poor adherence to treatment1
Nonadherence results in an estimated 10% of all hospital admissions and 23% of all nursing home admissions2
Costs that result from poor medication adherence have been estimated to exceed $100 billion annually1
1. Dunbar-Jacob J et al. J Clin Epidemiol. 2001;54:S57–S60.
2. Sabaté E. Adherence to long-term therapies: evidence for action. World Health Organization; who.int/chp/knowledge/publications/adherence_full_report.pdf. Accessed November 9, 2009. 7 7

8. Market Drives Benefit Design Needs1
Economic downturn accelerated health plan cost-compression.
Cost shifting often resulted in delay or abandonment of needed care.
New approaches to value-based designs address access barriers to evidence-based care.
Value-based insurance designs have demonstrated:
Decrease in financial trends
Increase in health and productivity outcomes 8
1. Nayer C et al. Leveraging the value of health: a decision matrix for value-based designs. Accessed March 14, 2011. 8

9. General Concepts of Value-Based Insurance Design9 9

10. Evolution to VBID
The more targeted the benefit plan design, the higher the return on investment.
Health outcomes and ROI improve with level of VBID complexity
Low
High
Integrated Rx and condition management + related services
Integrated Rx and condition management
Employee-specific benefit design
Rx only
VBID can be applied across a spectrum of choices, from a strategy limited to reducing copays for specific drugs to one that incorporates a comprehensive worker-specific benefit design.1,2 The VBID spectrum displayed in this slide demonstrates the range of complexity that with which this system may be used.
There are 2 basic VBID approaches3:
Reducing copays for specific drugs
Reducing copays for services related to a diagnosis; this approach can be expanded beyond pharmaceutical therapy to include other management-related services, such as behavioral counseling and advice and support for lifestyle modifications
The approach with the greatest potential for a positive financial impact is one that is employee-specific.
The better the system is at identifying which services are high value for which patients, the higher the financial return will be.1
Simplest level: Reduce or eliminate out-of-pocket costs for a service, usually a medication
Next level: Apply predictive modeling to integrated medical and Rx claims to identify high-risk groups, such as those with diabetes, hypertension, and asthma
More complex level: Use benefit design to support integrated health management strategies
Future level: Real-time integration of data to provide patient-specific benefit designs
Fendrick AM et al. Aligning Incentives and Systems: Promoting Synergy Between Value-Based Insurance Design and the Patient Centered Medical Home. National Business Coalition on Health. Accessed August 19, 2010.
Chernew ME, Fendrick AM. Value based insurance design: restoring health to the health care cost debate. Society of Actuaries Web site. Accessed August 19, 2010.
Fendrick AM et al. Am Manag Care. 2006;12:SP5-SP10. 10
1. Fendrick AM et al. Aligning Incentives and Systems: Promoting Synergy Between Value-Based Insurance Design and the Patient Centered Medical Home. National Business Coalition on Health. Accessed August 19, 2010.
2. Chernew ME et al. Value based insurance design: restoring health to the health care cost debate. Society of Actuaries Web site. Accessed August 19, 2010.
3. Fendrick AM et al. Am J Manag Care. 2006;12:SP5-SP10. 10

11. Value-Based Insurance Design Engages and Reinforces Adherence1
Value-based insurance design is an engagement tool that is part of an evidence-based approach to managing health outcomes
Uses data to
Invest in benefit designs and programs that
Change behaviors to
Improve quality, health, productivity, and financial outcomes (dividend)
Direct
Indirect
DATA
Insurance
Incentives
DESIGN
HIT
Services
Communication
DELIVERY
Health/Productivity
Performance
Quality
Cost Trend Reduction
DIVIDENDS 11
1. Nayer C et al. Co-pay incentives: Medicare Advantage (Part D) can replicate successes of commercial payers. Center for Health Value Innovation. vbhealth.org/wp/2009/03/co-pay-incentives-medicare-advantage-part-d-can-replicate-successes-of-commercial-payers/. Accessed November 9, 2010. 11

12. Key Successes and Challenges in Developing and Implementing Value-Based Insurance Designs12 12

13. VBIDa: Implications for Implementation
Improve adherence with evidence-based care1,2
Improved functional health status of covered population
Sustainable trend modification vs line-item efficiencies
Drive greater employee engagement in managing care1,2
Precision-focused benefits/incentives
Link health-career investments
Promote value with health care provider/practitioner community1
Evidence-driven and patient-centered/competent
Accountable care organizations
Perceived inequality in designs, fully insured regulations1
aVBID=value-based insurance design.
1. Fendrick AM. Value-based insurance design landscape digest. National Pharmaceutical Council. npcnow.org/Home.aspx. Accessed September 21, 2009.
2. Nayer C et al. Co-pay incentives: Medicare Advantage (Part D) can replicate successes of commercial payers. Center for Health Value Innovation. vbhealth.org/wp/2009/03/co-pay-incentives-medicare-advantage-part-d-can-replicate-successes-of-commercial-payers/. Accessed September 28, 2009. 13 13

14. Challenges to VBID1,a
Human resource concerns: Patients may object to different copays
Legal and tax issues: Always a concern, but existing programs illustrate that options may be considered to address these concerns
Privacy concerns: Some VBID programs require identification of patients with specific diagnoses; HIPAAb compliance is a must.
Unintended incentives: Incentives should steer patients toward healthy vs unhealthy behaviors
Adverse selection: Sicker patients may be attracted to plans that have VBID components 14
aVBID=value-based insurance design; bHIPAA=Health Insurance Portability and Accountability Act.
1. Chernew ME et al. Health Aff. 2007;26(2):w195–w203. 14 14

15. Examples of Value-Based Design Models and Return-on-Investment15 15

16. Plan Design Approaches1
Financial Design
Value-Based Design
Conserve resources through decreased utilization
Focus on long-term outcome of improved functional health
Efficient management of each line item
Total cost picture to include indirect costs
Cost sharing based on acquisition cost of service or product
Subsidize effective services through lowered out-of-pocket exposure
Decrease or eliminate subsidy for ineffective services
Plan design applies to all members
Vary financial subsidy based on individual needs
The experiences of plan sponsors show a common theme: the investment in workforce health is founded on variability in cost sharing based on value to the individual and the organization.1
1. Mahoney J. Value-based designs. Presented to the Health Care Service Corporation, May 2009; Richardson, TX. 16
1. Mahoney J. Value-based designs. Presented to the Health Care Service Corporation; May 2009; Richardson, TX. 16

17. Value-Based Insurance Design Approaches1
Design by service
Waive or reduce copayments or coinsurance for selected drugs or services, such as statins or cholesterol tests, no matter which patients use them.
Design by clinical condition
Waive or reduce copayments or coinsurance for medications or services, based on the specific clinical conditions with which patients have been diagnosed.
Design by disease management participation or disease severity
Waive or reduce copayments or coinsurance for high-risk members who would be eligible for engagement in or who actively participate in a disease management program. 17
1. Fendrick AM. Value-based insurance design landscape digest. National Pharmaceutical Council. d.scribd.com/docs/6zd5wsv7mtazz3f6put.pdf. Accessed November 9, 2009. 17

18. Pitney-Bowes: Reducing Copayment Stabilized Clopidogrel Adherence1
As was seen with statin adherence following the introduction of a new copayment policy at Pitney Bowes, the reduction of copayment for clopidogrel stabilized adherence in the intervention group. Ultimately, the stabilized adherence resulted in a 4% difference between the intervention and control cohorts.1
1. Choudhry NK et al. Health Affairs. 2010;29(11):1995–2001. 18
1. Copyrighted and published by Project HOPE/Health Affairs as Choudhry NK et al. At Pitney-Bowes value-based insurance design cut copayments and increased drug adherence. Health Affairs. 2010; 29(11):1995–2001. The published article is archived and available online at 18

19. Predicted Effect of VBIDa Program on Total Drug and Medical Spending1
The investigators measured spending based on eligible charges for prescription drugs and inpatient and outpatient medical services.
Although the difference in spending between groups was not significant in the first year, this difference grew over the following 2 years.
1. Gibson TB et al. Health Affairs. 2011;30(1):109–117.
1 2 3
Years After Implementation 19
aVBID=value-based insurance design. bRx=prescription.
1. Copyrighted and published by Project HOPE/Health Affairs as Gibson TB et al. A value-based insurance design program at a large company boosted medication adherence for employess with chronic illness. Health Affairs. 2011;30(1):109–117. The published article is archived and available online at 19

20. VBIDa Model: The Asheville Project1
Voluntary consumer incentive program for patients with chronic conditions
2 employers: City of Asheville and Mission–St. Joseph’s Health System
Began enrolling patients with diabetes in 1997
Pharmacist coaching coupled with benefit design alterations for medications
Results
Improved clinical outcomes
Reduced health care costs
Example of Design by Disease Management
The Asheville Project highlighted this approach by offering free medications and testing equipment only for diabetic patients who attended educational seminars.1
Long-term clinical and economic outcomes of the Asheville Project included2:
Clinical outcomes
Lower hemoglobin A1C and improved cholesterol levels
Increased percentage of patients reporting having had a foot examination
Economic outcomes
Decreased costs for inpatient and outpatient services
Increased costs for pharmacy benefits
Direct medical costs decreased by $1,200 (to $1,872) per patient per year compared with baseline
Decreased number of sick days
Increased employee productivity
1. Fendrick AM. Value-based insurance design landscape digest. July National Pharmaceutical Council. d.scribd.com/docs/6zd5wsv7mtazz3f6put.pdf. Accessed November 9, 2009.
2. Cranor CW et al. J Am Pharm Assoc. 2003;43(2):173–184. 20
aVBID=value-based insurance design.
1. Cranor CW et al. J Am Pharm Assoc. 2003;43(2):173–184. 20

21. VBIDa Model: The Asheville Project
Health Care Costs1
$7,082 $
$4,651 $ $ b $
Even though prescription costs increased owing to waived copays, the project demonstrated an overall reduction in total health care costs of approximately 34%.1
1. Cranor CW et al. J Am Pharm Assoc. 2003;43(2):173–184.
[CALCULATION OF % REDUCTION IN TOTAL HEALTH CARE COSTS:
4,651/7,082=0.66
1–0.66=0.34=34% reduction in total health care costs]
n=164
n=155
n=116
n=74
n=43
n=28 21
aVBID=value-based insurance design; bRx=prescription.
1. Cranor CW et al. J Am Pharm Assoc. 2003;43(2):173–184. Copyright American Pharmacists Association (APhA). Reprinted by permission of APhA. 21

22. Average Expenditures Per Patient Per Year, $
Diabetes Results1
Diabetes-Related Health Care Costs at Varying Levels of Medication Adherence
Average Expenditures Per Patient Per Year, $ a a a a
1%–19%
20%–39%
40%–59%
60%–79%
80%–100%
Adherence Levelb
aIndicates significantly higher medical cost vs the 80%–100% adherence group (P<0.05); bAdherence was defined as the percentage of days during the 1-year analysis period that patients had a supply of 1 or more maintenance medications for the condition.
1. Sokol MC et al. Med Care. 2005;43(6):521–530. Reproduced with permission from Wolters Kluwer Health. 22 22

23. Hospitalization Risk, %
Results: Diabetes1
Diabetes-Related Hospitalization Risk at Varying Levels of Medication Adherence
Hospitalization Risk, %
1%–19%
20%–39%
40%–59%
60%–79%
80%–100%
Adherence Levelb a
aIndicates significantly higher medical cost vs the 80%–100% adherence group (P<0.05); bAdherence was defined as the percentage of days during the 1-year analysis period that patients had a supply of 1 or more maintenance medications for the condition.
1. Sokol MC et al. Med Care. 2005;43(6):521–530. Reproduced with permission from Wolters Kluwer Health. 23 23

24. Asheville Project: Reduction in Annual Sick Days1
12.6
6.0
8.5
7.3
7.7
6.4 3 6 9 12 15
Baseline
1 y
2 y
3 y
4 y
5 y
Mean Number of Sick Days
Within the first year of the new benefits program, the participants reduced their number of sick days by 6.6 days per person. Further, the reduction in sick days continued over the course of the 5 years of the program. The number of people enrolled in the program changed for various reasons (eg, dropped out, left employment, died), but data were available for 37 patients for all years from 1996 (baseline) through The estimated value of increased productivity was $18,000 per year.1
1. Cranor CW et al. J Am Pharm Assoc. 2003;43(2):173–184.
37 patients for the years 1996 (baseline) through 2001 24
1. Cranor CW et al. J Am Pharm Assoc. 2003;43(2):173–184. 24

25. Value-Based Insurance Plus Disease Management —Employer Study
Study Design1
Study cohort: Patients with diabetes employed by different units of a large multiindustry firm
Study design: Observational cohort design to evaluate cost effects of VBIDa and DMb programs and effects on use over 3 years
Intervention: VBID pharmacy plan – reduction of copayments to 10% coinsurance
This study by Gibson et al looked at the effect of a value-based insurance design (VBID) pharmacy program for diabetes that lowered out-of pocket costs for antidiabetic medications in 2 units of a large, multiindustry firm. The comparison group was a matched cohort from the remainder of the firm’s units, which had a traditional 3-tier pharmacy plan: 10% copayments for generic drugs, 20% for preferred brand-name drugs, 35% for nonpreferred brand-name drugs.1
All of the participants had the option to enroll in a disease management program consisting of targeted mailings, a workbook about the disease, telephone outreach by a nurse, coaching, and periodic monitoring. Additional communications reinforced diabetes management goals.1
Merck provided funding for this study and one of the coauthors is a Merck employee.
1. Gibson TB et al. Health Affairs. 2011;30(1):100–108.
Objectives: To compare pharmacy use, guideline use, and the financial effects of the VBID pharmacy program, with and without DM.
aVBID=value-based insurance design.
bDM=disease management.
1. Gibson TB et al. Health Affairs. 2011;30(1):100–108. 25 25

26. Matched using summarized propensity score
Value-Based Insurance Plus Disease Management —Employer Study (continued)
Study Design1
Total diabetes patients
N = 4,408
VBIDa pharmacy program n = 2,204
Participated in DMb program n=1,876
Opted out of DM program n = 328
Tiered pharmacy program n = 2,204
Participated in DM program n=1,876
Matched using summarized propensity score
This diagram illustrates the breakdown of the study design. The post-intervention period included 3 years: 2006, 2007, and All enrollees aged under 65 years with at least 4 consecutive quarters of enrollment were included in the study.1
Enrollees in the value-based program and the disease management (DM) program were matched with similar enrollees in the DM program alone. Similarly, enrollees in the value-based program alone were matched with diabetes patients who were not in either the value-based program or the DM program.1
1. Gibson TB et al. Health Affairs. 2011;30(1):100–108.
2005 was baseline year; 2006, 2007, 2008 were post intervention.
aVBID=value-based insurance design.
BDM=disease management.
1. Gibson TB et al. Health Affairs. 2011;30(1):100–108. 26 26

27. Estimated Effects of VBIDa + DMb on Medication Possession Ratio1
Value-Based Insurance Plus Disease Management —Employer Study (continued)
Estimated Effects of VBIDa + DMb on Medication Possession Ratio1
VBID + DM
DM, no VBID
Program effect
This graph shows the estimated program effect on medication possession ratios for the study enrollees with the value-based program plus disease management compared with those with disease management alone.1
For patients in the VBID-plus-DM group, in the first year after implementation the medication possession ratio for oral medications rose 3.7% above the ratio for those not in the value-based program. In the second year this increase was 4.8%, and in the third year it was 5.8% above the ratio for patients not in the value-based program.1
1. Gibson TB et al. Health Affairs. 2011;30(1):100–108.
All antidiabetic
medications
Oral antidiabetic
medications
Insulin
aVBID=value-based insurance design.
bDM=disease management.
1. Copyrighted and published by Project HOPE/Health Affairs as Gibson TB et al. Value-Based Insurance Plus Disease Management Increased Medication Use And Produced Savings. Health Affairs. 2011;30(1):100–108. The published article is archived and available online at 27 27

28. Estimated Effects of VBIDa + DMb on Diabetes Guidelines Measures1
Value-Based Insurance Plus Disease Management —Employer Study (continued)
Estimated Effects of VBIDa + DMb on Diabetes Guidelines Measures1
This graph shows the estimated program effect on diabetes guidelines measures for the study enrollees with the value-based program and disease management vs those with disease management alone.1 The program effect reflects the difference in increase of these measures between the group with VBID and the group without VBID.
1. Gibson TB et al. Health Affairs. 2011;30(1):100–108.
HbA1c test
Lipid test
PCPc visit
Urinalysis
aVBID=value-based insurance design.
bDM=disease management.
cPCP=primary care physician.
1. Copyrighted and published by Project HOPE/Health Affairs as Gibson TB et al. Value-Based Insurance Plus Disease Management Increased Medication Use And Produced Savings. Health Affairs. 2011;30(1):100–108. The published article is archived and available online at 28 28

29. Value-Based Insurance Plus Disease Management —Employer Study (continued)
Effect of VBIDa Program on Payments
In the DMb Program
Not in the DM Program
Year 1
Year 2
Year 3
Payments
Medical
All causes
–0.019
–0.01
–0.002
–0.306f
–0.272d
–0.235
Diabetes
–0.264d
–0.338d
–0.405e
–0.043
0.096
0.256
Rxc
0.125f
0.169f
0.216f
0.083
0.155
0.232
0.157f
0.167f
0.177e
–0.058
–0.11
–0.158
Total (medical + Rx)
0.033
0.059
0.085
–0.203f
–0.162
–0.118
–0.066
–0.153
–0.04
–0.004
0.034
Diabetes-related prescription spending in the value-based insurance design plus disease management (VBID + DM) group increased due to higher adherence to medications. This increased medication adherence was evident in the first year and persisted throughout all study years.
Significant decreases in diabetes-related medical spending offset prescription increases to produce an overall decrease in diabetes-related costs. Diabetes-related medical costs decreased in the first study year and showed further decrease in each subsequent year.
Program impact on all-cause total medical + prescription spending was minimal and not statistically significant.
VBID + DM program spending:
Diabetes-related Rx spending increased
Diabetes-related medical spending decreased 29
aVBID=value-based insurance design. bDM=disease management. cRx=prescription. dP≤0.10. eP≤0.05. fP≤0.01.
1. Copyrighted and published by Project HOPE/Health Affairs as Gibson TB et al. Value-Based Insurance Plus Disease Management Increased Medication Use And Produced Savings. Health Affairs. 2011;30(1):100–108. The published article is archived and available online at
1. Gibson TB et al. Health Affairs. 2011;30(1):100–108. 29

30. Value-Based Insurance Plus Disease Management —Employer Study (continued)
Conclusions1
The combination of VBIDa with a diabetes DMb program produced improvements:
in the use of diabetes medications
adherence to medical guidelines
Results showed the combination of VBID and DM had a greater impact on prescription use and adherence to recommended medical services guidelines than DM alone
These effects not only were sustained, but they grew over time
The program showed modest cost savings over 3 years
aVBID=value-based insurance design.
bDM=disease management.
1. Gibson TB et al. Health Affairs. 2011;30(1):100–108. 30 30

31. Value-Based Designs in an Evolving Health Care System31 31

32. 3 Concepts at the National Level1
Supply-side reform
Pay for performance
Patient-centered medical home
Accountable care organization
System delivery reform
Health information technology
Demand-side reform
Value-based insurance design 32
1. Fendrick AM. Value-based insurance design landscape digest. National Pharmaceutical Council. npcnow.org/Home.aspx. Accessed September 21, 2009. 32

33. VBIDa: Lessons Learned in the Public Sector1,b
Health risks can be reduced
Quality of care can be improved and productivity loss can be minimized
VBID requires a team effort that is typically cross-functional
VBID requires continuous communication with key decision makers and the greater community
Collaboration using shared data can drive relationships with health plans, health management companies, and other suppliers
Data are essential to design phase and ongoing adjustments
Over time, dividends can accrue through:
Improved health and productivity
Reduction in health care cost trends
Improved adherence
Reduced utilization
aVBID=value-based insurance design; bCharacteristics observed in a review of 5 public sector employers.
1. Value-Based Design in Action: How Five Public Sector Employers are Managing Cost and Improving Health Using Value-Based Design. University of Michigan Center for Value-Based Insurance Design. sph.umich.edu/vbidcenter/pdfs/Value-Based%20Design%20in%20Action%20-%20Aug% pdf. Accessed November 9, 2009. 33 33

34. Drive the Value of Every Health Dollar
Data drive decisions1
Design must be straightforward and simple1
Delivery and sustainable behavior change depend on adherence1
Easy, actionable goals
Frequent, relevant communication
Dividends are measured in total health impact1
Must be shared with stakeholders
“Ultimately, the alignment of financial incentives...will encourage the use of high value care...and produce more health at any level of healthcare expenditure.”2
1. Nayer C et al. Co-pay incentives: Medicare Advantage (Part D) can replicate successes of commercial payers. Center for Health Value Innovation. vbhealth.org/wp/2009/03/co-pay-incentives-medicare-advantage-part-d-can-replicate-successes-of-commercial-payers/. Accessed September 28, 2009.
2. Fendrick AM et al. Am J Manag Care. 2009;15(6):338–339,343. 34 34

35. 35