United States: CMS To Test Value-Based Insurance Design In Medicare Advantage

While CMS's demonstration model will allow for reduced cost sharing and other benefit design elements to encourage targeted use of high-value clinical services, Medicare Advantage Organizations should be aware of certain inherent legal risks.

On September 1, 2015, the Centers for Medicare & Medicaid Services (CMS) announced the Medicare Advantage Value-Based Insurance Design Model (Model). Medicare Advantage (MA) Organizations operating in Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania and Tennessee may apply to use reduced cost-sharing and/or supplemental benefits to encourage enrollees with one or more of seven targeted chronic conditions to consume higher value health care services. Specifically, CMS will allow participating MA Organizations to propose specific interventions for enrollees in one or more CMS-identified chronic disease categories that involve (i) reduced cost sharing for high value services, (ii) reduced cost sharing for high value providers, (iii) reduced cost sharing for enrollees participating in disease management or related programs or (iv) coverage of additional supplemental benefits (collectively, VBID Interventions).

The five-year Model, which begins on January 1, 2017, represents CMS's first effort to experiment with value-based insurance design (VBID). While VBID has gained increasing recognition in the commercial market, its clinically nuanced approach has been limited across Medicare programs due to various legal barriers, including the so-called "uniform benefit" requirement. While CMS attempts to provide a pathway forward through the MA regulations, the Model presents certain legal risks about which MA Organizations should be aware.

MA Organization Eligibility

To be eligible to participate in the Model in one of the seven test states, an MA Organization must:

  • Be a health maintenance organization (HMO), HMO-point-of service (HMO-POS), or local preferred provider organization (PPO) plan;
  • Have all or a portion of its service area within one of the model test states;
  • Have at least 2,000 enrollees and at least 50 percent of its total enrollment in the model test states;
  • Not be offered in more than two states total;
  • Have been offered in at least three annual open enrollment periods prior to the CY 2017 open enrollment period; and
  • Have least a three-star overall quality rating for CY 2015.

MA Organizations must implement VBID Interventions in all counties/segments for the MA Plan (but are not required to offer VBID Interventions throughout all of their MA Plans). If a MA Plan covers counties or segments that are both inside and outside of a test state, the MA Organization must provide VBID Interventions to all of the Model-participating enrollees in the MA Plan, regardless of whether they reside inside or outside of the state.

CMS will accept all qualified applicants submitting "acceptable" proposals within a test state.

Context of the Model

VBID seeks to minimize over- and underuse of certain health care services by aligning patients' financial interests, such as their copays and deductibles, with the clinical value of the services they receive. The approach builds on behavioral economics by aiming to reduce barriers to high-value treatments and discourage low-value treatments through cost-sharing differentials.

As Medicare fee-for-service (FFS) relies on a "one-size-fits-all" approach, the program generally cannot lower cost-sharing levels for clinically recommended services or across provider types. Further, approximately 85 percent of Medicare FFS beneficiaries have some form of supplemental insurance coverage that already reduces or eliminates their cost sharing, thus mitigating the opportunity to influence Medicare FFS beneficiary behavior. By contrast, the MA Program has been heralded to offer a key forum to test VBID in federal healthcare programs (see also H.R. 2570, "Strengthening Medicare Advantage through Innovation and Transparency for Seniors Act of 2015" and S. 1396, "Value-Based Insurance Design Seniors Copayment Reduction Act of 2015"), due in part to the broad array of tools that MA Organizations can leverage to promote evidence-based care, including network formation; provider-oriented strategies, such as quality and performance bonuses; and utilization management programs.

Various MA Program requirements currently impede opportunities to use VBID, however. While premiums and benefits (including cost-sharing) may vary among MA Plans, by law all members enrolled in the same MA Plan must receive the same benefits with the same cost-sharing at the same premium. Under the Model, CMS would waive certain uniform benefits requirements (along with certain communications, disclosures and marketing requirements) as necessary to implement the Model, enabling MA Organizations to differentiate among enrollees in the same MA Plan and to tailor benefit designs to certain enrollee segments based on their health status. (The Model does not, however, address potential discrimination issues for Model-participating or Model-excluded members.) The guidance hints that waivers of certain fraud and abuse barriers may be forthcoming (such as for the so-called "beneficiary inducement prohibition under SSA § 1128A), but provides no details as to what may be proposed or when.

Design of the Model and VBID Interventions

The Model is designed to test the hypothesis that clinically nuanced VBID approaches will (i) increase enrollee satisfaction, (ii) improve enrollee clinical outcomes, (iii) reduce plan expenditures and (iv) lower plan bids.

CMS will require that participating MA Organizations make VBID Interventions available to all enrollees who qualify in one or more selected chronic condition populations. The Model currently is limited to seven chronic conditions: diabetes, chronic obstructive pulmonary disease, congestive heart failure, coronary artery disease, past stroke, hypertension and mood disorders. CMS has designated qualifying ICD-10 codes and will provide strict criteria to assist participating MA Organizations with identifying all enrollees who fall into selected chronic condition categories.  CMS will conduct retrospective audits to determine if "all VBID-eligible enrollees actually received the VBID interventions." (emphasis added)

MA Organizations may employ one or more of the following VBID Interventions targeted to the selected chronic condition population(s) under the Model:

  1. Reduce or eliminate cost-sharing for "high-value" items or services, including covered Medicare Part D drugs. An MA Organization will be required to clearly identify such items or services in advance. It may elect to eliminate or reduce copays or coinsurance, or may exempt a given item or service from the plan deductible.
  2. Reduce or eliminate cost-sharing for high-value health care providers broadly or when delivering a particular high-value service. An MA Organization must propose a clinically-based methodology to identify specific high-value providers for the selected population for advance CMS approval. High-value providers may be selected from all Medicare provider types, including but not limited to, physicians/practices, hospitals, skilled nursing facilities, home health agencies and ambulatory surgical centers. CMS encourages MA Organizations to apply independent external metrics to evaluate whether a particular provider is high value and will permit cost or efficiency to be included in selection criteria if combined with relevant quality measures.
  3. Reduce cost-sharing for enrollees who participate in disease-management or related programs. An MA Organization may propose to condition cost-sharing reductions on an enrollee meeting defined participation milestones, contingent on the proposal's approval by CMS. The MA Organization may not structure milestones around the achievement of clinical goals and must provide all enrollees in the selected population with the opportunity to participate regardless of health status, location, or disability.
  4. Coverage of certain supplemental benefits solely for targeted chronic conditions. As examples, CMS cites telemedicine, non-emergency transportation to primary care visits, meals and counseling programs, among other services, that have clinical justifications for a selected population. An MA Organization would be required to fund these targeted supplemental benefits through "rebates" and/or premium dollars paid by all enrollees.

For bid purposes, CMS will count all VBID Interventions as mandatory supplemental benefits rather than as part of the basic benefit. CMS also will require MA Organizations to submit actuarially certified financial projections of the VBID Interventions on plan medical utilization, cost, and premiums and to demonstrate net savings for CMS over the five-year term of the Model. These projections must be incorporated into the MA Organization's bid and annually updated to incorporate any new selected chronic conditions as well as actual historical experience.

Legal and Practical Implications:

  • Enrollee Confusion and Related Claims. MA Organizations will have to use caution to ensure that VBID Interventions do not create enrollee confusion. Specifically, MA Organizations should ensure that VBID Interventions involving waivers or reductions of cost-sharing for high-value services attach to clearly defined episodes of care, and do not result in unexpected enrollee costs as a result of a provider's choice of coding, facility fees or non-discounted services from other providers. While CMS will require prior review of VBID Intervention proposals to guard against adverse effects, this action will not insulate MA Organizations from potential enrollee claims related to the design or implementation of the VBID Interventions in the MA Plan. Transportation to and from primary care visits, for example, is a benefit that all enrollees, regardless of their health status, may wish to enjoy. Enrollees denied access to such a benefit based on their health status (i.e., lack of a specific condition) may challenge such an approach.
  • Compliance with Anti-Discrimination Requirements. CMS elected not to waive any legal provisions pertaining to anti-discrimination under the Model, meaning that MA Organizations must ensure that they structure VBID Interventions in a manner that does not indirectly discriminate against Model-participating or Model-excluded enrollees. CMS has indicated that MA Organizations, for example, must ensure that VBID Interventions are not coupled with changes to the MA Plan at large in a manner that decreases the benefits available to enrollees that have non-targeted clinical conditions. Similarly, in Intervention #2, while CMS does not propose to require specific network adequacy or access standards around a MA Organization's selection of high-value providers, it has observed that certain patterns of inaccessibility could constitute discrimination.
  • Provider Challenges. Providers not selected as high-value providers under Intervention #2 may attempt to bring contractual, defamation or libel, or other claims against the MA Organization for exclusion from the high-value provider sub-network, especially should these providers experience subsequent patient loss to competitors who receive a high-value designation. This challenge may be particularly acute in instances where providers previously contracted to be in the most favorable tier of the MA Organization's benefit design, but are not designated as "high value" in the Model as they do not meet the criteria adopted by the MA Organization and approved by CMS. MA Organizations also may experience challenges around the methodologies and data they use to determine "high value." While CMS will require prior review of such methodologies, it has not suggested that MA Organizations will receive any special protection against legal challenges they may face. Additionally, while non-Medicare-eligible providers may engage in VBID Interventions broadly, it appears that they will not be able to be designated as high-value providers under Intervention #2, regardless of their potential to deliver high-quality, efficient care.
  • Missed Opportunities. Notwithstanding CMS's significant policy rationale, CMS's dual prohibitions against (i) increasing cost-sharing for low-value items and services and (ii) linking cost sharing reductions to the achievement of specific clinical goals inherently limit a level of patient engagement and indirectly expose aspects of CMS's model design that may create risks for individual MA Plans. As an MA Organization must harbor the costs of all VBID Interventions they provide to enrollees under the Model, an MA Organization either will need to experience a relatively immediate return on investment from its VBID Interventions or recoup such expenses elsewhere in the plan benefit package (in compliance with non-discrimination requirements) or it will risk needing to increase its bid. Notably, the inability of MA Organizations to concomitantly reduce cost sharing for high-value items and services while increasing cost sharing for low-value items and services belies a large and growing body of materials identifying evidence-based, low-value interventions, such as those compiled by the American Board of Internal Medicine's Choosing Wisely Campaign.

Plan Marketing and Enrollee Communication Requirements

Under the Model, an MA Organization will be required to send all targeted enrollees written materials summarizing VBID Intervention benefits (i) at the beginning of each model year, (ii) when an enrollee became newly eligible or (iii) with the Annual Notice of Change and Evidence of Coverage mailing for new enrollees.  CMS also anticipates that MA Organizations will engage in regular follow-up communications with targeted enrollees, which CMS may subject to prior review.

CMS will continue to require compliance with all MA marketing regulations and guidance. Participating MA Organizations will be prohibited from mentioning VBID Interventions in pre-enrollment marketing, but will be able to disseminate information about VBID Interventions when a potential enrollee makes a specific inquiry. Further, CMS will issue guidance to non-participating organizations, limiting their communications about the Model.

Legal and Practical Implications:

  • As MA Organizations are required to notify all enrollees eligible for the Model upon receipt of a claim that reflects a defined diagnosis, MA Organizations may experience a rise in member complaints about privacy and the unanticipated use of their personal health information. Notwithstanding CMS's motivations for limiting broader communication by MA Organizations, the potential for enrollees to react poorly based on their own privacy expectations, even if misplaced, is a practical implication. Relatedly, MA Organizations will need to have appropriately designed operational systems to implement CMS's enrollee notification requirements in a timely fashion.
  • While CMS states that it does not want to encourage or discourage enrollment in MA or any specific MA Plan, the Model's requirements that communications be triggered only when a potential enrollee makes a specific inquiry, may compound enrollee confusion, particularly when combined with probable communication among MA enrollees in selected test states.


CMS's MA VBID Model represents a critical opportunity for MA Organizations in the seven selected states to engage in VBID for high-risk populations and will shape future flexibilities for VBID in the MA market at large. MA Organizations in eligible states should closely consider certain legal risks as they evaluate this opportunity and as they design and implement their VBID Intervention proposals.

While the Model is narrowly focused on testing VBID Interventions, CMS has signaled that it may unveil a broader suite of targeted MA models offering various regulatory flexibilities, including the use of remote access technologies and/or the integration of hospice care benefits concurrently with curative care in the basic benefit package.

CMS plans to release the Request for Applications for the Model later this month, with responses due November 2015. CMS will hold an introductory webinar on the Model on September 24, 2015.

CMS To Test Value-Based Insurance Design In Medicare Advantage

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