January 26, 2018 Media

DRIVE Health Recommends VBIDs and COEs in Comment to HHS Request for Information

January 25, 2018

Submitted Electronically via Email:  CompetitionRFI@hhs.gov

Office of the Assistant Secretary for Planning and Evaluation
Department of Health and Human Services
Re:  Request for Information:  Promoting Healthcare Choice and Competition Across the United States

To Whom It May Concern:

The DRIVE Health Initiative appreciates the Department of Health and Human Services (the “Department”) and its efforts to promote choice and competition, and reduce regulatory burden, throughout healthcare markets.  We respectfully submit the following comments in response the Department’s Request For Information (“RFI”), soliciting suggestions for policies and other solutions (including those pertaining to Medicare, Medicaid, and other sources of payment) to promote the development and operation of a more competitive healthcare system that provides high‐quality care at affordable prices for the American people.

The DRIVE Health Initiative – led by the Pacific Business Group on Health (“PBGH”) The ERISA Industry Committee (“ERIC”) – is a campaign to decrease costs, improve quality, and re-vitalize the economy through value-based care.  Employer-sponsored health plans provide health insurance for over half of all Americans under age 65.  Many large employers and other purchasers have developed successful strategies for controlling costs and improving quality through innovations in provider payment, delivery system improvement, and consumer engagement.  This practical experience offers important and useful lessons to policymakers who are seeking solutions for the high cost and poor quality of our nation’s health care.  U.S. business leaders are ready to take on the challenge of driving adoption of successful value-based purchasing strategies.  But action from employers alone is not enough to deliver the pace and scale of change needed – government leadership is necessary.


1. Adopting Alternative Payment Models in Medicare Could Help Improve Our Nation’s Publicly-Financed Health Programs and Private Health Insurance Markets

It is widely understood that our nation’s health care system does not operate in silos.  Rather, our publicly-financed health programs – especially Medicare and Medicaid – have an inter-connecting relationship with the private health insurance markets.  As a result, improvements made in one sector often will provide benefits to other sectors.  For example, improvements in quality and affordability driven by large employers often provide models for improvements in Medicare program design.  And, improvements driven by Medicare often improve quality and affordability system-wide, which benefits people covered by large employer benefit plans.

Based on this understanding, the DRIVE Health Initiative believes that the adoption of alternative payment models under Medicare will positively impact private insurance markets as well as Medicare beneficiaries.  While there is a menu of alternative payment models the Department may incorporate into the Medicare program, the DRIVE Health Initiative believes that bundled payments – or episode-based payments – have been proven to effectively lower health care costs and improve quality of care.  For example, the Employer Centers of Excellence Network (“ECEN”) – a program launched by PBGH – has proven highly effective for lowering health care costs for large employers like Lowe’s, McKesson, and Walmart, while also improving quality for patients participating in the ECEN program. 

A. What Is the ECEN Program?

The ECEN is a program available to large employers who want to provide their employees with high quality surgical care for certain high cost procedures at one pre-determined bundled price.  Currently, the program includes hip and knee replacements, spine care, and bariatric surgery provided at carefully selected health care systems.  Under the program, hospitals and participating physicians are selected after a rigorous evaluation that includes an extensive review of the system’s quality, outcomes, and patient experience data.

For example, candidate systems must provide information including detailed clinical protocols, surgical-patient selection criteria, clinical registry participation, use of shared decision-making, as well as institutional and physician-level performance metrics.  These metrics include length of stay, return to surgery rates, infection rates, and procedure-specific outcomes such as joint dislocation after hip replacement and nerve-covering tears occurring during spinal surgery.

Based on this information, ECEN selects top-tier facilities and negotiates a single bundled payment rate for each specific procedure to be applied to all care associated with that procedure, including pre- and post-operative care.  Patients who choose to use one of the centers of excellence also receive a financial incentive in the form of waived deductible and coinsurance, as well as coverage of travel costs.  ECEN collects performance data on outcomes of care for all patients, including clinical outcomes, patient-reported outcomes, and patient experience, to ensure that patients are getting the care they need.

B. What Are the Results of the ECEN Program?

The results from the ECEN program have been striking.  ECEN’s negotiated rates save employers on average 10-15% of what they would have paid under traditional fee-for-service, and the prospective bundled payment gives physicians the freedom to provide services in ways they think will achieve the best outcomes.  The program has also led to lower patient out-of-pocket costs and excellent patient satisfaction scores.  For example, the average Lowe’s associate who has joint replacement surgery performed by one of the participating ECEN systems personally saves approximately $3,300 in co-insurance and other fees as compared to those patients who get the same care under traditional insurance.  In an analysis of 12 months’ experience, 100% of Lowe’s ECEN joint surgery patients reported that they would refer co-workers or family to the program for a similar surgery.  Data from other ECEN participants has shown similarly high employee satisfaction.

Twelve-months of claims data comparing Lowe’s associates who have surgery with local providers under traditional insurance as compared to those who have surgery as part of the ECEN program produced noteworthy results:  (1) 9.1% of patients having joint surgery with local providers needed discharge to a skilled nursing facility after surgery, compared to 0% of those getting care with ECEN; (2) 5.9 % of those having lumbar spine surgery with local providers needed skilled nursing care after surgery, while 0% of ECEN patients needed that care; (3) standard health plan participants had a 6.6% chance of being re-admitted to the hospital within 30 days after joint surgery as compared to just 0.4% of ECEN patients.

Savings from avoiding unnecessary surgery alone was significant.  For example, for the highest volume spine procedures, 52% of patients recommended for surgery by local providers were found by the ECEN centers of excellence to not be appropriate surgical candidates.  More than 90% of those ECEN patients heeded that recommendation and did not go on to have surgery at home through traditional insurance.

C. Incorporating a Centers of Excellence Programs into Medicare

The DRIVE Health Initiative strongly encourages the Department to build on private-sector innovation by exploring the development of voluntary Centers of Excellence (“COE”) programs in Medicare.  We believe that through the adoption of private-sector innovations – and incorporating their most beneficial features into Medicare – the Department will not only save taxpayer dollars, but will also improve health outcomes for Medicare beneficiaries.  Furthermore, we believe that by aligning Medicare’s payment models with private-sector purchasing strategies, the private health insurance markets will see improvements in quality of care and lower health costs due in large part to the use of consistent payment models and a system-wide move toward value-based care.

A Medicare COE program would enable the Department to test bundled payment models as part of a comprehensive quality improvement program – through, for example, CMS’s Innovation Center – rather than a standalone test of a new provider payment model.  We do not believe that this approach necessitates complex changes in payment or quality oversight.  In addition, the voluntary nature of a Medicare COE program (for providers as well as beneficiaries) would address the Department’s ongoing concern about “mandatory” bundled payment models.  For more detail on how the Department may develop a Medicare COE program, please see our response to the CMS Innovation Center New Direction RFI, submitted on November 20, 2017.


2. Value-Based Insurance Designs

A. Value-Based Insurance Designs Offered by Private-Sector Employers

For decades, private-sector employers have sought to offer to their employees high-quality health care coverage at an affordable price.  However, the ever-increasing cost of medical services has made it difficult for employers to offer affordable benefits, while also remaining competitive in a growing, global marketplace.  In response to these challenges, employers have adopted innovative strategies to manage their health care spending, while also enabling them to improve health outcomes for their employees and families.  One strategy that has proven effective in improving health outcomes and lowering costs is “value-based insurance design.”

In short, a value-based insurance design allows an employer to reduce or waive cost-sharing requirements if an employee is accessing “high-value” services.  This approach is intended to encourage employees to obtain necessary medical care, while discouraging utilization of unnecessary medical services – this is especially important in cases of chronically ill patients.  As we described to the U.S. House of Representatives Ways and Means Health Subcommittee in a Statement for the Record, employers have utilized value-based insurance designs to encourage the following:

  • Use of specialty medications to manage chronic conditions;
  • Use of high-performing medical providers that meet high standards of quality, patient experience, and total cost of care (e.g., “centers of excellence”); and
  • Participation in worksite wellness programs.

B. Value-Based Insurance Designs and HSA-Eligible Health Plans

According to a Centers for Disease Control study, in 2016, approximately 40% of Americans between ages 18 and 64 were enrolled in (1) a high-deductible health plan (“HDHP”) offered by an employer or (2) an HDHP purchased in the “individual” health insurance market.  Studies also show that since 2010, out-of-pocket expenses for employer-based HDHPs have risen six times faster than wage increases.  And other data indicates the typical individual market plan – a plan sold inside or outside of the ACA Exchanges – is an HDHP.

Private- and public-sector analysts alike believe that more and more Americans will continue to enroll in an HDHP.  They also believe that out-of-pocket costs will continue to outpace wage increases.  HDHP plan-holders, however, have the unique opportunity to save and pay for their out-of-pocket expenses on a tax-preferred basis through a Health Savings Account (“HSA”).  HSA enrollment has increased at a rapid pace – more than doubling in the past five years – with more than 20 million Americans currently having access to their own HSA.

To be eligible to contribute tax-free dollars to an HSA (and to also receive tax-free contributions from an employer or other third-parties), the HDHP plan-holder must be covered by an “HSA-eligible health plan.”[1]  However, an HSA-eligible plan-holder will be considered ineligible to contribute to an HSA if the person’s HDHP provides first-dollar coverage for a medical service other than certain “preventive care.”[2]  For example, if the coverage under an HSA-eligible plan pays for a specified number of physician visits or prescription drugs (i.e., non-preventive care) before the plan’s deductible is met, this plan-holder cannot contribute tax-free dollars to an HSA (and an employer and other third parties cannot make tax-free contributions on the plan-holder’s behalf).

            The DRIVE Health Initiative believes that paying for “high-value” medical services related to certain chronic care conditions – such as diabetes, asthma, heart disease, and hypertension – before an HDHP’s deductible is met is a worthwhile plan design that should be promoted.  And, we believe this type of value-based insurance design (“VBID”) should not prohibit an HSA-eligible plan-holder from contributing (and receiving) tax-free HSA contributions.  However, as noted, an HSA-eligible VBID plan-holder cannot maintain their HSA-eligibility and also receive first-dollar payments for services like doctor visits, checkups, and tests to better manage their chronic illness.   

C. The Department Can Play a Critical Leadership Role In the Establishment of HSA-Eligible VBID Plans

            We recognize that the Treasury Department (“Treasury”) has primary jurisdiction over the rules and requirements applicable to HSAs, and therefore, we understand that the Department is unable to unilaterally modify the rules to permit HSA-eligible health plans to pay first-dollar coverage for specified chronic care services.  However, DRIVE believes that the Department can play a critical leadership role in assisting Treasury by advising Treasury officials on the types of chronic care medical services that should become eligible for such first-dollar coverage.

For example, a number of stakeholders have suggested that for purposes of permitting first-dollar coverage under an HDHP – in which the HDHP would remain HSA-eligible – the term “chronic condition” should include conditions identified by the Department’s Initiative on Multiple Chronic Conditions.  If the Department – or Treasury officials – consider this “list” of conditions too broad, limiting the amount of first-dollar coverage could be accomplished by imposing an actuarial value “collar” around the spending associated with these chronic care conditions so that any first-dollar payments cannot increase the actuarial value of the HDHP by more than a certain amount – some have proposed 4 percent as a reasonable limit.

            Another alternative is to cross-reference the chronic conditions covered under the Department’s Chronic Care Special Needs Plans.  Specifically, Chronic Care Special Needs Plans can provide coverage for the following multi-condition groupings:  Diabetes mellitus, chronic heart failure, cardiovascular disorders, and stroke.  Limiting first-dollar coverage to these specified chronic conditions should provide for the appropriate level of fiscal discipline, while also furthering the social policy goal of paying for “high-value” services so chronically ill HDHP plan-holders can get the necessary care they need.  Allowing HSA-eligible VBID plans to operate – while also preserving the plan-holder’s ability to make (and receive) tax-free contributions to their HSA – will not only keep premium costs low, but chronically ill plan-holders will be encouraged not to skip essential care like doctor visits, checkups, and tests to treat their ongoing chronic conditions.   

This very limited allowance could be used as a test to discern whether making changes of this nature will prove problematic for the continuing evolution of value-driven HDHPs.  If – as we suspect – that proves not to be the case, it would then be appropriate to expand allowable first-dollar coverage to other “high-value” treatments, services, and medications that serve to control or prevent chronic disease and keep patients healthy and out of the hospital. 

In addition to this much-needed rule change for private-sector health plans, DRIVE believes that now is the time for the Department to consider incorporating these same strategies into our nation’s publicly-financed health programs.  For example, CMS’s Innovation Center should develop pilot projects that vary co-pays for Medicare based on the value of the medications and services they obtain, in an effort to encourage utilization of “high-value” services and prevent catastrophic costs later.  Evidence produced by employer plans shows that by reducing certain beneficiary costs, we can improve medication adherence, increase chronic condition management, and ultimately reduce high-cost episodes such as hospitalizations and admissions to Skilled Nursing Facilities.

If these efforts prove successful, the Department should consider expanding these strategies and making them available to all Medicare beneficiaries.  The Department should also consider encouraging every State to incorporate a similar model into their Medicaid programs.  This will prove to be a boon to beneficiaries, providers, and ultimately also to the taxpayers – and future Medicare beneficiaries who will benefit from preservation of the Trust Funds.

The DRIVE Health Initiative

William E. Kramer
Executive Director for Health Policy
Pacific Business Group on Health
575 Market Street, Suite 600
San Francisco, CA 94105
Email: wkramer@pbgh.org

Annette Guarisco Fildes
President and Chief Executive Officer
The ERISA Industry Committee
1400 L Street NW, Suite 350
Washington, DC 20005
Email: aguariscofildes@eric.org

[1] For 2018, to qualify as an HSA-eligible plan, the minimum deductible for self-only coverage cannot be lower than $1,350 and the family coverage deductible cannot be lower than $2,700.  See https://www.irs.gov/pub/irs-drop/rp-17-37.pdf.

[2] The Internal Revenue Service (“IRS”) has issued IRS Notice 2004-23 and IRS Notice 2004-50, detailing what services qualify as “preventive care” under the health savings account (“HSA”) rules.