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Value-based insurance design for specialty medications in the us – the wave of the future?

May 3, 2015

Under the Affordable Care Act (ACA), Medicaid and other insurances are rapidly expanding. Fifteen million more Americans are now covered by health insurance, reducing the number of uninsured from 18% to 13.4%.1 Many of these newly insured are enrolled in high-deductible plans in which the patient shares a significant portion of the cost with the payer. These high deductibles disincentivize utilization of healthcare services and may lead to non-adherence to pharmaceutical regimens with high patient cost-sharing.

To combat this, value-based insurance design (VBID) is trying to make healthcare more accessible to patients by eliminating co-pays and cost sharing from high-value clinical services and treatments.

Is VBID the future of healthcare insurance?

VBID was first implemented by Pitney Bowes, a 33,000-employee firm, which reported over $1 million in savings within three years of reducing co-payments for diabetes and asthma medications in 2001.2 Following this, many private employers and public employee health plans in Oregon, Colorado and Wisconsin have implemented VBID by reducing or eliminating cost-sharing for their employees’ chronic disease medications, including diabetes, asthma and hypertension. The overall experience of these health plans with VBID has been positive, with significantly improved patient outcomes, which are measured in fewer disability days and reduced absence from work for employees.3 Some health plans even earned substantial return on investments, which was attributed to a fall in the number of adverse events.4

VBID has gained momentum recently with the introduction of the Value-Based Insurance Design for Better Care Act of 2014 directing the Secretary of Health and Human Services to establish a three-year demonstration program. It allows participating Medicare Advantage plans to test VBID principles of reduced copayments and coinsurance for high-performing providers, evidence-based medications, or clinical services related to specific chronic disease care, while explicitly prohibiting plans from increasing copayments or coinsurance to discourage use of services.5 In a recent survey of 1,300 large employers, more than 81% indicated that they plan to implement a VBID in the future.6

While employers have initiated VBID in the interest of better health outcomes and, in turn, better productivity of their employees, certain manufacturers have also found this design rewarding. In 2009, Merck signed an agreement with Cigna to place its anti-diabetic medications, Januvia and Janumet, at a lower tier in the formulary based on improved patient outcomes in year one. Reducing co-pays and out-of-pocket costs for patients was aimed at improving their medication adherence, which reduced emergency room and hospital visits. The increased utilization of the drugs drove sales for the manufacturer, and at the same time overall costs for the payer are anticipated to be reduced.7

Co-pay offset programs are already utilized for specialty medications

Eliminating co-payments for expensive medications is not a new concept in the US, as co-pay offset programs (COPs) have been in the market for years. Contrary to co-pay reductions in VBID, which are financed by the payer for certain high-value drugs, co-pay offset programs are almost always sponsored by manufacturers for specialty medications, regardless of the value they bring to the patients. As of winter, 2014, there were 561 co-pay offset programs being offered for 708 brand-name drugs.8 This inundation of the health system with co-pay offset programs defeats the tiering of formularies by making expensive medications easily available to patients. While a recent survey shows that a large majority of patients and physicians are in favor of co-pay offset, payers are more critical and believe that these programs “drive patients to use more costly branded drugs.”9

The high utilization of co-pay offset programs demonstrates that there is a need for drugs placed in higher tiers; however, they are becoming increasingly unaffordable for patients.

Does VBID provide a potential opportunity for high-value drugs?

While payers are skeptical about co-pay offsets, the high utilization of COPs for specialty drugs demonstrates the existing gap in the demand and need for these expensive medications. In the light of this gap, it will be easier for manufacturers to emphasize the value of their specialty medications, if they plan ahead. To leverage from the VBID, manufacturers will need to collect cost-effectiveness data, in addition to demonstrating clinical effectiveness of their drug. Payers’ preference for real-world economic evidence will increase the demand for economic endpoints from trials. Manufacturers can draw from the example of Sovaldi (sofosbuvir), which is one of the most highly priced drugs covered by the National Health System (NHS) in the UK. The NHS previously refused to reimburse Gilead’s Sovaldi despite its ability to cure the hepatitis C virus (HCV), attributing the decision to its unsustainable cost. Gilead turned this decision around by showing improvements in patient outcomes over a period of time, and by identifying patients who would benefit most from targeted therapy. In the US, a similar agreement was reached whereby Aetna gave Sovaldi priority placement on its formulary (tier 2) based on its cost-effectiveness compared to existing HCV treatments.

In the case of Sovaldi, identifying high-value patients was based on genotype, which is easily measurable compared to following up on a patient arbitrarily. However, when there is no defined way to delineate target patients, measuring patient outcomes prospectively over a period of time can help build a clinically-nuanced benefit design. Thus, subgroup analyses to focus on just the “best” patients for a medication are likely to see more demand from payers. Another approach to VBID is “reward the good soldier,” whereby, when patients do not respond to generic or lower-tier drugs, their cost-sharing for more expensive medications is reduced.10 To implement this approach, manufacturers will need cooperation from payers to access data on patients who are not taking their treatment or, alternatively, to build a central repository of follow-up information on all patients.

Additionally, there are many other challenges to demonstrating cost-effectiveness for target therapies. First, there is an added diagnostic cost related to molecular tests, which are often considered investigative and not covered by payers. Secondly, collecting patients’ follow-up performance data needs coordination and understanding between providers, payers and manufacturers, who do not always work well together. Moreover, there is an enormous upfront cost to building the infrastructure for collecting this data, the burden of which is likely to fall on the manufacturer. Perhaps the biggest challenge would be to project long-term cost savings as a benefit to payers, since they will not get the returns, given that on average Americans change their health plans every two to three years.

Payers are aware that the current system of reimbursement for specialty medications with high cost sharing is unsustainable. With the changing landscape of the American health system to reward high-value products and services, payers are seeking more efficient ways to price pharmaceuticals. Simultaneously, evolving personalized medicine technologies are expanding the scope of providing clinically-nuanced treatments based on individual patient biologies. These changes need to be carefully assessed by specialty drug manufacturers to strategically position their products in this highly competitive landscape.

For further information, contact Deeksha Dua at


[1] Obamacare Facts: Obamacare enrollment numbers. Accessed March 12, 2015.

[2] NCQA: Value based insurance design fact sheet. Accessed: March 2015.

[3] National Conference of State Legislatures: Value based insurance design. Accessed: March 2015.

[4] NCQA: Value based insurance design fact sheet. NCQA: Value based insurance design fact sheet. Accessed: March 2015.

[5] Value Based Center for Insurance Design: Transformative idea attains bipartisan bicameral support. Accessed March 12. 2015.

[6] Mahoney JJ, et al. Value-Based Insurance Design: Perspectives, Extending the Evidence, and Implications for the future. Published June 28, 2013. Accessed March 2015.

[7] Deloitte. Value based pricing of pharmaceuticals. Accessed March 2015.

[8] AIS Health As Copay Coupons Rise, Payers Should Eye Drugmakers’ Efforts to Enrich Offsets. Accessed: March 2015.

[9] Pharmaceutical Commerce. Copay programs’ increased value to manufacturers is matched by rising criticism. Accessed: March 12, 2015.

[10] Value Based Center for Insurance Design. Fendrick AM, et al. Supporting consumer access to specialty medications through value-based insurance design. Accessed: March 12. 2015.

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