For years now, national health plans such as UnitedHealthcare, Aetna, Cigna, and Anthem have been experimenting with clinical pathways, oncology medical homes, and episode payment arrangements to eliminate unnecessary variation in chemotherapy, put the focus on patients, and control costs. But uptake of these initiatives has been limited.
Some providers have lamented that the models are flawed or unworkable. But another major factor is that Medicare is the predominant payer in medical oncology. Private payers just have not had the leverage necessary for their payment innovations to gain broad acceptance.
The landscape and potential for an alternative care delivery and payment model in medical oncology changed substantially in February when the CMS’s Center for Medicare and Medicaid Innovation (CMMI) officially rolled out its payment and practice reform model, the oncology care model (OCM). A few months later, the model got a huge boost when Congress passed the Medicare Access and CHIP Reauthorization Act of 2015, which gave CMS authority to move ahead with alternative payment models and provided a means for physicians to participate in their development.
Over 450 practices submitted letters of intent to participate in the OCM. “The OCM has the potential to be a real game changer,” says Lindsay Conway, a managing director at the Advisory Board Company, which specializes in oncology. “CMS is a dominant force in oncology practices, and when you have a payer of its scale the market is forced to pay attention,” she says. The OCM is part of the push to move specialty physician services of all types from volume- to value-based payment. But making that change may be especially difficult in oncology because oncologists — and the hospitals that now employ many of them — have traditionally done so well financially under the “buy-and-bill” arrangements that allow substantial markups on cancer drugs.
“CMS is the dominant force in oncology practices, and when you have a payer of its scale the market is forced to pay attention,” says Lindsay Conway of the Advisory Board. That’s the reason that the “OCM has the potential to be a real game changer.”
The OCM is an episode-of-care arrangement with two major components. It requires oncologists to manage services and quality more closely by restructuring their practices to expand care coordination, provide 24/7 access to clinicians, and report clinical and quality data. In exchange, participating practices will receive a $160 per beneficiary per month (PBPM) care management payment for each patient.
On the financial side, the OCM creates a fixed, global target price for six-month-long chemotherapy episodes. The price of the episodes will be based on historical costs. The OCM will include almost all cancers and the global prices cover chemotherapy drugs plus all Part A (hospital) and Part B (outpatient hospital and physician) services such as lab, imaging, ER visits, and radiation therapy. An episode is triggered when chemotherapy starts, and it is possible for patients to have multiple episodes. Oncologists will be responsible for managing the total cost of care and will receive a performance payment for reducing costs. (CMS hasn’t made the details of those performance payments public yet.) But OCM is not a full-blown, episode-payment model. A true episode-payment model would provide one fixed sum — often referred to as a bundled payment — for all the services rendered, and various providers would have to agree on how it would be divvied up.
That kind of payment is difficult to make work in the Medicare program because beneficiaries in traditional Medicare are free to get services from any participating provider. So the OCM doesn’t dole out a lump sum but, rather, sets a target total cost for each episode. In essence, the OCM episodes are simply an administrative construct overlaid on the existing fee-for-service payment system.
They are a mechanism to determine eligibility for the $160 PBPM payment and track episode costs and cost reductions. As far as how the dollars actually flow, Medicare will continue to use the existing fee-for-service claims system to generate payments, and there’s no ceiling on that payment.
Private payers can join
OCM has one landmark feature that is different from Medicare’s other payment-reform initiatives and the programs proposed by private payers. It pushes oncology practices to include private health plans. Practices applying for the program can receive up to 30 points in the scoring of their applications if they are able to enlist other payers to implement an OCM-like program for their own commercial and Medicare Advantage patients. Including other health plans will ensure that a critical mass of patients participates in the program as a means to justify and simplify the enhanced services that are required.
Participation in OCM may be attractive to health plan executives who view it as a chance to piggyback on CMS and implement their own similar reforms. Health plans may also want to participate because any cost savings achieved in the episodes will lower their own expenditures. More than 40 health plans have submitted letters of intent to participate.
Win, win, win
While there were naysayers who are opposed to the OCM, the Association of Community Cancer Centers (ACCC), which represents 1,000 hospital and 1,100 physician practices, says its members are interested. Some recognize it as an opportunity to share in savings. Others say it is aligned with existing goals for their practices and could help them to be positioned for continuing reforms. Still others see it as an opportunity to gain experience complying with quality benchmarks while those requirements are still voluntary.
Conway, at the Advisory Board, says private practice oncologists are actively interested in the OCM, and perhaps more so than oncologists employed by hospitals. “Independent oncologists have always been very sophisticated business people, and they are putting their business savvy to work to figure out how they can keep their practices independent,” she says. Oncologists employed by hospitals have been somewhat insulated from the changes in the way health care providers are being paid, so they may be more inclined to take a wait-and-see approach to the OCM.
Many of the criticisms of the OCM have focused on specific technical items rather than an outright global rejection of the concept. The six-month window to achieve savings raises some concerns. That may not be enough time for physicians to reduce costs. Another detail harboring demons is a delay by Medicare in providing updates on the costs of the chemotherapy episodes. That delay may make it more difficult for practices to quickly implement necessary cost-saving measures.
The OCM may turn out to be an important proving ground for Medicare’s initiatives to implement alternative payment models that trump the financial incentives in fee-for-service payment. One of the toughest hurdles the OCM faces is substituting value for volume. The question is whether the carrots — value-based incentives — are appealing enough to overcome the current entrenched payment arrangements that reward volume.
Since the chemotherapy episodes encompass all Part A and Part B services, the OCM also creates an incentive to reduce imaging, ER visits, radiation therapy, and other hospital services.
A survey by the American Medical Association and Rand that covers the impact of new payment models on physician practice says that, so far, value-based financial incentives have not trickled down to change the behavior of frontline doctors.
“Most physicians in practice leadership positions were optimistic and enthusiastic about alternative payment models, while most physicians not in leadership roles expressed at least some level of apprehension,” said the May 2015 report. “In general, we found that the financial incentives applied to physician practices via alternative payment models were not simply ‘passed through’ to individual physicians. Even practices of relatively modest size reported shielding their physicians from direct exposure to the financial incentives created by payers.”
The report continues, “The greatest financial incentive facing nearly all physicians in the study, even those in practices with substantial exposure to payment models intended to contain the costs of care (capitation, shared savings, and episode-based payment), was to increase productivity as measured by revenues or RVUs [relative value units].”
The OCM faces other important challenges. A voluntary program such as the OCM must be economically viable and present a solid business case for providers. Many providers are likely to see the OCM as a threat to the markup they receive from chemotherapy drugs. Under buy and bill arrangements, private health plans commonly pay a substantial markup on chemotherapy drugs to oncologists, particularly in comparison to Medicare payment rates. Any cost savings on chemotherapy drugs will reduce the revenue hospitals and practices receive from the markup under buy and bill, yet the performance payment a practice earns for cutting costs may be far less than the lost revenue.
Magellan’s latest Medical Pharmacy Trend Report covering 2014 says that buy and bill is still the predominant payment arrangement, with health plans and payers commonly paying a substantial markup on chemotherapy drugs. Some health plans still pay a percentage of billed charges for drugs. The more common payment arrangement, though, is paying a markup on the average sales price (ASP). For commercial members, according to the Magellan report, drugs administered in the hospital outpatient facility, when indexed to ASP, typically were reimbursed 200% to 300% of ASP, in comparison with a physician office setting, which averaged ASP+11% to ASP+18%.
The report also said there is a substantial difference in the markup that health plans pay on claims for Medicare Advantage patients. When indexing to ASP, “the payment rates in the hospital outpatient facility ranged from ASP+14% to ASP+32% versus ASP+ 7% to ASP+13% in the physician office setting.”
Alice Gosfield, an attorney in Philadelphia who has worked on physician hospital alignment arrangements, as well as on the design of a bundled payment program, notes that the Medicare Payment Advisory Commission has often criticized the site-of-service differential.
Medicare also allows physicians and hospitals to buy and bill for chemotherapy drugs, but it has eliminated much of the profit on drugs with a low fixed markup. Medicare pays physicians a markup of ASP+6%, although the actual markup these days is ASP+4.3% because of limitations imposed by the federal budget sequester.
Earlier this year, CMS released a trove of Part B claims data from 2013 that showed the government paid medical oncologists, on average, nearly $474,000 for drugs they administered, which was more than 2.5 times what it paid medical oncologists for the medical services they rendered (about $182,000, on average).
It seems that for the OCM to be economically attractive for oncologists, the $160 PBPM plus any amounts they realize from hitting performance metrics would have to at least approximate the margin they realize from those Medicare drug payments, even if the buy and bill markup is relatively low.
Practices that are interested in the OCM could avoid some the financial risk of lost markup if they participated in OCM but without recruiting private payers. That way they could have one foot in OCM’s value-based payment design while still reaping buy-and-bill markups from private payers.
Another interesting aspect of the OCM is that it may be more attractive with less financial risk to private practice oncologists than oncologists employed by hospitals. There is a strong emphasis on cost savings, and practices that do not achieve a cost savings by ear 3 will be terminated from the program. The natural starting point for cost savings in chemotherapy episodes is to reduce drug costs. Those reductions could result in a revenue loss for both private practice oncologists and for employed oncologists and their hospitals.
However, because the chemotherapy episodes encompass all Part A and Part B services, the OCM also creates an incentive to reduce imaging, ER visits, radiation therapy, and other hospital services. These cost savings will reward private practice oncologists with new revenue in the form of an OCM performance payment. In the case of employed oncologists and the hospitals that employ them, the reduced hospital services are lost revenue that may not be offset by the OCM performance payment.
François de Brantes, an expert on episode payment, says many hospitals have not come to grips with the paradox that cost savings models pose for their institutions. He calls this the CFO’s dilemma.
Cost-savings models are paradoxical in “that the lost revenue from clinical design, more efficient care, and adherence to guidelines comes first,” well before the impact of the savings is seen on the bottom line, says François de Brantes, an expert on episode payment.
“The dilemma CFOs face is that the lost revenue from clinical redesign, more efficient care, and adherence to guidelines comes first — well before the impact of these savings falls to the bottom line,” says de Brantes. He adds, though, that some new payment models have upfront payments that cover this gap.
Relative value units
Gosfield, a member of Managed Care’s editorial advisory board, notes that a problem for hospital-employed oncologists, as well as oncologists working under contract, is that their compensation most often is based on RVUs.
“To succeed under OCM, there will have to be a revaluation of the extent to which the need to meet previously set RVU targets will have to be adjusted or replaced with new compensation elements,” she says. Compensation agreements may need to be revised so the incentives are for meeting quality and other measures rather than reaching RVU goals.