In Negotiations, Oncologists Find That Size Does Matter

Oncology Business News®, April 2014, Volume 3, Issue 2

For oncology practices today, the keys to negotiating successful contracts are size and a willingness to contain costs while improving quality.

Jeffrey F. Patton, MD

For oncology practices today, the keys to negotiating successful contracts are size and a willingness to contain costs while improving quality.

Having a large presence in a market helps an oncology practice demonstrate that it has the scale to serve a large number of patients. A secondary but related factor that drives success in negotiations with health plans is a willingness to move away from fragmented feefor- service contracting and to follow protocols. By following protocols, oncologists can demonstrate that they are controlling costs and improving quality.

Practice Size Matters

The problem in many markets is that health plans tend to dictate contract terms, as oncologists and other physicians have seen in Tennessee recently. The Tennessee Medical Association has documented how health plans have been changing payment terms in mid contract, thus forcing many practices to accept these terms, says Yarnell Beatty, vice president of advocacy for the Tennessee Medical Association (TMA). For oncologists in Tennessee, drastic changes in contract terms have resulted in a big drop in payment just since the start of this year, he added.

“Health plans are so big and powerful that they have what amount to take-it-or-leave-it clauses in their contracts. These clauses allow them to amend contracts and the fee schedule at any time,” he says. As of last year, Blue Cross Blue Shield of Tennessee said it would cut what it pays to practices that have in-office pathology laboratories by 52 percent, and most large oncology practices have in-office labs.

Jeffrey F. Patton, MD, the CEO of Tennessee Oncology in Nashville, said his practice has been adversely affected by this change. “We couldn’t accept a cut of that size,” Patton says. “We have 80 oncologists working in 40 sites in Tennessee, and our size means we can refuse such unilateral changes.”

At each site where it delivers care, Tennessee Oncology needs an in-office laboratory. In addition, it has a central lab, Patton says.

“We need an analyzer at every site to check the blood counts before you deliver care, and we have a central lab to do chemistry analysis as well,” he says. “A cut of 50 percent would have been significant, and we were fortunate to have the size to reject that cut.”

Tennessee Oncology said it would not accept the cut, and because of its size and geographic coverage in the Volunteer State, it retained the contract, Patton says.

Small practices, however, do not have the market clout to say no to payers, Beatty says. The TMA supports legislation to prevent health plans from making unilateral changes in mid contract.

As of mid-March, that legislation was under consideration. “We just want some predictability for medical practices so that they will know what they will be paid during the year,” Beatty says. “We need this legislation to level the playing field, particularly for smaller independent practices.

“There needs to be predictability on the provider side so that they can be more efficient and know how much staff to hire and which services to deliver,” he adds.

Developing New Payment Arrangements

Another important element when negotiating contracts with payers today is a willingness to move away from fragmented fee-for-service payment. Oncologists are just starting to get involved in negotiating shared savings and other payment arrangements with health plans. Just as size is important to controlling costs, these new payment methods are designed to provide a financial reward for keeping costs low and for improving the quality of care oncologists deliver.

To control costs and coordinate care more effectively, health plans are asking oncologists to participate in accountable care organizations and patient-centered medical homes. But progress in developing these arrangements for oncology has been slow, hampered by the complexity of cancer care.

While they recognize that fee-for-service arrangements need to be replaced and are interested in new forms of payment, oncologists remain wary of negotiations over new reimbursement models.

“Everyone understands that we need to develop a more value-based system that includes some risk sharing,” says Patton. “There are lots of discussions about new forms of payment, and new programs are being developed, but the vast majority of reimbursement remains as fee for service. Oncology is complicated and understanding where all the costs are is a challenge.

Practices are blind to hospital costs, and that’s the biggest part of the cost equation. For us to do a bundled payment or go at risk would be difficult until we fully understand hospital pricing,” he explains.

“To do that would require a lot of collaboration with payers because health care is fairly well behind other industries in terms of information technology. Without the right data and the proper tools to measure costs in real time, it’s difficult to do risk contracting,” he adds.

Negotiators Need Cost Data

In order to negotiate favorable terms under these new payment arrangements, oncologists will need data on the full costs of care, including hospital and other costs that they normally do not see. Only then would they be able to trust the other parties involved in these negotiations.

“Once we have data we can start to come up with a solution together for how to do valued- based reimbursement for oncology,” he comments. In Tennessee, oncologists are just starting to have these conversations with payers.

Oncologist Marcus Neubauer, MD, medical director of oncology services with McKesson Specialty Health and the US Oncology Network, agreed, saying changes in cancer care payment have been slowed by the need for more data.

Nonetheless, Neubauer has seen that payers are starting to negotiate more sophisticated forms of payment that reward oncologists for delivering value, which health plans define as high-quality care that keeps costs under control.

Previously, Neubauer was in a private practice in Kansas City that was 1 of 5 oncology groups to adopt an episode of care payment system in 2010.

That practice, the Kansas City Cancer Center, contracted with UnitedHealthcare in a program designed to measure the effects of replacing feefor- service reimbursement. In the 4 years since then, he has seen more interest in moving away from exclusive fee-for-service payments.

“But oncology is an incredibly difficult specialty to attach bundled or episodic payments to. It’s not like cardiac, hip, or sinus surgery, where the care delivery is more uniform. If anything, cancer care is getting more heterogeneous with the expanding list of cancer-causing mutations and corresponding targeted agents,” Neubauer adds.

Complicating Factors

The cost of medications alone can complicate negotiations because one patient may be given a drug that costs $50 per month while another patient with a similar (but not identical) condition may receive a therapeutic regimen that costs $7000 per month, he explains. Another complicating factor is how patients are treated at the end of life, where care can be extremely costly, Neubauer says.

“For all these reasons, it’s very hard to say that a health plan will give an oncologist 1 payment for the treatment of any 1 type of cancer. Still, we need to get to value-based payment systems,” he said. Given these complicating factors, it might be best to begin a negotiation for an innovative payment program with radiation therapy because there is less variation in radiation oncology than there is in medical oncology, Neubauer adds.

The US Oncology Network has developed new payment models for radiation oncologists and is starting to build patient-centered medical homes (PCMHs) that would use fee-for-service payment to start and then shift to alternative payment models such as shared savings, he says.

A few oncologists have developed PCMHs and experienced some success negotiating favorable terms for these arrangements, notably Consultants in Medical Oncology and Hematology, a practice in Drexel Hills, Pennsylvania, that has a medical home and has contracts with a number of payers, according to oncologist John Sprandio, MD, who founded the practice.

Protocols for Quality Care

In many settings, health plans require oncologists to follow care guidelines. The medical home model supported by McKesson Specialty Health and The US Oncology Network is called Innovent Oncology and encourages oncologists to follow protocols designed to improve patients’ overall health and decrease hospitalization rates and emergency department visits.

“With Innovent, we consider some risk-shifting models such as quality metrics and shared savings that are short of a bundled payment arrangement. Once we show that oncology care can be managed tightly at the provider level, we will be in a better position to negotiate a bundled payment model,” Neubauer says.

Under bundled payment, a health plan might negotiate a contract to pay for all care for a cancer patient for 1 year and pay that amount out every month over 12 months. Then at year’s end, it could continue the same payment or adjust the payment up or down depending on the patient’s level of illness. The oncologists negotiating such a contact would need to know all of their costs and may be responsible for paying for care in a hospital or other setting.

Therefore, getting fixed payments over the year would require the oncologists and everyone on the integrated care team to keep costs low and minimize costly complications.

Under such arrangements, oncologists may negotiate a clause that allows them to get out of the bundled payment arrangement if a patient develops catastrophic complications.

Experts believe such an out clause could be the difference between success and failure when caring for some patients because if cost exceeded the payments, the oncologist and the providers would assume those increased costs. But if all care costs are lower than the bundled payment, the oncologists and others on the care team would share the savings.