Innovative Payment Models in Cancer Care

Oncology Business News®, December 2014, Volume 3, Issue 6

Faced with steep regulations, slashed reimbursement rates, and a shift in focus from fee-for-service (FFS) to delivering value, insurers and physician groups are experimenting with new forms of payment incentives.

Thomas Feely, MD

Faced with steep regulations, slashed reimbursement rates, and a shift in focus from fee-for-service (FFS) to delivering value, insurers and physician groups are experimenting with new forms of payment incentives.

But don’t look for a new model in payment reform to be widely adopted overnight. Physician associations like the American Society of Clinical Oncology (ASCO), the federal government, and private payers have been at the forefront, but payment reform is going to take a slow, incremental shift with many stakeholders weighing in. Overall, there are 4 broad categories of payment reform incentives: pay-for-performance (P4P) programs, bundled or episode payments, pathways, and capitation P4P programs are the most prevalent model and reward physicians for meeting pre-specified goals and following established treatment protocols.

Early results by insurers and physician groups have been reported by CareFirst Blue Cross and US Oncology.1,2 Episode or bundled payments provide physicians a fixed amount of money for a defined time period. Although this form of payment minimizes the financial risk to physicians, the cost of therapy is a factor that requires vigilance.

“I happen to think that episode-based payment or bundled pricing for cancer care probably makes the most sense,” said Thomas Feeley, MD, head of the Institute for Cancer Care Innovation at the University of Texas MD Anderson Cancer Center. The Institute studies new and existing models of cancer care delivery and reimbursement.

The third innovative model promotes the use of pathways—specific treatment regimens identified by insurers. Given the complexity of cancer and all of the unique individual circumstances, it would not be possible to have a pathway for every specific situation. It is up to the oncologist to determine if one pathway treatment is a better option than another, given the patient’s circumstance.

“So if you have 2 to 3 different treatment options and 1 of them is clearly more efficacious, that option becomes the physician’s first choice,” said Jeffery Ward, MD, a private practice oncologist at the Swedish Cancer Institute in Edmonds, Washington. “That option takes precedence in your pathway and could be the only option in your pathway if the data are strong enough.”

After efficacy is determined, the second factor to consider is toxicity, said Ward. “Once you’ve addressed efficacy and toxicity, the third factor to consider is cost. So the pathway order of preference is to determine what works best, what is best tolerated, and what is the most value.” In the last category—capitation—physicians bear the cost risk for the care of a patient population. Capitation also tends to curtail freedom of choice, innovation, and research (see Table 1).

“We tried capitation in the 1980s and while it’s highly effective at controlling healthcare costs, it really curtails freedom of choice and can restrict access to care and certainly doesn’t promote innovation and research, which is essential in oncology,” said Deborah Schrag, MD, professor in the Department of Medicine at Harvard Medical School and chief, Division of Population Sciences, Department of Medical Oncology. Her research focuses on utilization of new cancer treatment technologies at the population level.

Ward says capitation might work for the big hospital system with employed doctors or a huge multispecialty clinic but a community oncology practice will have challenges. “If you give a community practice capitated dollars for patient care, how is the practice going to pay the surgeon, the radiologist, or the radiation oncologist? In addition, the practice is responsible for purchasing and administering chemotherapies, which the practice has no price control over and, which keeps increasing exponentially. How can anyone be expected to take on that risk?” Ward asked.

Table 1. Alternative Payment Models to FFS


Potential Advantages

Potential Disadvantages


Highly effective at controlling costs

Curtails freedom of choice

May restrict access to care

Pathway Adherence

Promotes evidence-based practice, high quality

Constrains choices

Challenging to maintain

Accountable Care Organizations

Foster teamwork and efficiency

Promotes quality

Constrains choice

Episode Bundling


Provides incentives to teams to work together to get good outcomes

Easier to construct for short episodes and a wellspecified team

Outliers expose providers to risk

Source: Schrag D. Aligning Incentives and Designing Payment Systems to Promote Excellence in Cancer Care and Innovation. Dana-Farber Cancer Institute. Presentation, November 7, 2014.

Feeley cautions that while there is no dominant form of payment model emerging, nonetheless, “major cancer centers all understand that the current payment model will change over the next several years.”

Current Model

The glacial pace of new payment reform may be attributed to today’s insurance and healthcare industry, which has fostered the fee-for-service system. That results in “a lot of billing, a lot of claims that require managing, and an incredible administrative burden for both physician organizations and for payers,” said Feeley. “Whatever change happens, has to happen incrementally.”“Oncology care is financed by a cross subsidization model,” said Schrag during a briefing sponsored by the Alliance for Health Reform. Her presentation was titled “21st Century Cancer Care: Will New Models Lead to Better Care at Lower Cost?”

Shift in Oncology Payments

In cancer care, the buy-and-bill model for chemotherapy dominates. “Chemotherapy drugs go from the pharmaceutical manufacturer to a wholesaler, to a drug distributor, to the medical oncology practice, which buys the product and administers it to the patient,” said Schrag. The services that are reimbursed involve the administration of chemotherapy, she said. “But here’s what’s not adequately reimbursed—the services that matter to patients. That includes counseling about decision making, symptom management, care coordination, phone calls, social work, nursing, genetic counseling, financial counseling, survivorship care planning and research.”Insurers and physician groups have many demonstration projects underway that look at value-based medicine reimbursement, but it’s still too early to determine how well they are working, said Schrag during the briefing. Comparing alternative payment models to traditional models, Schrag said there is a shift “to pay for the kind of cognitive services and individual treatment planning that really matter to people.”

This results in a gradual transition away from fee for service, “but tries to reframe the way we reward care,” she said. “Ultimately, the issue is not just to shift it, but to shrink the overall [expenditure size] so that we are spending less overall in cancer care. The other thing you will notice is that we are not trying to skip giving drugs to patients. We are trying to get people to spend less time in the hospital and the emergency department and reward high value, high touch care,” said Schrag.

Role of Employers

“To really improve care and get value,” Schrag said, “is to make research the number 1 priority. To get to high value, we need better treatments and better drugs. We need more alternates within therapeutic classes and more personalized drug regimens. We can’t do it without research. That is what we need in order to maximize value.”To maximize value, Schrag said all the stakeholders need to be involved and contributing to a solution: patients, physicians, payers, employers, and the public.

Feeley sees employers playing a bigger role in the future with these new models of payments. “We are starting to see large employers reach out directly to large provider organizations and contract directly with them,” he said.

It’s a trend to keep an eye on “especially as episode-based payment models appear where there is a bundled price for a single treatment or course of treatment. That is certainly something that a large major employer could handle on their own without the need of an insurance company. We’ve seen this happen with the Cleveland Clinic. We’ve seen this happen with Walmart and Boeing,” said Feeley.

But what does this mean for the 900-pound gorilla in the room—Medicare? He emphasizes that this isn’t the end of the Centers for Medicare & Medicaid Services (CMS) just yet. “We’ll never replace CMS; don’t get me wrong. It is a vital part of healthcare for the elderly and disabled and people with chronic conditions. But for the working person in America, there may be some other changes,” Feeley said.

Measuring the Cost of Care Delivery

“We are watching these market trends carefully in terms of future cancer care delivery. It is harder and harder to be a private physician these days opening up a practice, a small group practice, although that is still the dominant model of care in the United States,” Feeley said.Although there are distinct advantages that come with being a large, multidisciplinary cancer center, said Feeley, there is a trade-off when it comes to being nimble in business dealings. For example, MD Anderson is looking at time driven activity-based costing (TDABC), a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (such as overhead) as representative of direct costs compared to conventional costing.

“In some ways, small community practices applied these principles in that they were quick to use lower cost providers in the ambulatory setting. These small practices realized that they could do more with physician assistants and nurses, while having the physician functioning at a level that provides high quality care,” said Feeley.

“TDABC recognizes that a large proportion of our expenditures come from the people who provide healthcare,” said Feeley. “At a large center like MD Anderson, more than 65% of our budget is our people. We focus a lot on drug costs, which are without question outrageous, but we sometimes forget that some of our biggest costs are in the people providing the care.”

Two Proposals

Feeley continued: “That is where a small practice can use these types of techniques and understand where the costs are in their system. In addition, if you tie costs to what you are being reimbursed for, it can help you understand where you are being reimbursed and where you are not. Most small practices know this very well without a sophisticated time driven activity-based cost accounting system,” concluded Feeley.A proposal by the American Society of Clinical Oncology (ASCO)—Consolidated Payments for Oncology Care (CPOC)—advocates scrapping the current system for a bundled payment approach to cancer care.

The tenets of the CPOC proposal focus on flexible payment that is patient centered, with a simpler billing structure, a focus on coordinated care, more predictable revenue, and incentive-based, high-quality, high-value care.

“We are working on a proposal to get rid of buy-and-bill, but that’s fraught with a lot of infrastructure issues,” said Ward, who is also chair of ASCO’s payment reform committee. “But right now, CPOC is built on paying oncologists fairly for doing the things we do. The proposal uses pathways and P4P programs to incentivize oncologists to follow best of care in treating their patients and to decrease utilization of expensive emergency departments and hospitalizations where possible,” said Ward. In addition, extra bundles for surgical oncology, radiation oncology, and imaging could be incorporated.

The CPOC model takes “a disease-agnostic approach,” said Ward. “So payment is dependent on the performance status of the patient—how sick he is—and how complicated the therapy is. It’s agnostic to an oral chemotherapy agent versus an IV chemotherapy agent.”

The other payment model under consideration is from the Center for Medicare & Medicaid Innovation (The Innovation Center). The Innovation Center is developing an oncology payment model, currently referred to as the Oncology Care Model (OCM), to test the effect of better care coordination, improved access to practitioners, and appropriate clinical care on improving health outcomes at a lower cost.

The OCM would target chemotherapy treatment and the spectrum of care provided to a patient during a 6-month episode following the start of chemotherapy treatment. Participants would be physician practices that furnish chemotherapy treatment, and would be expected to engage in practice transformation to improve the quality of care they deliver. This transformation would be driven by the requirements practices must fulfill in order to participate in the OCM.

But Ward says there are some concerns with The Innovation Center’s model. “My concern with those kinds of bundles is that in a single small practice, they can become inherently unstable,” said Ward. “Trying to figure out what the dollar amount should be for an individual practice may be difficult because 1 patient who has a complicated treatment regimen and who uses a lot of dollars may skew the numbers.”

Private insurers are also promoting their payment models. Each model has their advantages and disadvantages. At this point in time, payers and physicians must continue searching for better payment methods. The current payment model has inadequacies, and more experiments and pilots are needed to find ways to reduce costs and preserve quality. Any proposed model will benefit by undergoing rigorous testing, which will hopefully lead to important insights into the affordability and value of cancer care.


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