The Oncology Care Model: Ten Strategies for Hospitals
The OCM; Hospitals & Physician Practices: Economic Control & Incentives
Is the Shoe on the Other Foot?
Introduction – The long-suffering physician practice vs. the dominant hospital
Medical oncology has long held a unique position in CMS based payment through its use of “buy-and-bill” relationship to drugs sold to patients under Part B. This system allows private practices to buy and inventory drugs infused and injected into cancer patients, and charge a mark-up for them. This presents a potential conflict of interest, which has very little evidence in fact, but has produced a response from payers which has severely damaged the provision of medical oncology care – particularly by the community oncologist. As described more fully below, these same community oncologists represent both the most convenient and lowest cost avenue for care delivery.
Over the last 15 years 3 key economic factors have combined to decrease the relative attractiveness of independent physician practice of oncology versus the practice model owned and/or controlled through a hospital setting: 1) Hospitals receive a “site of service” payment differential for the same services provided in a physician owned office up to 100% of the payment to physician, 2) Since 2005, reimbursement for drugs has been limited to 106% of Average Selling Price (recently reduced to 104% with the Sequester) down from much higher amounts based of the largely symbolic Average Wholesale Price as promulgated by the pharmaceutical companies (think of suggested retail price as a comparison), and 3) Many hospitals enjoy access to the vastly expanded 340B drug discount program, which can lower drug costs by 30-50%.
In short – over the last 15 years, private practice oncologists have seen their revenue cut through the switch to ASP, while hospital based competitors have enjoyed higher payments for the same service, and access to discounted drugs – which contribute to 20-35% profits for hospital based practices. Not too surprisingly, over the last 10 years the primary venue for medical oncology care delivery has switched from the independent community practice to a hospital controlled practice – with over 65% now controlled by hospital based practices in the US.
Where is the Value to be gained in Value Based Oncology?
Meanwhile, most of the payment reform/quality experiments in oncology have clearly identified the hospital setting as the primary location for the reduction of waste and the improvement in quality and value, including: 1) The CMMI funded Come Home Project, 2) The United Healthcare project, 3) The CMMI funded UAB Patient Navigator Project, and 4) The independent work of Consultants in Medical Oncology and Hematology. The collective body of work of these projects and groups has shown savings rates of over 30% of total oncology costs, but all of it focused on the avoidance of unnecessary care – principally hospital based.
As a point of fact, while all of these projects have generated durable reductions in costs and improvements in value, none of this has come through the reduction in oncology related drug therapy – in fact most cases (particularly United Healthcare) have shown an increase in medical oncology costs, offset by an overwhelming reduction in unnecessary hospital costs.
Finally, as Chastek et al made so abundantly clear in their paper of November 2012, (shown in the graphic below) the vast majority of waste at end of life for terminal cancer patient is in-patient cost. Most surprisingly, these costs averaged around $75,000 (over 55% in-patient) for 28,000 patients studied between 2003 and 2009, with a standard deviation of $112,000. Clearly, there are some outliers with extraordinary expenses to produce that type of distribution.
Oncology Care Model – Oncologists Empowered to Attack Costs (i.e. Target Hospitals)
The OCM pays medical oncologists a fee of $160 per patient per month to manage patient care, and provides a bonus of up to 16% of total oncology costs for savings garnered from the system. Because medical oncology normally represents about 1/3 of total oncology costs, this can represent a revenue increase of about 50% to the practice – not bad, considering that all but about 10% of the savings are expected to come from other entities – hospital, labs, imaging, pharmaceutical companies, and radiation oncology facilities. In effect, the medical oncologist becomes the ultimate utilization management company – permanently imbedded in the fabric of the care delivery model. More importantly, after 4% savings to CMS, the medical oncologist keeps 100% of the savings – that starts to sound like a zero sum game. And a zero sum game is not a good way to build a durable cooperative care eco-system – you can count on the ongoing antipathy of the losers.
The Reality – The OCM can be a Good Deal for Everybody, But Cooperation is Required
The reality is that independent community oncologists have been handed a very valuable opportunity with the OCM – they can do very well by doing a lot of good – but they can’t do this by themselves. First, medical oncologists typically depend on others in the care system for patient referrals – typically from physicians affiliated with or employed by hospitals. Any attempt to act unilaterally on hospital costs runs the risk of disrupting this relationship.
Second, of the 32 quality measures required by CMS in the OCM, only 15 have the ability to have high economic impact (See Appendix C). All of the 15 require data from third parties to manage on a timely basis. CMS is only providing claims data to practices – typically many months old by the time that it is received – way too late to be of any managerial value. If practices actually want to manage these areas of high financial and quality impact, it will have to be with the cooperation of partners – and that will mean sharing data, and probably fees.
10 Strategies Available to Hospitals
First, hospitals should assume that the OCM – or something like it – is here to stay, and that by getting involved with it now, they can participate in savings and gain market share. Only those hospitals that participate in the early phases of the OCM will be able to transition smoothly into the final OCM used by CMS as well as all of the private payer variations that will develop. Looking at the recent experience with CMS bundled payments for lower extremity joint replacement, it is clear that within a few years, the OCM may be mandatory in the major metropolitan markets of the US – it only took three years for joint replacements.
- Assume that you will participate – directly or not. CMS is making a very broad solicitation for participating practices, and many of the national payers are participating. If your particular affiliated physician group did not apply, do not assume that your hospital will not be impacted. Participation is based on Tax ID, and it is assumed that non-participating practices may sell to practices that have the license to participate.
- Solicit bids by practices for your business. Large hospital groups generate large numbers of cancer patients, and those patients will ultimately generate management fees and shared savings from your hospital system. If you aggressively seek to generate those savings, you can participate in them – assuming that you are working in a collaborative arrangement with the medical oncology practice.
- Define the roles and data sharing requirements very clearly, and manage based on real-time data. Ultimately, success in the shared savings model will depend on cooperation between the patient, the providers and the hospital. The OCM can actually both improve care and cut waste – and if it doesn’t nobody will get paid anyway. Delivering best care to the patient is the cornerstone of making this work, and delivering quality will require shared data and decision-making.
- Focus on a single goal – evidence based care, best practice. The OCM requires EBM tools of the medical oncologist, and they should be used throughout the entire spectrum of care. EBM today ensures the best practice regardless of cost – and it always seems to save money.
- Form a truly integrated care team that is really operating from a comprehensive care plan. Patient care in oncology is always benefitted from an integrated care team operating from a comprehensive plan.
- Be practical, and eliminate waste regardless of its source. The purpose of the OCM is to develop the care model for the future – while improving patient care and provider economics today. A practical and simple approach from the start stands the best chance of success.
- Be practical and fair in gain sharing. This is a chance to really improve care delivery through cooperation. If the financial arrangements are distorted, the effort is troubled from the start.
- Use your combined leverage to encourage payer participation. The least desirable outcome is a large number of non-participating payers – effectively free riders on the system. By teaming with the practice, the hospital group can encourage broader payer participation – improving care and improving financial performance.
- Market directly to employers. Historically, it has been very difficult to market oncology care directly to major employer groups. The OCM offers the ability to consider direct marketing first based on quality, and secondarily based on cost.
- The patient needs to be the real winner in all of this – deliver real value to the patient and the rest will follow.
The OCM is a major change in both the care and payment model for cancer. It will change the relationships between providers in the current eco-system of oncology care, with a major new role for the medical oncologist. Hospital and other providers need to participate with medical oncologists to make the model really work, and shared savings will need to be utilized to compensate participants for losses, and to incentivize changed behavior. Hospitals need to be aggressive in forming durable relationships to ensure that the OCM is successful, and that patients realize the potential value created by the OCM.