Trying to leap to the head of the health care industry, Innovent Oncology, a subsidiary of US Oncology, intends to begin negotiating risk-based contracts with payers early next year.
Innovent provides US Oncology's cancer care pathways program, patient support services, and end-of-life planning to oncologists and contracts with payers on their behalf. The company is working with Milliman, an actuarial and consulting firm, to develop ways to use episode rates, bundled payments and capitation in payer contracts.
“The opportunity is to evolve from a fee-for-service environment to an environment which rewards quality and cost-effectiveness,” said Grant Bogle, US Oncology's Executive Vice President of Strategy and Emerging Businesses. “This next stage in the development of Innovent is part of that.”
US Oncology has agreed to be acquired by McKesson Corp. at the end of this year. Innovent's goal is to understand what drives cancer care costs and outcomes and then use that information to help practices provide care that maintains or improves patient care while lowering its overall cost. Using this model, Innovent hopes to negotiate contracts with payers that allow oncologists to thrive, even as public and private payers curtail their overall spending on cancer care.
The company's plans come at a time when the Centers for Medicare & Medicaid Services and many private payers are looking for new ways to pay physicians, hospitals, and other health care providers. The traditional fee-for-service payment system, which rewards physicians for the volume of services they provide rather than the quality or cost-effectiveness of those services, is blamed for helping run up America's health care tab to an unsustainable level.
Physicians who continue to be paid in the fee-for-service system are almost certain to experience reductions in their pay rates. In a risk-based contract, Innovent could mitigate that decline through financial incentives to provide high-quality, low-cost care, but it would be financially penalized if it failed to do so.
‘Getting to the Crux’
“What we're talking about with a risk model really gets to the crux of what CMS and Congress is asking all physicians to do—manage the care of the patient to achieve better outcomes and do it more cost effectively,” said Roy A. Beveridge, MD, US Oncology's Executive Vice President and Medical Director.
CMS is already experimenting with some risk-based contracts, including a demonstration project to test the merits of episode-based payment for cardiac and orthopedic procedures, and more are on their way. Many private payers are introducing risk-based contracts as well.
Another Fad that Will Fail?
Since risk-based contracts emerged—and quickly went away—in the 1990s, some physicians wonder whether this is another fad that will fail. Bruce Pyenson, a principal in Milliman's New York office, says that three factors are convening to push risk back to the fore.
“What's different this time is that CMS is emphatically looking for alternatives to the fee-for-service medicine,” he said. “On top of that, we are in hard economic times, and insurance companies and employers are less able to simply pass along their costs. The third issue is that with health care reform, regulators will have to approve [insurance] rate hikes so there is just enormous pressure to reduce costs.”
US Oncology intends to create an accountable care organization (see box) that could contract with CMS beginning in 2012 through the Medicare Shared Savings Program. Initially, physicians participating in the MSSP will not have any downside financial risk, although they will be eligible for “shared savings” payments if they meet quality standards and keep costs below a pre-determined benchmark.
By identifying the costs associated with caring for cancer patients who suffer other common illnesses, such as diabetes or congestive heart failure, as well as those who have relatively rare conditions that could greatly increase the cost of their care, Milliman's analysis will help when it comes time to enter into the ACO contract with CMS, said Matt Brow, US Oncology's Vice President for Government Relations and Public Policy.
“As we know more about that, we'll be better armed to negotiate with private payers and with CMS on a wide variety of kinds of approaches, from shared savings all the way to risk-based contracts,” he said.
Bogle says that US Oncology has no preconceived idea about which payment strategy—for example, episode-based payment or capitation—will emerge as the best way to pay oncologists.
“I think there will be a variety of approaches to reimbursement,” he said. “Given the pace of change in technology, and given the complexity of cancer, it's going to be difficult to say one size fits all for all indications and all situations.”
What Is an ACO?
At the moment, there is no single definition of an accountable care organization.
The term was coined by Elliott Fisher, MD, Director of the Dartmouth Institute for Health Policy and Clinical Practice, to describe a concept in which networks of physicians and other health care providers would work together to improve the quality of care and reduce costs for a defined group of patients.
In articles in Health Affairs and elsewhere, Dr. Fisher envisioned that hospitals and doctors could be brought together as organized systems, which would be held accountable for providing good care to a defined set of patients, while reducing the use of unnecessary tests and treatments. ACOs that improved their performance would be financially rewarded by sharing part of the savings they generated.
“This would encourage further steps to improve care management, leading to further rewards and a steady evolution toward fully coordinating care systems,” Dr. Fisher wrote (Health Affairs Health Policy Brief, Accountable Care Organizations, 8/13/10.)
Congress liked the sound of that and created the Medicare Shared Savings Program (MSSP) as one component of the Patient Protection and Affordable Care Act. The program will allow Medicare to contract with ACOs no later than January 2012.
The MSSP is not a demonstration or pilot project; it was created as a permanent program, although physicians and hospitals are not required to participate.
What the Reform Law Says
Until the Centers for Medicare & Medicaid Services publishes the MSSP regulations—scheduled to be released in December—details about the ACO concept will be less clear than anybody wishes. The reform law itself provides this general framework:
- ACOs can include group practices; networks of physicians; partnerships between hospitals and physicians; hospitals that employ physicians; and other groups identified in the regulations.
- Each ACO must have a legal structure that allows it to receive “shared savings” payments and distribute them among the ACO participants.
- An ACO must prove that it can meet quality and reporting standards.
- Each ACO must agree to at least a three-year contract and serve at least 5,000 Medicare patients.
- Medicare patients will be free to use non-ACO physicians.
- Both ACO and non-ACO providers will be paid on a fee-for-service basis.
- A spending benchmark will be set for each ACO. If the ACO keeps spending growth for its patients below that benchmark—and meets quality performance standards—it will receive some share of the savings. The savings will be distributed among various providers in the ACO according to the formula they determine among themselves.
What Is Happening Now
Private payers are also interested in the ACO concept, although they might define it differently than the federal government does. Massachusetts Blue Cross Blue Shield is already contracting with ACOs, and many other private insurers are exploring that type of contract as well.
Many of the leading hospital systems in the country are reorganizing themselves to participate in ACOs.
Health Reform Law Allows Oncology-Only ACOs
The accountable care organization model appears to be an unstoppable train, and the conventional wisdom is that hospitals will be the ACO engines and physicians will hook on for the ride.
Matt Brow, US Oncology's VP for Government Relations and Public Policy, is trying to derail that idea. Brow wants oncologists to know they can—and, in many cases, should—participate in an oncology-only ACO.
The Patient Protection and Affordable Care Act created the Medicare Shared Savings Program (MSSP), which authorizes the Medicare program to contract with ACOs starting in 2012. The reform law allows oncologists in a single market to create their own ACO or oncologists to link with their peers in a region or nationally to participate in an ACO.
“You may find there are reasons to join a hospital-centric accountable care organization, but I think you will be paying for that privilege,” Brow said in a recent webinar about the MSSP.
The following Q&A was created from the information Brow presented at the webinar and in a subsequent interview.
Why should Oncologists Join an ACO?
“It is difficult to not lose money on Medicare [patients] for many oncologists. So one of the reasons...is that it could be an opportunity to create margin or lower the potential for loss in the Medicare book of business, which is often 40 to 50 percent of the oncology practice,” he said.
Further, the ACO model will allow oncologists to be financially rewarded for things that do not happen. “Right now the oncologist does not have a lot of incentive or reason to spend time thinking about how to keep the patient out of the emergency room, to avoid hospitalization and to weigh in with the patient relative to end-of-life counseling because none of these things are paid. In fact, the oncologist often is figuring out how to keep the practice afloat and focusing on things that get paid for.”
Under the ACO model, an oncology practice that manages care so that patients avoid expensive hospitalizations will receive some of the financial savings that Medicare enjoys from that good care.
Similarly, oncologists in an ACO will have financial incentives to prescribe less expensive therapies, if they are equally effective, and to coordinate a patient's care with other physicians and caregivers to avoid duplicative tests and procedures, he said.
Must an ACO Include Primary Care Providers?
“Primary care physicians do have to be part of an accountable care organization, but not exactly in the way most of us traditionally think about primary care physicians,” Brow said. “The primary care physician, for the purposes of the ACO and the Medicare Shared Savings Program, will potentially be an oncologist or nephrologist or some other specialist but who actually serves as the primary care physician over the course of a particularly intensive illness.”
Why are Hospitals Leading the Development of ACOs?
The biggest opportunity for health care savings is for physicians to manage their patients so they need fewer hospital services. Thus, Brow believes hospitals are trying to protect their financial interests by aligning with and controlling physicians.
“They know that the downstream revenue that comes from hospitalization will be more closely managed by physicians who are trying to succeed in the Medicare Shared Savings Program,” he said. “That is why many hospitals are saying to physicians ‘You can't do this by yourself. You have to join with the hospital. You don't have the resources to get these things done, and you will be lost in the new environment.'”
Further, Brow says some hospitals are telling physicians they must accept employment or another affiliation that will allow them to be paid when the hospital-led ACO receives the “shared savings” payments.
“None of these things are actually true and none of these things can be true unless physicians agree to make them true” by entering into restrictive relationships with hospitals, he said.
Why would an Oncology-only ACO be more Advantageous than a Physician-only ACO with a Range of Primary Care and Specialty Physicians?
“The reason is that cancer care is extremely expensive and particularly expensive relative to other kinds of care,” he said.
Citing a study released by US Oncology and Milliman earlier this year, Brow pointed out that a cancer patient receiving chemotherapy on average incurs about $111,000 in health care costs over the course of a year. That is about three times the cost of treating a coronary artery disease patient for the same length of time and six times the cost of treating a diabetes patient.
If an oncologist reduces the cost of treating his or her patients by 10%, the actual dollars saved will be much greater than the potential savings that other types of physicians can generate. Thus, participating in a multispecialty ACO or a hospital-led ACO theoretically could dilute the oncologists' impact on the Medicare program—and the shared savings check the oncologist receives.
“The oncologist is going to be a lot more valuable and brings a lot more to the table in an accountable care organization than almost anybody else,” he said.