Reimbursement Reform in Oncology: Moving from Cost to Quality

VBCC - November 2014, Vol 5, No 9 - VBCC Perspectives
Michael Kolodziej, MD
National Medical Director
Oncology Solutions
Hartford, CT

Oncology payment reform is a hot topic in the provider and payer communities. Numerous models and pilots have been introduced to define the value of cancer care, improve the quality, and/or control costs. The transition to a system that values outcomes over the quantity of services is driving this reform. Cancer care has changed a lot and continues to change rapidly, but transparency regarding cost and outcomes and the understanding of value has lagged behind.

Cancer care in the 1960s, 1970s, and even the early 1980s, was largely a hospital-based service. Surgery was king; radiation and chemotherapy were in their infancy. The late 1980s and the early 1990s saw tremendous innovation in these fields. These years also saw a migration of medical oncology from hospital-based to office-based practice.

This relocation of services exponentially increased the complexity of the required infrastructure. The office infusion center, specially trained nurses, chemotherapy pharmacy services, and the associated business office support were very expensive. Payment for professional medical oncology services was the same as for any other office-based internal medicine subspecialty.

The buy-and-bill model was born from the need to help pay for infrastructure. Practices began to purchase chemotherapy drugs at wholesale prices and sell them to payers at increased retail prices. The understanding that this margin offset the cost of the infrastructure was implicit.

The emergence of new, expensive chemotherapy options in the 1990s dramatically increased the cost of cancer care. Under the buy-and-bill model, the net revenue of oncology practices also increased. Some less-than-transparent prescribing practices tied to volume-based rebates caused many within and outside the medical community to characterize the motives of oncologists in prescribing chemotherapy as conflicted at best and perverse at worst.

Because Medicare beneficiaries represent approximately half of all patients treated for cancer, the federal government became involved in the prescribing rebate debate. The resulting Medicare Modernization Act of 2003 tied reimbursement to the actual cost of the drug administered and capped the margin, effectively limiting the profitability of caring for patients with Medicare coverage.

Unfortunately, only the cost of care and the financial incentives tied to chemotherapy administration became the focus of debate, rather than a discussion of value. In response, almost all commercial payers also focused on cost. They migrated to a structure parallel to that of Medicare and increased utilization management, particularly through prior authorization.

Although utilization management had some impact on cost, the rapid pace of innovation and the associated soaring cost have kept cancer care in the spotlight of policymakers and payers. This is understandable when one considers that the cure rate for the most common advanced-stage malignancies in adults has not improved much.

Still, survival has been prolonged for many patients, and the advances in cancer care are undeniable. The task now is to understand and reward good outcomes. Data have now convincingly shown that therapeutic decision-making by oncologists is not, for the most part, profit driven. But there also is recognition that the current fee-for-service model remains driven by utilization rather than value-based reimbursement.

The value that is being defined in oncology today is pragmatic. It is rooted in understanding the appropriate evidence-based care for clinical subsets of patients, the associated cost structure of this care, and the subsequent outcomes. This value can be defined objectively, but requires measurement, reporting, and process improvement.

Neither providers nor payers hold all the data elements; progress requires collaboration. The current reimbursement reform proposals that are likely to succeed all share the attribute of continuous quality improvement, with a pay-for-value model as the soul of this transformation.

Big data will become an enabling technology to facilitate physician performance, as well as process-of-care modeling. The payers are ready to shift attention from the buy-and-bill model to a model where a high-performing network of providers is recognized and is financially rewarded. The healthcare system is cost-constrained, so an infusion of cash is unlikely. Quality will be rewarded, however, and high-performing providers will thrive.

Unfortunately, oncology payment reform is not a cure-all. The challenges associated with the cost differential attributable to site of service will require other solutions.

In addition, the high cost of new therapies, particularly considered in the context of rewarding incremental rather than truly innovative advances, will need to be addressed.

Finally, and perhaps most important, the voice of the patient/healthcare consumer has not yet been adequately integrated into the proposed reforms. We must continue the dialogue.

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Last modified: November 24, 2014
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