Analysis

The evolution of oncology payment models

What can we learn from early experiments?

The amount of money spent on oncology in the US is staggering. And that number will only continue to rise. So what can the health care industry do to improve the cost-effectiveness of cancer care? Our new report takes a closer look at the evolution of oncology payment models, the drivers of oncology spending, and how value-based payment models could affect new treatments.

Key findings

Pioneering health plans and provider groups are experimenting with value-based payment models in oncology to try to improve the cost-effectiveness of cancer care. They are piloting these models in the commercial market—financial incentives for adhering to clinical pathways, patient-centered medical homes (PCMHs), bundled payments, and accountable care organizations—and it is uncertain which will achieve the dual goals of improving outcomes and controlling costs. We interviewed health plans and providers participating in emerging payment models to review early results (financial and clinical), understand which approaches are working, and discuss considerations for these models’ future evolution. Key findings from our qualitative research and analysis of oncology claims are:

  • PCMHs and bundled payments without downside risk are the most common types of payment models being implemented among those we interviewed.
  • Regardless of payment model, early health plan and provider collaborations have identified successful strategies to reduce unexplained variations in care and control costs. Common elements of these strategies include:
    • Technology and analytics to help practices and plans better understand existing patient populations and drivers of variability
    • Clinical pathways to help direct physicians to the most cost-effective treatment approaches
    • Patient-centric approaches such as 24/7 patient access, use of mid-level clinicians to direct patients to the most appropriate care setting, and shared-decision making
  • Several of the early pilots have lowered costs by reducing variability in drug spending and using fewer emergency room and inpatient admissions.
  • Applying these results to our analysis of commercial plan claims data shows that implementing these strategies can reduce spending by 22 percent across 1,385 episodes studied. Episodes include all costs over a six-month period, starting at the first dose of chemotherapy. This savings estimate could be considered conservative; the analysis evaluated stage 1 breast cancer patients where the variability in using high-cost services tends to be lower than patients with more advanced disease.
  • While successful in reducing costs, most pilots to date have described performance on key quality measures, such as survival, recurrence, and complications, as staying the same; a few have seen improvement.

It is unclear how value-based payment models might impact the uptake of newly available, expensive treatments. Implementing evidence-based pathways could, in some instances, increase the use of new treatments and diagnostics, potentially resulting in cost offsets in other areas. Current pilots are experimenting with different approaches to allow for the use of these treatments, such as carve-outs, stop-loss provisions, and adjusting bundle prices on a contemporaneous basis.

New payment models in oncology are likely to continue to emerge and expand, partially driven by MACRA, which establishes financial incentives for participation in CMS’ newly established Oncology Care Model. Financial risk-sharing should increase over time and, in the near term, payment models are likely to focus on the use of clinical pathways and patient-centered approaches as part of PCMHs. Barriers continue to exist around tailoring payment models to cancer sub-types, capturing data to evaluate models, and bringing models to scale.

Life sciences companies should expect to face increasing hurdles to market adoption as physician-administered drugs are included in payment models and clinical pathways increasingly drive prescribing behavior. All stakeholders, including health plans, providers, government, employers, and life sciences companies, should work together towards improving the cost-effectiveness of cancer care.

Stakeholder considerations

Stakeholders across the health care system interested in improving the cost-effectiveness of cancer care should consider the following:

Health plans

  • Initiate value-based payment models as a pilot with select provider groups. Establish the pilot as a collaboration aimed at identifying ways to improve outcomes and reduce costs for patient care.
  • Focus on quality first, then establish a path towards shared savings and eventually move towards risk-sharing as providers become comfortable.
  • Assist providers with timely data, analytics, and tools to support care planning and early interventions.
  • Optimize oncology networks to include provider groups that are more closely adhering to evidence-based pathways.

Health care providers

  • Identify a clinical practice leader to invest time and energy into care transformation. Physician leaders should be fully committed to quality, and given the autonomy to direct implementation of evidence-based protocols, monitor progress, and make required investments to improve care.
  • Invest in technology to support analytics to understand causes of unjustified variability. Leverage analytics to understand real-world experiences on treatment approaches, costs, and outcomes to refine evidence-based protocols used in practice.
  • Define and enforce clinical pathways that have demonstrated positive outcomes for patient populations treated.
  • Focus on patient-centered approaches like expanding access and engaging in shared decision making. Consider hiring or using mid-level practitioners to support expanded access.

Biopharma companies

  • Engage pathway developers in discussions regarding drugs in the pipeline and new indications being pursued. Pathway developers can provide useful input on development strategy based on their knowledge of customers’ evidence requirements. Proactive engagement will enable pathway developers to better prepare for updates and help their customers anticipate budgetary impacts.
  • Invest in generating real-world evidence (RWE) to support an expanding body of knowledge on what treatments work, for which populations, and in which settings, to help providers identify opportunities to reduce total cost of care.
  • Connect drug price to value. Describe drugs’ value in terms that extend beyond improved efficacy and toxicity. Absent of a consensus definition of “value,” plans and providers interviewed are seeking information about how a drug would impact the total cost of care among their patient populations, for indications treated, and in combination therapy.
  • Consider tying drug payments to outcomes such as survival, toxicity, and hospitalization, where these measures can be reliably and consistently measured. Consider leveraging new technology solutions to overcome the data collection challenges associated with administering outcomes-based contracts.

Diagnostic companies

  • Consider applications beyond traditional companion diagnostics or matching a diagnostic to solely one drug.
  • Engage pathway developers and biopharma companies around the evidence to support use of molecular diagnostics and companion diagnostics.
  • Invest in RWE generation to demonstrate impacts to patient outcomes from the use of molecular diagnostics and companion diagnostics.

The first responsibility of an oncologist is to make sure you have the best treatment available for your patients. I would not want to be constrained by any bundle that would force a financial decision to be made about adopting new technology. I think that it can be done, but any bundle that doesn’t allow freedom to adopt new technology is certainly not the right thing for patients.

                                                                                                                  — Provider leader

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