Medicare’s New Oncology Care Model (OCM)
Strategic Opportunities and Imperatives
June 3, 2015
On February 12th of 2015, Medicare (CMS) introduced a new integrated payment and quality model for oncology care in the US for Medicare beneficiaries, the oncology care model (OCM). The program provides significant changes in payment for the delivery of oncology care, and places the medical oncologist in a unique position of control of care quality, delivery and cost in exchange for a management fee of $160 per beneficiary per month, plus the potential of earning up to 16% of shared savings in total oncology costs – a figure which could exceed $17,000 per beneficiary per year. The program designates the medical oncologist as the party responsible for care quality and cost, and accordingly makes the fees for management and savings available to the medical oncologist exclusively. The program does not preclude fee sharing of other joint or incentive sharing programs between and among care providers.
The program explicitly targets participation by independent practices – those which can freely target savings in medical, surgical and radiation oncology without conflict from hospital based parent groups. Practices must meet the following criteria: (1) Provide 24/7 access to a clinician with patient’s medical records (2) Use ONC-certified EHR (3) Use data for quality improvement (4) Provide core functions of patient navigation (5) Document IOM care plan (6) Use therapies consistent with clinical guidelines. In short, practices which function as medical homes according to most of the popular models will qualify.
What makes this program unique is: 1) The insistence by CMS on the participation of local payer organizations in the program with participating practices (up to 30% of the total practice score in the application), and 2) All program medical costs for beneficiaries are included in costs – this will be the broadest application of costs subject to program inclusion for any clinical specialty program. In short, CMS is trying to create a comprehensive program for payers and practices, such that only one system of patient management need be utilized, and there are few “free riders” – payers who benefit but do not participate in the program costs.
Two final notes of caution: 1) the rules have been deliberately maintained as vague, pending selection of and discussion with the participating practices and payers, and 2) There is virtually no reliable data about the actual market size contemplated by this effort – many cancer patients have multiple co-morbidities, and cancer may not be the most medically urgent or expensive issue addressed by many patients. Absent good payer and provider co-operation, identifying and managing these patients will be extremely difficult, and cost control may prove very difficult.
Virtually all practices can qualify, although the EMR (and related meaningful use) and clinical pathway requirements will tend to limit the participation to major practices. It is expected (based on the noted United Healthcare Study) that the majority of savings in the program will come from: 1) Unnecessary hospital utilization – including inpatient and ED (demonstrated savings of 34% of expected cancer costs), and 2) End of Life and related Palliative/Hospice care (average costs of $74,000, with a Std. Dev. Of $112,000). Because most of the savings are anticipated from hospital based expenditures, it is anticipated that participation by major hospital programs will be limited. Additionally, many hospitals have recently acquired independent practices to take advantage of site of service charge differentials and 340B based pricing, further limiting the applicant pool. The total number of licenses to be made available in this round is 100 nationwide – with a target of 1500 participating physicians.
Additionally, financial pressures on practices due to changes in CMS payment for infused drugs have limited practices ability to respond to opportunities, forcing mergers and closures.
It is clear that the OCM is a direct response by CMS on the increasing cost structures being developed within oncology by the growing volume of hospital based practices. Despite rapidly increasing drug costs, the percentage of total costs represented by medical oncology has remained constant. Only by eliminating pointless care, and improving access to 24 hour urgent care, will oncology costs be brought under control. CMS has clearly targeted the medical oncologist as its preferred partner in this endeavor, putting all savings flow in the hands of the medical oncologist. How much money are we talking about here, and are these medical oncologists up to the challenge?
A Brief Analysis – US Market for OCM
The total market for oncology care in the US is estimated to be around $150 Billion – but that is for cancer care only. It is reasonable to assume that the total medical costs for the cancer population – including other diseases being treated – exceed that number by 30-40% – giving a total cost for cancer patients of $195 – 210 billion. The total number of Americans being treated for cancer is very difficult to determine, but assuming that it is around 2 times the number of new diagnoses (about 1.7million annually), the number under treatment is around 3.2 million people. Reducing this by 30% for deaths, short term therapies and simple surgically removed cancers with no medical oncology intervention, we estimate that the number of Americans eligible for the OCM program is 2.4 million, with around 750,000 in end of life. Applying these gross market estimates, the total addressable market for revenue for patient management ($160/PPM) in the OCM is around $4.6 billion (2.4 million x $160 x 12), and the total market for savings is $27.4 billion (net of management fees).
Strategic Opportunities & Issues
There are 6 principle strategic opportunities & issues that warrant consideration in the OCM:
- Payer Partner Needs – the End of External Utilization Management? The management of oncology care has long been a minefield for payers – perverse incentives, uncoordinated care, very sick patients, and a complete absence of integrated care management. Not surprisingly, payers have retreated to the dubious panacea of third party utilization management (UM) services. These have added enormously to the administrative burden of oncology care, without materially improving care or limiting cost. Under the OCM, private payers are partnering with practices and patients to best design and manage care. Strategically, the best medical oncology practices are now focused on delivering to payers and patients audited care plans tied to evidence based practice. Importantly, the OCM eliminates the incentives for unnecessary care, and puts the patient and the physician on the same team to make this happen. The only future for players currently in the UM business is to invert their business objectives – ensuring adequate and best practice care rather than limiting “unnecessary” utilization.
- Practice Systems – the Need for New Capabilities & Integration I doubt that even a single independent oncology practice in the US currently meets all of the OCM requirements. Some of the operating requirements are new and novel, and all of the data sharing requirements are new. In the vast majority of practices whole systems are lacking, and in all practices data integration tools are missing. There are no data systems in oncology practices to deal with the palliation and expense management of very expensive multiple co-morbid populations. This opportunity is already giving rise to new M&A and JV activity in the EMR space and with purveyors of pathway systems and data warehouses. There is a tremendous opportunity to improve and coordinate using commercial CRM systems such as SalesForce and Microsoft Dynamics. The functions of these systems hold the promise of truly function patient portals and cross-specialty coordination. They also offer unique opportunities for managing chemo-induced symptoms, and for the development of best practices.
- Practice Medical Integration and Incentives I doubt that a single independent oncology practice in the US has ever faced the requirement of managing multiple diseases of co-morbid populations and virtually none has ever attempted patient management across the continuum of radiation, medical and surgical oncology. Doing this is going to require close interaction and functional ties with other clinical practices, and will probably involve some sharing of financial benefits – which appears to be encouraged under the OCM.
- Practice Financial Systems Independent oncology practices in the US do not have the financial systems in place to adequately control, report on and/or audit the functions that will be required under the OCM. Vast amounts of money are and will be changing hands, with no ability to track or audit it centrally. This will need to be coordinated with payer partners and patients as well. The financial realities, together with the survivorship and care plan requirements of the OCM, militate for speedy and flexible development of cooperative data warehouses. Who knows – the health information exchanges (HIE’s) may actually make a comeback.
- Required Financial Relationships Practices will need to have suitable financial arrangements in place with referral and hospital partners to ensure a reasonable level of cooperation and continued business. Hospital, lab, imaging, surgeon groups and radiology groups will all be net losers in the cost cutting required in the OCM, and financial relationships (sharing) will be required to make this work. None of these arrangements are in place anywhere today.
- Central Role of the Patient In the OCM, the patient will play a pivotal role. Patients who operate outside of the practice patterns developed by the medical oncologist have the ability to be ruinously expensive, and there is no way to compel compliance (as in the ACO model). Patients will need to believe in the decisions of the clinicians, and not feel that care is being withheld to satisfy the financial objectives of the medical oncologist. The patient will need to feel that they have a good deal financially and best care – and this will be attacked by competitors selling hope to patients with advanced disease. A delighted patient will be the only acceptable outcome.
The OCM fundamentally alters the roles played by the actors in oncology today: 1) Payers collaborate with medical oncologists to improve quality across the entire continuum of care, 2) Medical oncologists design and manage comprehensive care plans with other oncology specialists, navigators, PCPs and other care providers, 3) Hospitals and other oncology care providers scramble to participate in shared savings pools, 4) Medical oncologists scramble to form alliances with fellow practices to ensure participation and scale, and 5) Medical oncology move rapidly into role of primary contractor for oncology care – exploiting the value of care plans and management for self-insured employers. On balance three key strategic imperatives emerge:
- Focus on the Patient This is the fundamental imperative that will separate the winners from the losers. Shared decision making, navigation, communication, financial planning, and palliation are going to be key to a delighted patient. The emerging requirement for CAHPS surveys, and the transparency of utilization and cost will be key metrics for success. The best institutions in the US today are doing tumors boards for all cancer patients, with patient participation. Any program offering less than a fully engaged and participating patient will ultimately succumb to more engaged competition.
- Deals Nobody – in clinical care, systems or supportive care – has everything needed to be successful, and this model will favor scale. Deals (M&A, JVs, IPAs & partnerships) are needed: 1) Between medical oncology groups, 2) Medical oncology groups with hospitals, radiation oncology, surgery and PCPs, 3) EMR vendors with every other system type in the ecosystem, 4) Payers with medical oncology, and 5) Medical oncology with employer groups. Ultimately, it is important to recognize that medical oncology groups will be the clinical customer for electronic systems and clinical care – palliative care, dietary services, etc. Similarly, payers – including CMS and employers – will look to contract oncology services through medical oncology groups.
Keep an Eye on the End-State Using end stage renal disease as a model, oncology care will progress rapidly to an integrated, outpatient delivery model. The most successful companies will come from the most favorable initial geographic markets, but will ultimately overwhelm all markets based on quality, patient satisfaction and cost. Venue really matters here, and large hospital based cancer centers may come to be white elephants. The future will be dominated by special purpose ambulatory cancer centers (ACCS), integrating medical, radiation and surgical (outpatient) using one EMR, a single central lab and imaging facilities – and ultimately generating a single bill to the patient.