Oncology ACOs, Pathways and Medical Homes – Prior Approval & Disintermediation in Oncology Care

Oncology ACOs, Pathways and Medical Homes – Prior Approval & Disintermediation in Oncology Care

Oncology ACOs, Pathways and Medical Homes

Prior Approval & Disintermediation in Oncology Care

Jeff Patton, MD & Wes Chapman


Preface: In this article we take a look at the economic impact of prior authorizations (PAs) in the delivery of oncology care, and how the effective implementation of ACO, pathways and medical homes in oncology care should impact the widespread use of PAs.

 Mr Stop

Considerations of Prior Authorizations

Prior authorizations in healthcare are the third party approvals required by payers for certain types of patient care including drugs, diagnostics, devices, procedures and tests (collectively medical procedures or MPs). PAs are endemic in the world of medical oncology, given the absolute dollar cost of many of the tests and treatments, and the intensity of their application. Prior authorizations are utilized to prevent the use of unnecessary or inappropriate elements of care – fundamentally to control costs. In a fee-for-service world, in which the clinician has unfettered ability to order the care for patients, and third parties (insurance companies) are responsible for payment, there is always the suspicion that the economic cost of care may exceed the reasonable benefit to the patient. This suspicion has been exacerbated in cases where the clinician directly benefits economically from expensive lab tests, diagnostic imaging or prescription drugs. In short, PAs were put in place to limit the financial temptations presented by our healthcare delivery system – or least some of them.

Insurance companies typically use both in-house and third party firms with putative clinical expertise to provide the oversight role in PAs. In every case, the approval/denial in PAs is based on a seemingly simple test – is the MP reasonable and necessary for the care of the patient?  The third party PA firms offer reputed expertise in specific clinical areas such as diagnostic imaging and clinical/practice management services in clinical areas such as oncology. No matter how it is described, however, the net effect is to stop the process, and demand prior authorization in writing before agreeing to pay for a procedure, test, etc.


Prior Authorizations Viewed through a Lean Lens

The principles of lean manufacturing (Lean) and the Toyota Production System (TPS) have come to clinical care delivery slowly and with great effort. Lean is dedicated to the elimination of waste – which is defined as activities which do not directly benefit the customer. PAs clearly provide no benefit to the customer, and in fact stop the flow of production and provide gigantic inefficiencies into any clinical care system.

What do we mean by gigantic? Consider that our practice has over 52,000 patient encounters per year of the type requiring PAs; assume at least 10 minutes of labor per PA, and a minimum cost of $50, that’s 8,700 hours and $2,600,000 to clear the paperwork before patient care can even begin. Each PA “stops the line” in TPS parlance. Mr. Taiichi Ohno (father of TPS) would be rolling in his grave at the thought of it. Until PAs are cleared from the pathway of clinical care delivery, lean methods will never be truly effective.

Perhaps worse still are the perhaps well meaning, but terribly mis-guided, effort by payers and their PA-pushing affiliates to superimpose external “best practice pathways” onto physician practices. Our practice today is organized and controlled by a sophisticated (and expensive) series of inter-related IT systems including practice management, billing, pathways, pharmacy, diagnostics (PACS), laboratory and an EMR. These systems are continuously updated and integrated to provide best practice care as defined by our practice, in accordance with NCCN guidelines.

Imagine the chaos that would ensue, if each payer were to superimpose their own pathways, rather than just PAs – including the required use of additional proprietary IT systems. Sticking with the automobile production metaphor, it would be like changing out the tooling on a Toyota line to produce a single Ford – and then switching back.

Auto Production

A call for Disintermediation

In economics, disintermediation is the removal of intermediaries in a supply chain, or “cutting out the middleman”. Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet. One important factor is a drop in the cost of servicing customers directly.”

Disintermediation has been one of the cornerstones of economic growth and efficiency in the last 40 years. The two great waves of disintermediation have been in wholesale/retail distribution, and in banking. In distribution, better communication and production flexibility have facilitated shorter production runs and fewer inventories stacked up throughout the distribution system. Today, Walmart’s reorder process is handled automatically from the store floor to independent factories around the world. In finance, banks historically arbitraged risk and return between borrowers and depositors. For better or worse, banking’s role has been dramatically reduced with the development of broader, deeper and more liquid financial markets. Better information and communication have been key factors in both cases.

In today’s world of medical oncology, the entire care delivery system has come to accept NCCN pathways. There are dozens of vendors with “NCCN compliant pathways” none of which are materially different. These pathways are collectively a wonderful tool for the disintermediation of the folks in the PA business. Additionally, most EMR’s allow compliance audits in a way which was impossible in the past. When providers and payers can both agree on the pathways, and can audit compliance, there really should be no basis for PAs in the system – and everyone can focus on patient care.

For those diagnostic tests that lie outside pathways, or for which judgment is routinely required, a logical solution would be to baseline off historical results (established in a PA environment) and run a shared savings program in the future, with a peer review for outliers. The trick is to recognize that we are all operating off the same standards, and practices have systems capable of delivering timely and accurate information (see Quality & Operational Metrics). We can take advantage of the opportunity to disintermediate friction in the care delivery system, and really start to focus on outcomes.

Wes Chapman
Written by Wes Chapman

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