Payment Reform Requires Abandoning the Fee-for-Service Approach

Robert Osborne

September 2014, Vol 5, No 7 - Value in Oncology


Chicago, IL—The oncology community has taken a leadership role in payment reform and must retain that position as the pressure mounts for fee-for-service (FFS) alternatives, according to Mark B. McClellan, MD, PhD, Director, Health Care Innovation and Value Initiative, Brookings In­stitution, Washington, DC, and former Commissioner of the FDA.

Traditional payment models have focused on responding to higher costs with reductions in payments to physicians. Public and private payers have adopted the practices, which have failed to control costs.

“The problem with these strategies is that they don’t work,” said Dr McClellan at an education session during the 2014 American Society of Clinical Oncology meeting. “They are increasingly out of step with many of the things that oncologists do to deliver better health and better quality care to their patients.”

Dr McClellan noted that cancer care increasingly involves a team whose members provide a variety of services that are poorly reimbursed, such as care coordination, patient and family engagement, communication with and education of patients, and the use of new technologies. These services revolve around the growing emphasis on patient-centered care to provide the most appropriate care for an indivi­dual patient.

Successful Features of a New Payment Model
Feasible alternatives to the FFS payment model share some characteristics that are essential for the success of any future payment system, he said. A payment system must not require payers to assume too much risk, and must result in less growth in costs. The system also must not impose excessive risk on physicians. Risks should be well understood, and uncertainty must be kept to a minimum.

A successful payment system must have a high likelihood of improving patient care and must have evidence for redirecting resources to higher value uses, said Dr McClellan. As an example, he cited care planning to prevent complications and to avoid unnecessary services and services that patients do not want.

The plan must not be too hard to implement, he continued. The system should have a manageable set of payment features and codes, have the support of payers and providers, and should align with other payer and physician activities.

An alternative payment system has no chance to succeed without physician support. “Given that nobody trusts anyone in healthcare more than they trust their physicians, physician leadership is absolutely critical to success,” said Dr McClellan. “People aren’t going to trust the government, and they’re not going to trust their health plans when they say these changes are going to reform payment and lead to better results. They are going to believe their physicians.”

Several alternatives already in place essentially represent add-on features to FFS payment, he continued. Examples include guideline-based treatment pathways and payments based on adherence to the pathways and guidelines. The patient-centered medical home also provides additional payment for meeting certain quality criteria.

“What really matters is not just the payments to physicians, which account for only 16% of overall healthcare costs, and an even smaller share of Medicare spending, but what’s going on with overall costs and overall quality of care for patients,” said Dr McClellan.

“Doctors influence $7 of every $8 spent overall on healthcare. The hope is that overall costs will go down, and the fear, which has been shown in some of the mixed results reported so far, is that is not always the case,” he said.

Alternatives that incorporate shared risks and shared savings do appear promising. Physicians provide a host of services that lead to better quality healthcare, better patient satisfaction, and lower costs. However, physicians do not get paid for services such as preventive services, setting up care teams, longer phone hours that would help avoid emergency department visits, and better protocol-based approaches to care.

Medicare has implemented a shared-savings approach on a pilot basis, noted Dr McClellan. Physicians continue to be reimbursed on a FFS basis, but a separate track related to overall cost of care has been introduced. Whenever the episodic cost of care decreases, physicians share in the cost-savings.

Episode-Based Payment
FFS reimbursement would give way to case- or episode-based payment. Rather than payment for volume or services, the payment would incorporate sets of services, such as a set fee for a month of chemotherapy administration, instead of payment based on average sales price.

“The payment would include the overall payment per patient per month of chemotherapy,” said Dr McClellan. “Payment would be based on overall case or patient cost. This is a shift away from fee for service. That’s easier for health plans to deal with if they have a good understanding of the finances involved.”

For an alternative payment system to work, several reforms must occur to ensure that physicians have adequate support within the system, he added. Medicare and other payers must share data with physicians and other providers in a timely and useful manner, including simplified integration with electronic health records.

Meaningful performance measures derived from practice must be developed to minimize the burden and maximize the relevance to clinical practice. Physicians need assistance with upfront costs and with the development of new practice capabilities, Dr McClellan continued.

Finally, payment reform must be aligned across all payers and other providers and must include bundled payments.