The “Episode-of-Care” Payment Model: One Practice’s Experience

The United Healthcare Episode of Care Project was started in 2009 as an innovative plan for remuneration of medical oncology services. The goal of the episode-of-care model is to reduce total cancer care expenditures by saving on drug costs and hospitalizations while appropriately paying for the demanding work of the oncologist. Traditionally, medical oncologists received payment for their professional services, chemotherapy administrative services, and the provision of oncologic drugs. The payments for professional and administrative services covered consultation, chemotherapy planning, therapy monitoring, survivorship, terminal care services, and infusion services. For years, these services have been grossly underpaid, and monies taken in often have not covered the costs of providing these services. Until recently, many oncology practices also provided nutritional counseling, psychologic counseling, and social services without charge to their patients. Historically, these important services were funded by the operating margins of chemotherapy and related cancer-care drugs. In addition, these margins also covered the costs of carrying a drug inventory, the extra space needed for storage, the personnel to provide pharmaceutical services, and medical waste disposal.

Bruce J. Gould, MD

Oncology reimbursement underwent a dramatic change in 2005 when the Medicare Modernization Act of 2003 was implemented in force. During the debate over the Act, the political and media focus was on “oncologists’ drug margins.” The debate didn’t recognize the uncompensated functions that an oncology office provided-and it failed to understand that the drug operating margins funded those services. The government solution was to slash reimbursement for drugs. Since 2005, there has been a gradual erosion of the drug margins as private payers followed Medicare’s lead in the adoption of Average Sales Price (ASP) drug payment methodology. Unfortunately, there has not been an accompanying increase in the reimbursement for professional and infusion services. This has led to a crisis in the oncology community in which many practices have reduced staff, closed satellite offices, or gone out of business. As an alternative, many practices have sold out to hospital systems-even though payers clearly acknowledge that the cost of providing oncology services in the hospital setting is substantially higher than in a private practice setting.

In 2009, we were approached by Dr. Lee Newcomer of United Healthcare to participate in an innovative payment model. We agreed to participate because we felt Dr. Newcomer’s plan would allow us to continue to provide quality care with reimbursement more appropriately balanced between drugs and services. In addition, the pilot also provided the opportunity to compare data with those of the other groups in the pilot, in an effort to study the best demonstrated practices. One of the reasons we were selected was because of our sophisticated ability to integrate clinical and financial data. We are able to do this because our electronic medical record is fully implemented and we have a talented accountant with a programming background who is able to analyze our data in unique ways.

The project involves episode-of-care payments for the three most common oncologic diseases: breast, lung, and colon cancers. The 17 episode-of-care payments were divided into those that cover early-stage disease, i.e., adjuvant therapies, and those that cover metastatic disease. The adjuvant episode-of-care categories were further subdivided on the basis of stage and important biologic markers. For example, for breast cancer, there were nine episode-of-care categories in the adjuvant setting; these were based on stage, hormonal status, and HER2/neu status. The rationale for creating these categories was that the treatment of stage III, HER2/neu–positive breast cancer requires more work, counseling, and drug therapy than does treatment of stage I, hormone receptor–positive disease. The episode-of-care categories are the same for all five practices participating in the pilot.

Once the episode-of-care categories were formalized, the practices were asked to select a single treatment regimen for each of the episode-of-care categories that fell under the adjuvant grouping. It is expected that a practice will use the selected regimen as its “standard” 85% of the time. The other 15% of the time, it is expected that there will be exceptions for valid medical reasons. These exceptions will still fall into the episode-of-care categories. In our practice, we were able to agree on standard regimens quite readily, because we have had clinical guidelines in place for the past 15 years, and we hold yearly conferences to update our guidelines. Clinical trials are an alternative option to the practice’s standard regimens in the adjuvant and metastatic episode of care categories. When a breakthrough therapy becomes standard of care, then the five practices will discuss the change with Dr. Newcomer and come to a consensus regarding changing the drug therapy to the new standard.

Once the regimens were selected, we calculated our acquisition costs for the chemotherapy, support drugs, and ancillary supplies used to provide that treatment. Once that cost was obtained for each cycle of therapy, it was multiplied by the total number of cycles that are standard for that regimen. Then our acquisition cost was subtracted from the total payment for that particular treatment course that we would have received from United Healthcare under our current contract. The difference, our operating margin, was then rolled into our episode-of-care payment. A similar calculation was made for all episode-of-care regimens in order to come up with the episode-of-care payments. For adjuvant regimens, the episode-of-care payment also included a chemotherapy management fee and hospital services fee. The drugs are reimbursed at ASP. The practice receives its contracted rates for evaluation and management services and chemotherapy administration fees. However, if a patient does require hospitalization, the physician cannot bill the usual hospital service fees because this payment is already included in the episode-of-care fee. This approach encourages maximal utilization of office services while disincentivising hospitalizations as much as possible.

By contrast, the metastatic regimens for breast, lung, and colon cancers were not subject to predefined treatment regimens. The rationale for this decision, in part, is that most patients with metastatic cancer receive the gamut of National Comprehensive Cancer Network (NCCN)–approved therapies. In some situations, such as colon cancer, a stepwise progression of therapies is fairly uniform across practices. For the treatment of metastatic breast cancer, on the other hand, there is a great deal of variability in the order in which drugs are given. Most patients with metastatic breast cancer eventually get the full spectrum of therapies. The main difference between practices and individual physicians is the order in which the drugs are given. The episode-of-care payment is based on the national average of the chemotherapy drug margins. When we did a financial analysis of a traditional payment model vs the episode-of-care payments, the episode-of-care model compared favorably. As with the adjuvant episode-of-care category, there is a built-in payment for chemotherapy planning and hospital care in the metastatic episode-of-care category. The hospital care payments are higher because patients with metastatic disease are generally sicker and require more frequent hospitalizations. If a patient does require hospitalization, then the practice cannot bill for hospital services. The metastatic episode-of-care payment is made to the practice every 4 months, unlike in the adjuvant setting, where there is just a single payment. These payments continue as long as the patient is evaluated in the office or hospital even if the patient is on hospice services and is no longer receiving chemotherapy drugs. The program pays the physician for terminal care management which traditionally has not been paid by other reimbursement models.

We have been participating in the adjuvant episode-of-care program for approximately 1 ½ years and in the metastatic episode-of-care program for the past year. There has been some extra administrative work, including monitoring the physicians for compliance, notifying United Healthcare when we have an episode-of-care patient, and providing United Healthcare with staging information. We are also required to update them regularly on how each episode-of-care patient is progressing. We found that despite the increased administrative work, the program has not been unduly burdensome and it has allowed us to maintain our income, so that we can continue to provide the complete spectrum of services and counseling that our cancer patients need.

In conclusion, the episode-of-care project is the first program in which a payer has partnered with the oncology community to reduce costs while paying for the demanding and complex cognitive work of the medical oncologist. The episode-of-care payment system seems to be working smoothly and we have not experienced the same erosion of our income that we have seen with other payers. United Healthcare benefits because the standardized regimens allows for better predictability of their costs, and oncologists are incentivized to control the utilization of chemotherapy drugs and hospital inpatient services. On the other hand, oncologists are appropriately paid for the cognitive services that they provide, such as consultation, treatment planning, and therapy monitoring. Finally, hospice services, which traditionally have not been reimbursed, are now compensated.