February 2014 Edition Vol.8, Issue 2

Peter B Bach Discusses New Payment Reform Models Challenging Fee For Service

Peter B. Bach Discusses New Payment Reform Models Challenging Fee For Service 

By John McCleery

In the debate whether Patient Centered Medical Homes and Accountable Care Organizations will lead to health care system savings, Peter B. Bach, MD, MAPP, director, Center for Health Policy and Outcomes, Memorial Sloan-Kettering, discussed at the recently held conference hosted by The American Journal of Managed Care, how new payment models are challenging the current fee-for-service model for community care cancer centers.

“I’m going to try to look into the future and lay out what I think are possible trends to pay attention to,” he began. “I don’t think there’s any question that we’re in a phase of what business school professors would call ‘creative destruction’.” 

According to Bach, the old model of fee-for-service is eroding, and with this erosion comes opportunities for new payment models of care. As with any opportunity, there are threats as well. For example, with the latest statistics emanating from COA there is a general trend towards a shrinking network of care in the community setting, causing payers and providers to explore various risk-taking scenarios.

“Risk taking is one of the core ideas that everyone is looking at in the context of healthcare reform, in general, as well as oncology.”  

“Most care right now is fee-for-service,” which, according to Bach, is a no risk situation. However, several other payment models being explored by payers and providers such as bundled payments, care management fees, integrated delivery or ACO models, and capitation will introduce various levels of risk for both parties.

But of all the payment model options Bach referenced, he favors the bundled payment model most. “I’ve been pushing for complete bundling, a complete move to episode payment, for some time now.”

As the discretionary purchasers of drugs, Bach would like to allow healthcare providers decide what's best. "Let them manage the variation in costs of drugs and things like that.”

As strong of a supporter as he is for bundled payments, Bach thinks the appetite for something like that is very slim right now, and he thinks that stakeholders are probably looking mostly at shared savings models, similar to ACOs, as the next step in care management.

The general thrust in oncology is to achieve savings outside of the drugs, “and the statistics are clear,” he said, “there is a lot of money being spent on hospitalizations, imaging, and advanced testing.” And data show that the possibility exists that patient centered medical homes can reduce hospitalizations by a meaningful amount, but “the rumor is that the benefit is starting to plateau.”   

In the state of Maryland, for instance, he said Blue Cross year over year reductions in spending from the patients’ medical home in primary care seems to be continuing, “but we don’t know how long that will compound. It seems in oncology, at least the practices that have been doing this the longest, have found a new normal,” he explained. The practices can redesign care to achieve savings and reduce costs. 

With all of the consolidation going on and the mergers of community practices, larger provider networks are forming, which are placing them in a position to take on greater risk. “There are practices seeking to get to scale so that they can have balance sheets that are substantial enough, have denominators of patients large enough, that they can start taking on more and more risk.” Bach thinks that the general trend is to move risk to the place where the discretionary decisions are made, “and it’s not a question of if, but when.”

As the larger networks of providers are in a position to take on greater risk, many practices are not in that size range. They may be one of a few providers in an area, which allows them to extract much higher rates of reimbursement.“ So, this consolidation cuts both ways,” he said.

Addressing the site-of-care shift, due in large part to the collapsing margins of drug reimbursement, Bach said, “We used to say 80% of care was delivered in the community setting. It’s now more proper to probably say it’s about 60%.” He noted the decline in drug reimbursement contributing to the site-of-care shift, “we used to be AWP and then went to ASP +6%, sequester is causing the reimbursement rate to drop to ASP +4.2%, and any efforts to get that addressed have largely failed.”

340B drug discounts are also contributing to the site-of-care shift.  Remember, he said, “the 340B program only goes to hospitals, it’s not for inpatient drugs, it’s for outpatient drugs in the hospital. So only the hospitals can benefit from 340B through their outpatient department.”

This has caused a huge distortion in the marketplace, he said, as the discounts allow hospitals to pay about 40% less for the drugs than a practice pays for them. And, according to Bach, the 340B program “has been steadily expanded to the point where now we have an unbelievable number, I think about one-third of US hospitals, maybe more than that, are now 340B eligible.” 

“These discounts are making the hospitals completely different players from doctor offices.” The discounts aren’t included in ASP, so hospitals are responding in a logical way. “They are interested in acquiring ways to administer drugs and make a profit, so they are affiliating with practices. They’re buying the shelves of practices and hiring the doctors, and they’re also hiring doctors and purchasing their practices.” 

Although multiple reports suggest that cancer care costs more in hospitals than in doctor’s offices, Bach suggests that there are problems with these reports. And that is the findings are not risk adjusted to reflect on just how sick the hospital patient is. The Avalere Report from 2012 has “no risk adjustment, no stage, no nothing.” 

“So if you want to ask where is the potential for savings – where do we want to start thinking about bundles – where are there entities that could save money by getting lump sums for all the drugs they use?“

Bach answers his question by saying, “You go to the places where there are huge profit margins.” And, in his mind that means hospitals. “Hospitals have balance sheets and they’re getting fantastic reimbursements. So they’re exactly the ones to target for [savings].” 

“I happen to work in a hospital… these are serious players.”

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