Alternative Payment Models in Health Care: Successes, Failures, and What’s Next

In this Breaking Down Health Care conversation, John Hennessy, MBA, and Michael Kolodziej, MD, discuss the evolution and challenges of alternative payment models, including accountable care organizations (ACOs), the Oncology Care Model (OCM), and the Enhancing Oncology Model (EOM), with a focus on their impact on oncology and broader health care economics in the US.

Read the transcript: 

John Hennessy, MBA: Welcome to Breaking Down Health Care, where we'll be discussing topics involving health care in the US. My name is John Hennessey. I'm a consultant with Valuate Health Consultancy. I'm joined here by Michael Kolodziej, who's a writer with a Substack called Breaking Down Health Care. He's also working with Canopy as a consultant as they grow their presence in the electronic patient-reported outcome (ePRO) space.

So, Mike, today we're here to talk about alternative payment plans, and we thought we'd start with accountable care organizations (ACOs). You and I have been around a while, and we remember when they had these things called health maintenance organizations (HMOs). They were all the rage. We have spent time working in those environments. What is the ACO, which is the title du jour for alternative payment plans? Let's break that down a little bit into how that might impact oncology.

Michael Kolodziej, MD: As you know, John, the 2 areas that we continue to be challenged in when we talk about health care are access and cost. Even if we had perfect access, we'd still be challenged, maybe even more challenged, by cost. I would say that there have been a variety of solutions over the years. HMOs reflected the solution du jour of the 1990s, for example. This really came into some focus with the Affordable Care Act and the Obama administration looking at ways to somehow bend the cost curve.

It's been thought for a very long time, and in the cognoscente in health care economics, that if you could just hold physicians, health care delivery teams, if you will, including hospitals, accountable for quality and cost as opposed to just paying them fee-for-service, meaning giving them more money every time they do something, that we would have a universe that would be perfect.

The modern birth of the ACL dates back 10 to 15 years with a desire to move away from fee-for-service to a place where we told a group of providers, "Look, we want you to take care of this population of patients, and we'd like to pay you a set sum of money to take care of them. You have to perform to these quality standards. And if you do better than the amount of money we gave you, keep it, that's your reward. If you don't, tough, you're accountable."

ACOs became a construct that really grew out of Medicare, grew out of Center for Medicare and Medicaid Innovation (CMMI). There have been several iterations since the Affordable Care Act, and the iterations basically involve having an organization take responsibility for a group of patients. Now, it sounds good; there's just a million problems with making it work.

First of all, what do the patients think and know about this? How do you assign a patient to a given organization? What if the patient gets care outside the organization? What's the right amount of money? Should you risk adjust it? Boy, oh boy, that's blown up recently. Should it be everybody? Should it be mandatory? You gotta love the government, because, in some ways, Medicare, Medicaid, government payers, and health care payers behave just like the commercial health plans. Which is to say, that they fall in love with a model, and irrespective of what happens, they just can't admit that it doesn't really work very well.

We've seen a lot of publications about the Medicare ACOs and how much money they've saved—just Google it. Medicare has trumpeted all the millions they've saved. The only problem is, they really haven't saved any money when you get down to it because they cherry-picked. They cherry-picked the organizations, most of which were hospitals; they cherry-picked the methodology for patient inclusion; and then they cherry-picked the math.

They basically said. "If you outperform the model, we'll call that savings." But, of course, that depends on the model being very good, and it's very hard to validate those kinds of models because the price of health care changes year over year. Let's just say that the ACOs, which were a reasonably good idea on paper and are still going in the third iteration now, have struggled to really prove that by shifting from fee-for-service to an accountable model you generate savings. It's impossible to show there's an improvement in quality. It's just impossible for all the reasons we've talked about before about how to measure quality. So they soldier on at CMMI.

This has affected hospitals more than anybody else, because for you to be accountable for the cost of care, you have to provide comprehensive care. Meaning you have to have inpatient care, you have to have surgical care—a lot of stuff. What the models have generally not engaged are patients with chronic medical conditions that are largely outpatients, cancer patients. Cancer patients largely have not been involved in ACOs, and so oncology practices have not [been involved with ACOs]. As we've discussed before, it's the patients that you spend the most money on that are the ones that you can save the most money on. So I'm not in love with ACOs. It's not that I don't like the delivery model, it's just not a good payment model.

Hennessy: It's interesting that you talk about the engagement of ACOs and oncology patients. When I was doing some consulting work with the American Society of Clinical Oncology (ASCO), one of the questions we would ask practices was, "Are you engaged in value-based care?" Often they would say no, and you would look on the ACO website and see their health system was smack dab in the middle of it, which certainly suggests that even within the ACO, there may be very different levels of engagement, both for patients and for practices who may not even know they're engaged in value-based care.

But we do know that with oncology, we have had true value-based care initiatives coming out of Medicare and also out of the commercial side. So, starting with Medicare, we have the Oncology Care Model (OCM), which is involved in the Enhancing Oncology Model (EOM). Maybe provide a little background on that. In your Substack, you talk about patients and their medical homes, oncology medical homes. How does that fit into that alphabet soup?

Dr Kolodziej: The Medicare initiatives in value-based care have focused mostly on ACOs, which, as I said, are largely related to hospitals, but they've done a few other things.

One thing they did was a joint replacement model. They engaged orthopedists and them a certain set price for taking care of knee and hip replacements, and initially that looked like it was going to work. But that initial enthusiasm has subsequently waned. The reason is because as the orthopedist scrutinized where the variability in care was, they learned that a lot of it was in rehab. So they eliminated that, and then all of a sudden, they were doing great in the model. Then the model was modified, and then they weren't doing so great anymore. So the joint replacement model was one program.

The OCM, of course, is the biggest subspecialty-focused alternative payment model. To understand the OCM, you have to go back to John Sprandio, an oncologist that we both know, who practiced in the Philadelphia metropolitan area. He said, "Listen, the medical home is a concept that has existed for 25 years in which a medical practice takes ownership of the patient, provides access, and coordinates their care, and can measure it. It's evidence-based, and they get paid differently for it." John did a couple of pilots that were really encouraging. He showed that by doing this ownership thing, he could keep people out of the hospital or the ER, which saved a bunch of money, at least in its pilots.

That idea was taken up by Barbara McAneny, who expanded upon it. She got 7 like-minded practices to join her in a CMMI-funded pilot project called Come Home. It was basically enhanced access, evidence-based medicine, keeping people out of the ER, measuring things, and reporting things. They reported some very interesting and encouraging results. To this day, Barbara has received a lot of appropriate credit for furthering that model and establishing it as something that we should think about.

The thing that was so nice about Come Home was it was something that doctors could really embrace. That the idea that you are going to just take better care of your patients was really attractive, and you didn't have to take a pay cut. In fact, most of the savings in Barabara's model, she said, were related to keeping people out of the hospital. Take money away from the hospital and give it to me. Patients liked it too. OCM was built out of that. OCM really was a logical follow-up to Come Home.

In that period of that transition, when I was at Aetna, Ira Klein and I built a similar program, but it was slightly different than Barbara's. We required pathway use in addition to the same sort of enhanced access. The world of oncology got behind the idea that this was the next best thing, and the OCM was launched about 8 years ago. It was voluntary model. It was individual practices voluntarily agreeing to have total cost of care information provided. That total cost of care was compared to a benchmark for the individual patients, and practices that outperformed the benchmark got money—performance-based payment.

In addition, the practices got a monthly management fee called a monthly enhanced oncology services (MEOS) fee, which allowed them to change the way they do things, change the way they answer the phone, change the way they see patients for problem visits, and all this other stuff. There have literally been encyclopedias written about the OCM and whether it worked or not. Probably the fairest place to look is in the CMMI reports themselves, which show that the net financial benefit of OCM was essentially nonexistent when comparing practices in the program to practices out of the program.

Now, when I say that, people jump all over me. They hate when I say that because they say, "My practice saved money." No, your practice outperformed the model. The only way to know whether your practice saved money is to compare your practice with everybody else who's not in the model. That was not done. It was done in aggregate, and the reason it didn't save money is because the management fee added so much to the cost of the program that it was impossible to generate enough savings.

The OCM was beloved in the oncology community, especially. 175 or so practices signed up around the country. About 25% to 30% of all oncologists in the US participated. It was pretty much only Medicare. It wasn't a home run. It was good care delivery, but it did not meet the criteria of generating savings. But as I said before, payers are like a dog with a bone—they’re not willing to admit that it was not a great payment model, and so they moved on to a new model called Enhancing Oncology Model.

They did a few things in EOM to increase the likelihood that they could show savings. That's a very cynical statement, but what they basically did is they looked at what they learned from OCM, they looked at the cancers where they thought they might be able to generate savings, they cut out all the rest of the cancers, and they put in mandatory downside risk. So if you do not generate savings, you have to cut a check to the government, and they reduced the monthly fee.

You could think about the EOM being a CMMI model generated by actuaries. That's a terribly mean thing to say, but it was designed to help CMMI show that this kind of thing was workable and doable. We're a year into this, give or take, and only 45 or so practices have signed up. Practices got scared away by the reduced management fee, and they got really scared away by the mandatory downside risk. Practices don't think they're ever being overpaid, so the idea that you give the government money back that they paid you to take care of patients is unfathomable.

We'll see what happens. It's another 5-year model. That is the state of affairs today with CMMI. There's other stuff going on in oncology, of course—the mandatory Medicare drug negotiation price and a few other things. But the big care delivery model, the alternative payment model, is the big one.

Hennessy: It's interesting that we talk about that, but you're right, the market is responding in other ways. I think seeing groups like Reimagine Care and Time Care and others get involved in this game as sort of facilitators or coordinators is certainly an area that has a lot of people interested, both in practices and among those who are creating new businesses around the idea that through alternative payment models, we can at least improve care, if not manage some of the cost. As you and I have talked about before, bending the cost curve—we may not make it go the other way, but if we could bend it and improve care, that wouldn't be a bad thing for most patients, at least, and for the cancer care community.

Dr Kolodziej: I think the issue really is that the commercial health plans for their commercial insurance products have, for the most part, been uninterested. CMMI wanted commercial health plans to basically adopt OCM and EOM. Very few signed up. Because I had done all the work with Aetna, we signed up. But United did not sign up, Cigna did not sign up, Humana did not sign up, Blue Cross Blue Shield of South Carolina signed up—just a handful. There are even fewer in EOM, and now I just recently learned Aetna has dropped out of EOM. Elevance does have an OCM-like program, and we'll see how that plays out. Elevance, as you know, is in 14 states, and the delivery model and payment model they're promoting is very much like OCM. We'll see whether that works for them.

Time Care and Reimagining Care, all these other guys—the patient population they're most interested in is Medicare Advantage. Very interesting, right? Because Medicare Advantage patients were not eligible for OCM. But Medicare Advantage is a population where if you manage patients and generate savings, the health plan does better. So the health plan is highly motivated to find something that works.

A lot of what Time Care has successfully engaged so far are Medicare Advantage plans. They go in and they do what a lot of the practices try to do on their own in OCM: decide whether there were ways to adopt biosimilars, change the way you answer the phone, or use palliative care. All the stuff that a lot of really thoughtful practices did in OCM—they’re going to the health plan and pitching it for the Medicare Advantage population: "You're going to generate savings if you do this stuff in your Medicare Advantage population." We'll see. Medicare Advantage is half of all Medicare in the US right now, so that's a pretty big population.

The real cancer incidence of that population—I’m not sure we really completely know. At least I surely don't know it. It had been said for a long time that the Medicare Advantage population was healthier than the traditional Medicare population. But of course, as we continue to learn on almost a weekly basis, the Medicare Advantage plans have lied as much as they can to adjust the risk payments from Medicare. Shoot, I don't know what the real disease incidence is of anything in the Medicare Advantage population.

Hennessy: It may be just enough to know that more than half of Medicare members are in there, so they have cancer in that population.

Thank you for watching this installment of Breaking Down Health Care. We hope you enjoyed the conversation and learned something you didn't know about health care and how it works in the US. If you have questions or topics you'd like Mike and I to discuss, you can use the Contact Us feature on the website. Tune in for future conversations because we've got a lot of work ahead of us.