The latest alternative payment model in Medicare will be welcomed by insurers and provide hundreds of physician practices with an opportunity to gain experience with the value-based care model that is increasingly replacing traditional fee-for-service arrangements in U.S. healthcare.

First, the basics.

The U.S. Department of Health & Human Services this week announced participants in the Oncology Care Model, the latest in a series of new value-based payment and service models being implemented by the Centers for Medicare & Medicaid Services.

About 200 physician group practices and 17 health insurance companies were chosen to participate in the program, which begins July 1 and includes more than 3,200 oncologists and 155,000 Medicare beneficiaries nationwide. The model runs through June 30, 2021, and participating providers will have the option of assuming financial risk beginning in 2018.

Under the Oncology Care Model, physician practices will receive a $160 monthly care management payment for each beneficiary on top of traditional Medicare fee-for-service payments. Additionally, practices could receive performance-based bonuses for reducing the total cost of care over a six-month episode period below a fixed, global target price based on historical costs. In return, practices must provide patient navigation, rely on the most current medical evidence, share decision-making with beneficiaries, use data to drive continuous quality improvement, and utilize electronic medical records, among other requirements.

Episodes will begin when a patient starts chemotherapy. They will be suspended if a patient enters hospice care. A new episode will begin if a patient is still in chemotherapy after six months.

The 17 managed care companies participating in the model will help CMS bring the model to a population broader than Medicare fee-for-service beneficiaries. While these insurers must align with CMS’s goals for care improvement and efficiency, they are free to design their own payment incentives.

Payers have embraced the shift from fee-for-service to value-based care, but the adoption of new payment models has proceeded at a slower and more limited pace than they would like—particularly in the realm of oncology.  Now that Medicare, the predominant payer in oncology, is in the game, managed care’s leverage to demand payment reforms should improve.

Providers have a more fraught relationship with value-based care.

Although the Oncology Care Model’s payment structure is layered on top of the existing fee-for-service system, skeptical practitioners may view it as the latest in a series of programs that attempt to have providers jump through more hoops for less money. That’s because the additional payments would have to offset the investments required to meet the program’s data reporting and other requirements to make financial sense. Also, efforts to reduce the overall cost of care below targets could appropriately lead to a reduction in chemotherapy drug costs, but that would eat into the mark-ups practices command under buy-and-bill arrangements.

Research on whether pay-for-performance works is largely discouraging. A 2015 American Medical Association and Rand survey, for example, found that “alternative payment models had negligible effects on the aggregate income of individual physicians” and “have not substantially changed how physicians delivered face-to-face patient care.”

For more, check out the Center for Health Journalism’s webinar, “Does ‘Pay for Performance’ Work?” By the end of Tuesday’s webinar, the answer seemed to be a resounding, “No.” However, the other — seemingly paradoxical — main takeaway was that pay-for-performance is here to stay. It may not be a panacea for all that ails the U.S. healthcare system, but neither are the perverse financial incentives of the traditional fee-for-service model. As a result, payers, led by the federal government, will continue to pursue and work to improve pay-for-performance systems even as their theoretical validity is contradicted by real-world evidence.

For that reason, expect physician practices to increasingly apply for programs like the Oncology Care Model (which received more than 400 applications) to gain experience with value-based care while such models are voluntary and, in many cases, risk-free. This will be especially beneficial when Medicare’s new overall physician pay system, Merit-Based Incentive Payment System (MIPS) and Alternative Payment Models (APMs) in Medicare Fee-for-Service, goes into effect next year.

Under that model, which is still being finalized, physicians who get a large portion of their revenue from APMs will get a 5 percent bonus from 2019-24, in addition to any shared savings, and a 0.75 percent annual bump in pay rate thereafter. Other physicians’ pay rates will increase only 0.25 percent a year. For those physician practices that opt to accept risk beginning in 2018, the Oncology Care Model qualifies as an APM.

Brandon Gee is an analyst at DRG and a healthcare legislation expert. Follow him on Twitter at @bsgeeDRG.

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