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Alternative Payment Models: Paving the Way or Building a Wall for Personalized Medicine?

Evidence-Based OncologyAugust 2015
Volume 21
Issue SP12

As personalized medicine rapidly becomes an effective tool for combating cancer, payers are exploring new, value-based payment paradigms. These trends will soon intersect, and depending on how they are structured, the new payment models could accelerate or stifle personalized medicine's progress.

Personalized medicine is rapidly developing as the ultimate weapon for combating cancer. An emerging field that uses diagnostic tools to identify specific biological—often genetic—markers to help determine which medical treatments and procedures will work best for each patient, personalized medicine allows doctors and patients to develop targeted treatment plans. In the decade following the completion of the Human Genome Project in 2003, advances in genome technology have led to an exponential decrease in sequencing costs, and innovative diagnostics and therapies have made what we once thought of as incurable diseases seem treatable and sometimes preventable. We have seen the molecular subdivision of cancer, which when combined with a targeted therapy has produced significant improvements in care. This trend continues to proliferate, with a recent study estimating that more than 70% of cancer medicines in development are targeted therapeutics.1

In the midst of this progress begins the trend away from the old fee-for-service system and toward a system that pays for value. Delivery system reform has been a central component in national health system changes since the 2010 passage of the Affordable Care Act (ACA). Furthermore, replacement of the Medicare Sustainable Growth Rate physician payment formula by the Medicare Access and CHIP Reauthorization Act of 20152 has generated urgency among healthcare stakeholders to embrace a transition toward a more value-based payment system.

The most prominent move toward value has been the development of alternative payment models (APMs), which have grown exponentially in variety and scale in the past few years. If executed well, these new paradigms could represent a new set of incentives that build on personalized medicine’s progress, improving care coordination and outcomes while controlling costs. However, if structured inappropriately and without the safeguards necessary to ensure high-quality care, APMs could have unintended consequences that limit patient access to vital services and medications. These consequences could derail the advancements in personalized medicine that have transformed cancer care in recent years.

To understand how the most prominent APMs might impact personalized medicine, the Personalized Medicine Coalition (PMC) published a white paper titled Paying for Personalized Medicine: How Alternative Payment Models Could Help or Hinder the Field.3 Brief descriptions and analyses of each of the 3 models covered in the paper, as well as an exploration of how clinical pathways and transparency trends are impacting them, are presented below. The most prominent APMs include:

· Accountable care organizations (ACOs), which utilize shared savings incentives for an attributed population;

· Episode-based payments (also known as “bundled payments”), which pay for a set of services for a specific condition or procedure; and

· Medical homes, which focus on care coordination, usually via a primary care practice.

Accountable Care Organizations

ACOs allow for shared governance from a variety of stakeholders who work together to manage and coordinate care for a specified group of patients. In ACO models, providers can form legal entities with other providers; each is then held accountable for the cost and quality of a defined population of Medicare beneficiaries. ACOs that enter into 2-sided risk arrangements are given a target spending benchmark based on the historical cost of their attributed Medicare population and can earn “shared savings” based on the amount of Medicare spending below the benchmark in a given year. Alternatively, if an ACO cannot contain costs beneath their target amount, they may be required to pay back the Medicare program.

Unfortunately, while policy makers have lauded the potential to reduce Medicare spending, there is still an open question as to whether the ACO model improves quality. An initial evaluation of the Medicare ACO model showed that while 49 ACOs (22%) qualified for shared savings payments by successfully reducing total spending, 29 (59%) performed below the Medicare Shared Savings Program national average on quality. As the ACO program continues to evolve, it will be essential to emphasize that delivery system reforms take into account, quality-improving goals as the central focus of patient-centered reforms.

“Bundled Payments”

Bundled payments have been designed as a way to encourage coordination across different providers and to promote more efficient care. However, they have historically failed to recognize the importance of personalized medicine. Although variations of bundled payment have existed for decades, the emergence of personalized medicine has occurred largely outside their evolution. Since passage of the ACA, bundled payments have seen a resurgence in both public and private healthcare programs.

A bundled payment is a single payment to providers or healthcare facilities (or jointly to both) for all services to treat a given condition or provide a given treatment. This could include a procedure in a hospital, acute care following discharge, and services during a window of time afterward. The payment can be divided among providers across the care spectrum. Bundled payments are usually limited to 1 episode of care for an individual patient, usually for up to 90 days.

Evidence indicates that the programs might reap cost savings in unexpected ways. For example, in 2009 the largest commercial insurer in the country, United Healthcare (United), launched a pilot program with the primary goal of reducing the overall cost of cancer care. The premise for the pilot was that by removing the economic incentive for oncologists to prescribe high-cost chemotherapy drugs, overall spending would be reduced. Oncology providers in the pilot program were responsible for choosing the treatment regimen they wished to use (eg, a certain drug at a certain dose, additional drugs for side effects) for 19 specific cancer scenarios. The physicians then committed to at least 85% compliance with the chosen therapy.

Three years later, United announced that the pilot had reduced cancer care costs by 34%—or approximately $40,000—per chemotherapy patient. The pilot participants achieved those cost savings despite spending 179% more on chemotherapy drugs through savings in case management services, following evidence-based protocols that reduced complications and hospital admissions, and the use of innovative patient engagement tools.4 Arguably, the program put into question the causal link between drug utilization and overall health costs.

Based on this recent experience, bundled payments seem much more useful in targeting waste and improving care coordination for procedures and conditions where there are fewer new tools and therapeutic strategies that could dramatically change the treatment paradigm.

Medical Homes

Also known as the patient-centered medical home (PCMH), the medical home model is designed around an individual patient’s needs and aims to improve access to care (eg, through extended office hours and remote access to medical records), increase care coordination, and enhance overall quality, while simultaneously reducing costs. According to the Agency for Healthcare Research and Quality (AHRQ), the model is defined by 5 criteria5:

1. Comprehensive Care

PCMH is accountable for meeting the large majority of each patient’s physical and mental healthcare needs, including prevention and wellness, acute care, and chronic care requiring a team of providers.

2. Patient-Centered

PCMH actively supports patients in learning to manage and organize their own care at the level the patient chooses.

3. Coordinated Care

PCMH coordinates care across all elements of the broader healthcare system, including specialty care, hospitals, home-based care, and community services, and supports transitions between different care settings.

4. Accessible Services

PCMH delivers services to patients quickly through both in-office and remote mechanisms, including 24/7 access to a member of the care team and alternative methods of communication such as telehealth.

5. Quality and Safety

PCMH demonstrates a commitment to quality by ongoing engagement in best practices, performance measurement and improvement, and responding to patient experiences and patient satisfaction.

Although medical homes are much more focused on case management and access to primary care, they are also likely to have an impact on personalized medicine, especially when considering the role of diagnostics and the primary care physician as gatekeeper under many health plans.

Factors Influencing APMs: Clinical Pathways and Transparency

Whether independent or as embedded tools in an APM, clinical pathways are becoming more common. For drugs and diagnostics, pathways may incentivize physicians to choose one therapy over another based solely on its availability on a particular pathway that is instituted by a patient’s insurance plan. The fundamental issue remains the choice of certain pathways and specific guidelines used in their development. Furthermore, it is important to understand what incentives and data a payer uses to choose one pathway over another. Typically, preference for a particular pathway is based on evidence-based research. Ideally, that evidence is regularly updated to keep pace with advances in clinical research.

Transparency is another essential element of APMs. Although transparency is often a necessary and laudable goal, transparency without recognizing critical data gaps could be damaging in a personalized medicine context. For example, reporting specific genetic information could illuminate the reasons why a particular therapy is the most appropriate treatment. Including information on life decisions could also help add specificity to transparency data and help mitigate the risk of unfairly characterizing spending and utilization where, for much of the population, a course of treatment would not be appropriate.

Indeed, in creating new systems and processes, personalized medicine does not often correspond to how we currently define and measure quality using today’s concept of value. The very nature of targeted therapies requires completely different mechanisms to empower clinicians with the tools they need to provide the highest quality care possible and facilitate engagement with healthcare stakeholders.

To adequately assess quality of care, organizations that span payers, providers, academics, and government have committed significant resources to develop appropriate quality measures. In the context of APMs, quality measures serve as important benchmarks to gauge the quality of care that patients receive, along with presenting goals for providers, and are often categorized by process, outcome, or efficiency measures.

· Process measures: Determine whether a specific healthcare service was provided to a patient in a manner consistent with evidence-based guidelines.

· Outcome measures: Assess the health status of a patient after receiving healthcare services.

· Efficiency measures: Evaluate the relationship between the cost of the care that has been provided and the quality of that care.

And yet until recently, there have been few efforts to promote quality measurement that captures the value gained from interventions that improve a patient’s quality of life and/or functional status, arguably an essential step toward truly patient-centered reforms. Coupled with robust outcome measurement and appropriate weighting in determining payment, quality measurement plays a vital part in determining what behavior change(s) are likely to occur within APMs. In other words, for APMs to be ultimately successful, quality measurement must be comprehensive and accurate enough to insure that every patient receives the highest quality of care, while also being appropriately valued as part of a payment mechanism so that providers are incentivized in a truly patient-centered manner.


Although APMs are growing in number, their true impact on quality and costs is still evolving. Questions remain: What will be the impact of APMs on how research and development resources are allocated for therapies that yield potentially life-altering treatments for sometimes significantly smaller subsets of the population? Will APMs allow enough flexibility for providers to take advantage of clinical innovations like those in personalized medicine?

As APMs continue to evolve and as plans consider how to potentially expand cost-reducing initiatives, the effect that changing incentives and payment systems will have on the decision to invest in personalized medicine must be carefully considered. In short, if new incentives begin to hamper access to personalized medicines in a meaningful way, the ability to invest in research and development of highly personalized therapies and diagnostics will likely shift to align with the inflexible payment systems. Such a shift would threaten the pace of innovation in personalized medicine, which represents one of the most useful cancer care options currently available.


Knowing what treatments will work for whom will prevent patient exposure to ineffective treatments. That knowledge, which in the future has the power to improve patient care at systemically lower costs, must be protected.

Amy M. Miller, PhD, is executive vice president, Personalized Medicine Coalition, Washington, DC.

Andrew J. Shin, JD, MPH, is director of health care policy and life sciences, ML Strategies, Washington, DC.References

1. Biopharmaceutical companies’ personalized medicine research yields innovative treatments for patients. Personalized Medicine Coalition website. http://www.personalizedmedicinecoalition.org/Userfiles/PMC-Corporate/file/pmc-phrma-personalized-medicine-investment-21.pdf. Accessed July 8, 2015.

2. H.R.2 - Medicare Access and CHIP Reauthorization Act of 2015. Congress.gov website. https://www.congress.gov/bill/114th-congress/house-bill/2/text. Accessed July 6, 2015.

3. Paying for personalized medicine: how alternative payment models could help or hinder the field. http://www.personalizedmedicinecoalition.org/Userfiles/PMC-Corporate/file/paying_for_personalized_medicine.pdf. Published April 2015. Accessed July 6, 2015.

4. Newcomer LN, Gould B, Page RD, Donelan SA, Perkins M. Changing physician incentives for affordable, quality cancer care: results of an episode payment model. J Oncol Pract. 2014;10(5):322-326.

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