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Innovative Payment Models in Oncology Care

Evidence-Based OncologyConference Coverage
Volume 18
Issue SP6

Payment reform is a necessity in today’s healthcare environment. One of the leading experts in payment reform is Peter B. Bach, MD, MAPP, director, Center for Health Policy and Outcomes and attending physician at Memorial Sloan-Kettering Cancer Center. In his presentation entitled Innovative Payment Models in Oncology Care, Dr Bach stated that there are numerous payment models available but they tend to fall into 1 of 3 categories: episodebased payment, disintermediation, and cost sharing.

Episode-Based Payment



In this model, the provider (eg, oncologist) is given a single payment for the care of a patient during an “episode of care.” The oncologist can then disperse the funds as he/she sees fit. In this model, the clinician assumes some of the risk and will look at the costs of care and efficacy and determine a treatment regimen based partially on both. As shown in the and , the costs of different treatments vary greatly. An oncologist will need to take into account the costs of treatment and other expenses and determine the drug regimen that is best suited for a patient. If a more expensive treatment regimen is used, the oncologist will have a net loss. As such, the oncologist is at risk in this model.

Dr Bach stated there are many concerns for implementing this method. First, it is not clear what the payment should be. The allocated funds may focus on the cost of medication but that may be only a small portion of the overall cost of care. Also, Dr Bach indicated that some cancer treatments have been well studied and compared with others, making it is easier to make an informed decision, while others have not. He also cautioned that some may view this model as the least costly alternative payment. But that is not necessarily the case. To better illustrate how the payment would be determined, Dr Bach said: “Episode-based payments, like patient perspective care or hospital payments, [are] based on average behavior.” If most oncologists use more expensive regimens, then the average will be high and that will determine how much the oncologist will be given for the episode. In other words, the payment is not an arbitrary number but one calculated from recent behavior.


A second payment model discussed by Dr Bach was the disintermediation model, which theoretically should be cheaper since it takes out the “middleman.” Disintermediation in medicine would also take out the profit margin, as consumers buy directly from manufacturers. In 2003, the Medicare Modernization Act included a disintermediation program called the Competitive Acquisition Program (CAP). Dr Bach noted that CAP failed due to administrative reasons, but recently it has garnered renewed interest.

Another disintermediation program is the United Healthcare Demonstration, in which doctors pay invoice prices for cancer medications. In this setup, clinicians can receive a management fee but no profit from the drugs directly. Pathways are an outgrowth of the United Healthcare Demonstration, and represent contracts with providers to use certain regimens (ie, low-cost regimens).

Cost Sharing

Cost sharing moves the risk away from the provider and places it more on the patient.

Dr Bach noted 3 views on cost sharing:

1. Consumerism is good. Consumers know how to shop for everything else, so they can shop for healthcare.

2. Consumerism is silly. Because medications are so expensive, the consumer cannot really comprehend how to share the cost.

3. Consumerism is economically of little relevance. Consumers are indifferent to who spends the money since all the money is going toward healthcare instead of somewhere else.

He stated that the RAND Health Insurance experiment found that cost sharing did not work.1 Also, with this model, there is a concern that patients will not go in for regular or routine check-ups due to copays. Dr Bach stated that he is of the mind-set that consumerism is silly and that he is not a strong advocate for this model.

What Remains to Be Accomplished?

Dr Bach ended his presentation with an overview of the questions that “keep him up at night” while wrestling with how best to create better payment plans.

1. Why can’t we get along? He said that most payment plans require a fundamental agreement on what constitutes the standard of care. That is difficult to achieve.

2. How large could shifts be from payment changes, and should we worry? Dr Bach asked, if the various parties can agree on what constitutes the standard of care, will the shift be large or small? If it is too small, it will not be enough to reduce the total costs that continue to rise. But, if it is too large to allow us to save the money we need to save to fix the system, then will that lead to us to stray from the goal of improving healthcare? Finding that balance is difficult.

3. Can we switch from eliminating “waste” to reducing “marginally beneficial?” Dr Bach said there is constant talk to reduce wasteful spending, but we should focus more on reducing medications that are marginally beneficial. He cited the drug Avastin as a good example of a drug that is marginally beneficial in patients with breast cancer and also illustrates how all parties are not in agreement. In November 2011, the US Food and Drug Administration issued a statement saying that Avastin has not been shown to be safe and effective in patients with breast cancer.2 In 2012, the National Comprehensive Cancer Network’s guidelines for breast cancer included Avastin as a preferred agent.3 Dr Bach asked: “How are we going to design programs to save money when we can’t even get agreement between 2 respected bodies?”1. Lohr KN, Brook RH, Kamberg CJ, et al. Use of medical care in the Rand Health Insurance Experiment: diagnosis- and service-specific analyses in a randomized controlled trial. Med Care. 1986;24(9 suppl):S1-S87.

2. FDA Commissioner announces Avastin decision [press release]. US Food and Drug Administration; November 18, 2011. http://www.fda.gov/ NewsEvents/Newsroom/PressAnnouncements/ucm280536.htm. AccessedNovember 21, 2012.

3. National Comprehensive Cancer Network. NCCN Guidelines: Breast Cancer Version 3.2012. http://www.nccn.org/professionals/physician_gls/pdf/breast.pdf. Published September 10, 2012. Accessed November 21, 2012.

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