What is Episode-Based Payment?

As Lee Newcomer, MD, of United HealthCare, will be speaking about his company’s pilot Episode-Based Payment program at next week’s ACCC Annual Meeting in Baltimore, I researched the latest information I could find on that design for anyone not yet aware of it.

 Episode-Based Payment is an insurance option designed as an alternative to the traditional fee-for-service model.  Rather than paying physicians and medical centers on a per-treatment basis, they are paid based on the patient’s diagnosis.  United HealthCare is piloting this idea and hopes that with enough data, they can create price points per diagnosis.  It is hoped this payment design can work for many such diagnoses, especially typically high cost ones.

 So, why is this system being evaluated and can it work for oncology?  Dr. Newcomer will surely have UHC’s latest data at the conference, but two key reasons have to do with de-incentivizing volume of treatment for higher revenue as well as reducing end-stage use of drugs on patients who won’t benefit from them or may experience harmful side effects while also bolstering medical oncologists’ bottom line.

 It is no secret that the current fee-for-service model can have the drawback of rewarding providers for volume of services that don’t necessarily provide superior outcomes for patients.  Ideas are being considered by private insurers, CMS and medical centers to not only adapt the current system to reduce money spent while improving outcomes, but to design new payment models to do the same.  Out of these deliberations came Episode-Based Payment.  UHC is not the first organization to try it, but they are unique in tackling the complexities of oncology care reimbursement.

 UHC has selected a handful of cancer centers on which to pilot this program.  Recognizing that, particularly with chemotherapy drug cost and return, reimbursements have been dramatically reduced and will continue to drop as private insurers reduce their benefits to the 6% paid by CMS, any new model is worth trying if it has the potential of improving the bottom line.  But concerns due to the complexity of cancer care must still be addressed.  UHC has tried to address these concerns in their pilot design.  They still pay for office visits and the administration fees associated with chemotherapy delivery.  Hospice care is taken into consideration as well as new drug therapies and patent expirations that allow a drug to be offered in a generic formulation.  With all these and more considerations being assessed, they hope to have target payments per diagnosis determined in just a couple years.

 Whether the pilot program is successful or not remains to be seen.  As suggested earlier, Dr. Newcomer will surely have the latest data at next week’s meeting.  Meanwhile, CMS, arguably the largest single insurance provider for oncology, is focusing its efforts on adapting the fee-for-service design.  It might be expected, though, that should Episode-Based Payment or any other design, for that matter, succeed in the areas of cost savings and improved or superior outcomes, the government provider will take a hard look at the model as well.

 I found a number of references for this post, but one I found most useful from an oncology perspective is titled, “Payers, Physicians Exploring Episode-Based Payment System”, written by Lola Butcher from the June 25, 2009 edition of Oncology Times.  If you want more information, follow this link to that article:  http://journals.lww.com/oncology-times/Fulltext/2009/06250/Payers,_Physicians_Exploring_Episode_Based_Payment.11.aspx.