DRIVING TOWARD VALUE:PRINCIPLES TO ENSURE PATIENT ACCESS TO

MEDICAL INNOVATION IN NEW PAYMENT AND DELIVERY MODELS

20YEARS

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In 2012, the U.S. saw slower growth in healthcare spending (3.8 percent) relative to previous years (4.2-6.1 percent).1 Nonetheless, with healthcare spending above 17.9 percent of gross domestic product (GDP)2 and with major expansions of coverage taking effect under the Affordable Care Act (ACA), there is renewed interest in reforming the healthcare system in ways that better control costs and deliver higher value.

Defining value in healthcare and developing strategies to improve it has proven elusive. The difficult fiscal environment that has existed since 2008 has exerted great pressure on government budgets, leading to double-digit spikes in private health insurance premiums, and forcing stakeholders in the public and private sectors to seriously explore payment and delivery reforms. These reforms include bundled payments, accountable care organizations (ACOs), and other value-based purchasing (VBP) programs. Their overall goal is to shift the system away from traditional fee-for-service (FFS) that pays for volume and instead toward paying for value. If implemented successfully, such reforms could help ensure that patients receive better-coordinated and higher quality care, while also restraining rising costs. If implemented poorly, VBP strategies could tilt toward simply cutting costs and, consequently, create new barriers for patients and physicians as they seek advanced, clinically appropriate care.

To design new payment and delivery models, payers, providers, and government policymakers naturally rely on historical trend data to determine spending targets. The trouble with this approach is that it fails to account for the vast improvements in quality that medicines and technologies have produced in the past and will produce in the future. Forty years ago, for example, cancer and heart disease were generally untreatable. Long-term innovation in both therapeutic areas have allowed for the market entry of hundreds of new drugs, devices and diagnostics that extend and

improve patients’ lives. Similarly, rapid innovation has revolutionized treatment for a number of other conditions, such as Hepatitis C (see Figure 1)3 and HIV/AIDs, as new therapies have emerged almost overnight to increase cure rates and simplify treatment regimens, respectively.

Finally, clinical value itself can evolve over time for existing products, a result of ongoing investment in innovation through continued and/or post-market

Executive Summary

Figure 1. Recognizing Rapid Innovation

10%

40%

75%90%

1991 1998 2011 2014

Interferon

Interferon and Ribavirin

Protease Inhibitors with PegylatedInterferon and

Ribavirin

Expectation for New Market

Entrants

HCV Cure Rate Over Time

Figure 1. Recognizing Rapid InnovationHepatitis C Cure Rate Over Time

“It is like driving through a rear-view mirror—payment systems for ACOs and bundled payment are calculated historically, but technology is moving forward.” – Liang-Ruey Tu, director strategic initiatives, global strategic marketing, Abbott Laboratories

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research. Early trial results for docetaxel (Taxotere®), for example, underestimated its survival benefit by nearly five years in the treatment of cancer.4 Any new system of value-based analysis needs to reflect the quality improvements that flow from innovation in the short and long term to ensure that such innovation can continue. Historical spending analyses in place today are unable to consider novel therapies and diagnostics and uses of them that were not, by definition, on the market in the past.

Without appropriate guardrails or guiding principles, payment and delivery reforms built on a “rear-view mirror” approach could hinder patients from receiving medical innovations that improve health and reduce morbidity and mortality. In turn, this poses a risk of discouraging investment in the next generation of drugs, devices and diagnostics.

This paper describes the changing payment and clinical care landscape along with the challenges it poses for patients, physicians and medical innovators. The insights that follow derive from extensive interviews and a survey of healthcare payers, providers, product developers, patient groups and evidence-based decision-making tool developers conducted in March and April 2013. Based on this research, we articulate key principles (see Figure 2) for healthcare decision-makers including policymakers and legislatures, as well as private-sector leaders in these new models, to ensure that proper safeguards are in place within new payment and delivery reform models to encourage patients’ access to optimal care.

While this document does not offer comprehensive policy solutions to address the myriad challenges in this evolving healthcare environment, we hope these principles can be incorporated into the development of new payment and delivery models to produce higher value care and ensure that patients have the opportunity to benefit from current and future medical progress.

Figure 2. Principles for Implementing New Payment and Delivery Models

Evaluate and Account for Medical Innovations

Develop a well-characterized and transparent process for integrating medical innovations. It should be technology agnostic, offer patient and/or system-level benefits, and ensure patients’ access to and providers’ adoption of optimal care without undue delay.

Adjust Payments for Medical Innovations

Develop a scheduled payment update process that occurs at least annually with input from all stakeholders. This system must have a specific channel for including medical innovations to be reimbursed appropriately, either broadly or on a per-technology basis.

Measure Quality

Use consensus-based, outcomes-driven quality measures to safeguard against undue emphasis on cost cutting and encourage the use of clinically appropriate technology.

Reduce reporting burden through developing and harmonizing measures that aim for simplicity.

Protect Patients’ Treatment Options

Agree on and use a standard set of shared decision-making tools so that providers can educate patients on the value of all available care options.Ensure that patients have access to all medically necessary out-of-network or -pathway care without substantial financial disincentives and with a clear appeals process for seeking such care.

Evaluate ProgramsConduct an independent evaluation at least annually to ensure

program updates reflect clinical standards set by nationally recognized organizations.

Report results publicly to ensure all entities are held accountable.

“Wherever you set [the incentives], you are going to make errors.” – Joseph P. Newhouse, health policy chair, Harvard University5

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Table of Contents

Executive Summary: Principles to Ensure Patient Access to Medical Innovation in New Payment and Delivery Models

1

Background 4

A Vision for Healthcare 9

Understanding the Challenges: A Look at New Payment and Delivery Models

11

Accountable Care Organizations 12

Bundled Payments 13

Articulating Principles to Protect Patient Access to Medical Innovations 16

A Look Ahead 20

Appendices 21

Executive Summary of Findings 21

Key Findings Across Case Studies 22

A Closer Look at HTA, CER, and Clinical Pathways 23

Methodology 26

Acknowledgements 27

References 28

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Background

Post-Affordable Care Act: Accelerating the Shift to Value-Based Care

Even though the ACA is not the first attempt to shift from volume to value, it is a major catalyst for new payment and delivery reform models (see Figure 3). The ACA increases health insurance coverage in the U.S. through a variety of mandates, subsidies and tax credits. Those implementing the ACA are utilizing a number of strategies to meet value targets.

For one, payers are turning to value-based insurance design (VBID), which shapes benefits to recognize that different health services have different levels of clinical and cost-effectiveness and need to be reflected in alignment of patients’ out-of-pocket costs.6 By and large, the ACA does not use price controls or government purchasing power to control costs. It encourages the use of electronic health records, the reorganization of providers, and use of new provider incentive structures with the expectation that these changes will bring efficiencies to the system.

The ACA established the Medicare Shared Savings Program (MSSP), which introduced the concept of the ACO to the public sector. An ACO is an integrated network

Figure 3. Growth in CMS Initiatives: 1998 to 2013

Dialysis Facility Compare ESRD Bundle with 2012 VBP Non-payment for HACs Nursing Home Compare Hospital Inpatient Quality Reporting

Program

Premier Hospital Quality Improvement Demonstration

Physician Group Practice Demonstration Acute Care Episode Demonstration

Dialysis Facility Compare ESRD Bundle with 2012 VBP HAC Payment Penalties Hospital Readmissions Reduction

Program Hospital VBP Program Meaningful Use Medicare Shared Savings Program Non-payment for HACs Nursing Home Compare Physician Value-based Modifier

Comprehensive ESRD Initiative Pioneer Accountable Care Organization Bundled Payments for Care

Improvement PGP Transition Demonstration Comprehensive Primary Care Initiative Community-based Care Transitions

Program FQHC Advanced Practice Primary Care

Demonstration

1998-2009 2010- 2013

Figure 3. Growth in CMS Initiatives: 1998 to 2013

Demonstration ProgramESRD: End-stage renal diseaseFQHC: Federally-qualified health centerHAC: Hospital-acquired conditionVBP: Value-based purchasing

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of healthcare stakeholders, including hospitals and physicians, who agree to accept joint responsibility for the cost and quality of care provided to a defined patient population.

In essence, ACOs are structures that transfer most of the financial risk for patients’ healthcare to the doctors and hospitals who treat them. The ACA also established the Center for Medicare and Medicaid Innovation (CMMI) to test innovative payment and delivery models, such as ACOs, bundled payment, and patient-centered medical homes. While these models differ in design, they all move the system away from a FFS payment structure that rewards volume of services to a managed, value-based system that rewards providers based on achievement of cost savings and clinical outcomes.

The first 32 provider organizations joined the Medicare ACO program through the Pioneer ACO model in late 2011. Since then, 220 ACOs have joined MSSP, and as of January 2013, an estimated 428 public and private ACOs are active in 49 states (see Figure 4).19 Notable private-sector ACOs include the Brookings/Dartmouth Accountable

Care Collaborative, Baylor Health System, Robert Wood Johnson Foundation Medical School, and the Premier ACO Collaboratives.20

At the same time, CMMI created the Bundled Payments for Care Improvement (BPCI) Initiative in 2013, in which organizations enter into arrangements that include financial and performance accountability for defined episodes of care, such as a hip replacement. To date, the initiative includes 467 facilities participating in 8,603 episodes of care (see Figure 4).21 Private payers and employers are also advancing bundled payments. As of February 2013, they have sponsored 33 initiatives in 19 states, focusing on therapeutic areas such as cardiovascular, orthopedic, and spine care.22 Commercial bundled payment agreements are in place between prominent healthcare stakeholders such as 21st Century Oncology and Humana; Cleveland Clinic and Boeing; Lowe’s and Walmart; Duke University and Blue Cross Blue Shield of North Carolina and others. In fact, Walmart established six of these arrangements with various providers across the U.S.23

Shift to Value by the Numbers

43 million patients participating in an ACO, a 43 percent increase from November 20127

23 Pioneer ACOs8 and 259 Medicare ACOs9,10

$87.6 million in gross savings for FFS beneficiaries in the Pioneer ACOs11

428+ public and private ACOs active in 49 states12,13

467 facilities participating in Medicare’s Bundled Payments for Care Improvement Initiative14

$280 million in penalties for 2,200 hospitals in 2012 through the Medicare Hospital Readmissions Reduction Program 1 percent payment reduction, which will increase to 3 percent in 201415

$1.3 billion expected annual losses for physicians who do not satisfactorily report on quality measures in the Medicare Physician Quality Reporting System16

63 percent of commercial plans using or planning to adopt oncology clinical pathways17,18

0

6-10

1-5

States with Medicare ACOs

11-20

20+

Figure 4. New Payment and Delivery Models Are Abundant Across the U.S.

Note: Slides 3 and 4 are both part of Figure 3. The visuals should be side-by-side

Figure 4. New Payment and Delivery Models Are Abundant Across the U.S.

0

6-10

1-5

11-25

26+

States with BPCI Participants

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These new models shift financial risk from traditional risk-bearing entities like insurance companies and self-funded employers to health systems and providers, who are increasingly held accountable for the quality and cost of care no matter where the care is provided (see Figure 5). One strategy to manage financial risk is through mergers and acquisitions that consolidate providers into larger organizations. Since 2000, the number of physicians employed by hospitals has increased by 75 percent.24

By joining integrated systems, physicians and other professionals gain access to the capital necessary to invest in electronic health records and management tools necessary to operate new payment and delivery models.

With greater consolidation, however, comes concern about the leverage that healthcare systems may exert over other stakeholders—patients, payers and product innovators. At-risk providers are turning to new resources such as clinical pathways developers, health technology assessment (HTA) and comparative effectiveness research (CER) entities, and clinical decision support vendors to contain costs, achieve high-quality care and limit treatment variability. These players and the tools they deploy are becoming gatekeepers, determining how to value new technologies and new uses of existing technologies. The result is a new value chain for medical innovation (see Figure 6).

Figure 5. Providers Focus on Value Across the Care Continuum

Post-Acute Care

Sick Patient

30, 60, and 90 Day Episodes of Care

HomeHospital

Figure 5. Providers Focus on Value Across the Care Continuum

Figure 6. New Value Chain for Medical Innovations

Health Systems

Hospital

Medical Group

Stakeholders are demanding value versus volume through: Settings of care are faced with

cost pressures while being held accountable to deliver high quality care

Employers

Greater transparency

Increased use of measures

Public reporting

Accountability

Bundled payments

New payment & delivery modelsGovt.

Payers

Patients

Clinical Pathways Developers

Decision Support Vendors

HTA Entities

Figure 6. New Value Chain for Medical Innovations

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Defining Value

The popular press is full of reports about enormous discrepancies in the prices and quality of U.S. medicine. The new public and private initiatives proliferating in this environment generally underscore the shift from volume to value and a system-wide goal of enhancing outcomes per unit of cost in the overall value equation. But, these efforts suffer from the absence of a common framework for defining “value.” (see Figure 7).

Stakeholders define value in different ways. Payers may measure the value of a new therapy over a period of one year, given the short duration of average enrollment in a health plan. Patients, in contrast, value therapies in the context of their personal and social lives, and timelines vary according to their ages, conditions and preferences. Product sponsors come to market with diagnostics and therapies whose clinical and economic benefits in the real-world setting may not be fully understood until well after their initial entry on the market. While the principle that patients should be central to defining value is generally acknowledged, how this applies to other stakeholders with competing economic interests is far from clear.25 It remains to be seen how the definition of value as patient-centered is reflected in how treatment choices are made, how treatments are priced and paid for, and how clinical decision-making is informed.

How New Payment and Delivery Approaches Influence Patient Access to Medical Innovations

New payment and delivery models, such as ACOs and bundled payments, have had a number of unintended consequences for the U.S. healthcare system. Changes to the system have, if anything, made medicine more complicated, in part because these structural and organizational changes are happening in a period of increasing online medical information. Ideally, the best medicine means delivering the right treatment to the right patient in the right setting at the right time. But the tsunami of information and highly variable quality has made it difficult for doctors and patients alike to separate signal from noise. At the same time, reconfiguring financial relationships and shifting risks for the cost of care to providers is bound to raise questions about whether, or to what degree, treatment decisions are warped by incentives. If the patient is central to value, how can the patient determine whether his or her treatment is the most effective, the most cost-effective, or just the least expensive? And how will he or she know whether her physician can freely choose, without bias, from every appropriate option? If a FFS system creates incentives for overutilization, is there the potential for a capitated system to create incentives for underutilization?

Patient: quality of life, low out-of-pocket cost, patient preference

Product Developer: clinical and

economic benefits over time,

recognition of scientific

novelty

Payer: low cost, benefit within one year timeframe, applicability to plan

population

Provider: risk and benefit consideration, appropriate reimbursement for services

Patient-Centered

Figure 7. Healthcare Stakeholders Define Value in Numerous Ways

Figure 7. Healthcare Stakeholders Define Value in Numerous Ways

“There are many definitions of value depending on the type of stakeholder, and all are valid. To a patient, value means that it is worth going through the pain or hassle of the treatment to feel better afterward. To a provider, value might mean that the drugs, devices, diagnostics, and procedures make the patient feel better and the provider is paid for using them. For a payer, value means that the treatment results in lower cost for an insured individual than no treatment or other options. And from a societal perspective, value means improvement in overall health of the population at some acceptable cost.” - Dr. Susan A. Levine, senior vice president, Health Technology Research and Consulting, Hayes Inc.

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Current mechanisms to balance cost containment with patient access to high-quality care are inadequate. First, the lack of substantial investment in developing and maintaining quality metrics that reflect best clinical practice means that, for many common clinical tests and treatments, there are no quality measures to ensure that both components of the value equation—benefit and cost—are taken into account in a clinical decision.26 And even where ample data exist to adjust care standards, as recent U.S. Preventive Services Task Force analyses of guidelines for breast cancer and prostate cancer screening make clear, there is no assurance that new studies will disrupt or improve on established practice patterns.

Alternatively, in the world of ACOs and bundled payments, patients and providers who seek a full spectrum of treatment options, beyond their plan’s coverage decision, have limited opportunities to appeal. These payment and delivery models are new enough that efforts to evaluate them have been modest at best, with no clear external or internal oversight focused on determining whether they are meeting their intended purposes.

Guardrails for the U.S. Healthcare System

To address concerns about potential unintended consequences for patient protections and access to care, the Centers for Medicare & Medicaid Services (CMS) has required participating providers to follow evidence-based processes and comply with quality measures. Private payers and employers in these new models also have tried to tie together cost and quality to demonstrate value. In doing so, they have run into three problems. The first is that the timeline for measuring gains in clinical efficiency is usually short term: days, months, or no more than a year. Second, even today, most data points for assessing quality are process metrics – did the patient receive her annual pap smear – not measurement of outcomes, for which the time horizon is longer and far more variable. Third, the

data informing those measures is often collected to answer administrative and billing questions and thus may not provide an adequate picture of healthcare quality.

To ensure access to appropriate care and medical innovation, including new drugs, devices, and diagnostics or new uses of these technologies that enhance dimensions of quality and/or efficiency, we recommend that public and private programs follow a set of principles intended to enhance value in the U.S. healthcare system.

Methodology27

On behalf of the California Healthcare Institute (CHI), Avalere Health, a healthcare advisory services firm, conducted primary and secondary research to evaluate new payment and delivery models as well as various evidence-based decision-making tools, focusing on four key areas:

• ACOs• Bundled payment• HTA and CER• Clinical pathways

To understand the various perspectives on the tension between value and innovation, as well as the key challenges across these case studies, Avalere surveyed and interviewed healthcare experts, thought leaders, and stakeholders representing providers, payers, patients, academia, evidence-based decision-making tool developers and industry.28 On April 30, 2013, Avalere convened a dedicated CHI work group29 to articulate both a vision for healthcare that supports innovation, and the key principles needed in these new payment and delivery models and evidence-based decision-making tools to drive forward this vision. Findings from Avalere’s research and the work group meeting have informed this report.

“How do you recognize value in a structure that is fundamentally designed to contain costs? This is a central challenge for patients and innovators.” - Randy Burkholder, deputy vice president, policy, Pharmaceutical Research and Manufacturers of America (PhRMA)

“I’d be more comfortable with ACOs if I were hearing more in the conversation about value and innovation and improving care. I think there is a definite overemphasis on cutting costs.” - Edward Abrahams, president, Personalized Medicine Coalition

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Given the rapid shift in financial risk and accountability, the demand to align competing understandings of value, and the risks of impeding patient access to medical innovation, CHI has defined an ideal healthcare environment below reflecting principles based on the findings from our research.

Vision: A patient-centered healthcare system that delivers value by efficiently managing access to clinically appropriate care, and encourages

innovations in wellness, prevention, therapeutic and diagnostic treatment options and delivery to support continuous and systematic improvement

(see page 20).

Central to the vision is that patients should receive the right care at the right time, without limitations in testing or treatment options that may arise from their providers’ burden of financial risk. Appropriate provision of the right care requires consideration of the full spectrum of state-of-the art technologies in wellness, prevention, therapeutic and diagnostic treatments, and services.

Central to this model healthcare system is the principle of efficiency. Patients should neither be undertreated nor over-treated; processes should be streamlined; and cost criteria are reasonable when different technologies produce similar outcomes. Finally, our vision recognizes that, “we are not at the pinnacle of medicine today.”30

A Vision for Healthcare

Systematic improvements and medical progress are essential and can best be sustained through a continuously learning healthcare system that rewards medical innovation.31

Through surveys and interviews of key stakeholders, thought leaders and healthcare experts, we sought to identify the operational components of new payment and delivery models most in need of clear principles to ensure alignment with this vision. From our research, five areas emerged as most in need of our principles. In addition, we identified four cross-cutting ideals that should be foundational in applying principles to new models. The four cross-cutting ideals are the basis for our model:

• Patient-centeredness must inform every aspect of new payment and delivery models. This common thread runs through all stakeholders’ definitions of value (see Figure 6). Processes for evaluating and accounting for medical innovations must account for individual patient differences. Payments should be risk-adjusted to reflect the severity and complexity of different patients’ needs. Quality measures should go beyond measuring processes to capture outcomes as experienced by patients. Patient preferences deserve respect within the context of clinical decision-making.

• Similarly, transparencyandaccountability of the financial and managerial mechanisms employed in these new systems is essential. In particular, there should be clear criteria for measuring system performance and quality, including systems’ adoption of advanced testing and treatments.

“There is a sense that future [medical innovations] are unnecessary. The concern is that ACOs and bundled payments are created around today’s medicine and may not allow flexibility for inclusion of future medicine. But our members feel that ‘today is not good enough.’ Patients suffering from life-threatening and debilitating illnesses desperately need treatments and cures and our industry holds great promise for delivering these breakthroughs.” - Laurel Todd, managing director, reimbursement and health policy, Biotechnology Industry Organization

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Ideals Areas of Focus

Evaluate and Account for Medical Innovations

Adjust Payment for Medical Innovations

Measure Quality

Protect Patients’ Treatment Options

Evaluate Programs

Figure 8. Cross-Cutting Ideals and Areas of Focus to Guide the VisionFigure 8. Cross-Cutting Ideals and Areas of Focus to Guide the Vision

“It takes a lot of time and effort to get the information needed to appropriately document that a patient requires extra payment for their co-morbidities. The current data systems [in Medicare’s bundled payment programs] are not able to manage the robust documentation requirements that are needed to keep track of patient comorbidities.” – Diane Wish, President and CEO, Centers for Dialysis Care

• New payment and delivery models must be flexible enough to permit reasonable clinicaldiscretion in selecting treatments for patients. All models should allow for adjustments to financial targets to ensure that early adopters of medical innovations are not penalized and that providers are not discouraged from taking on high-risk patients.

• Finally, improved datainfrastructure is essential. Specifically, participants in these new models should have a harmonized, interoperable data infrastructure that embeds assurances for integrity and usability, while also supporting healthcare practitioner workflow.

“Data infrastructure is absolutely essential in ACOs, even in advance of CMS data generation and feedback. Waiting for CMS will be too late! Hospitals need to build their own infrastructure to better manage the big picture.” - Nancy Foster, vice president, quality and patient safety policy, American Hospital Association

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Understanding the Challenges: A Look at New Payment and Delivery ModelsThe recent proliferation of new payment and delivery models both in the public and private sectors has uncovered several early challenges to implementation that merit closer examination. Traditional risk-bearing entities are no longer solely responsible for achieving high quality at lower costs. Instead, in the new models, providers and hospital systems are now bearing financial risk. This is true in many ACOs and bundled payment arrangements, with providers subject to various incentives and penalties. While these models differ in design, they all move the system away from a FFS payment structure.

An important consequence of increased provider risk, is a growth in their demand for robust evidence on the clinical and cost-effectiveness of medical innovations. Providers want assurance that a service or treatment will help them meet their cost and quality targets. As a result, providers are increasingly turning to evidence-based tools, such as clinical pathways and other decision-support tools that aim to incorporate the value of a technology or service and inform their judgments about whether to provide certain care.

Providers, patients and life sciences manufacturers have questioned the capacity of these tools to strike the right balance of rewarding valuable new technologies and discouraging the adoption of less effective ones. When these tools recommend that a certain, often new, technology does not deliver higher value compared to alternatives, providers may resist findings under the assumption that newer must be better, even though

new is not an adequate proxy for innovation. Conversely, when these tools do identify clinically more effective technologies hospitals and health systems may be slow to adopt them as a result of reluctance to diverge from traditional medical practices, conservative payment policies or outdated education. These limitations, combined with rigid requirements to adhere to protocols embedded in clinical decision support tools, challenge providers to customize care without deviating from these tools. Even medically necessary care could count against a provider’s adherence requirement if not recommended by such tools.

Therefore, new payment and delivery models that turn to evidence-based decision-making tools should be cautious in their implementation of systems to ensure that they are adequately optimizing patient care by encouraging the use of the most appropriate technologies. Appendix C examines the use of HTA and CER, as well as clinical pathways, in greater detail.

The section below provides a closer look at ACOs and bundled payment, highlighting several key challenges faced by these models in practice as they strive to achieve cost savings and improve clinical outcomes in a value-driven healthcare environment.

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Spotlight on Therapeutic-Specific ACOs

Private-sector ACOs have also experimented with therapeutic- or disease-specific focuses. Advanced Medical Specialties and Baptist Health South Florida in partnership with Florida Blue began an oncology-specific ACO that includes more than 46 physicians in 17 locations. This ACO is estimated to serve 500-1,000 patients with plans to expand to Florida Blue’s Medicare Advantage members in south Florida.32 The program’s quality measures intend to include readmission rates, adherence to chemotherapy regimens, adherence to acceptable clinical guidelines and efficiency of care delivery.33

Moffitt Cancer Center and the Moffitt Medical Group of 206 physicians, in partnership with Florida Blue, is also in the process of establishing a pilot ACO, the first phase of which intends to implement a clinical pathways program to inform treatment decisions, improve quality, and share cost savings.34 Implementation of clinical pathways is expected to grow to 63 percent in 2014,35 covering 25 percent of all lives in the oncology marketplace.36

CalPERS and Blue Shield of California ACO-Like Pilot

Hill Physicians Medical Group, Dignity Health and Blue Shield of California formed an ACO-like model seeking to reduce spending and improve quality of care for the California Public Employees’ Retirement System (CalPERS).

In 2010, the pilot achieved more than $15.5 million in savings, including a 20 percent reduction in per-member-per-month costs for inpatient admissions.37 Results also showed a 15 percent reduction in inpatient readmissions within 30 days, a 15 percent reduction in inpatient days per 1,000 hospitalized pilot participants and a half-day reduction in average patient length of stay.38

Strategies employed by the pilot that led to cost savings were an outgrowth of California’s Health Maintenance Organization (HMO) structure, which may account for the high ACO activity in this state (see Figure 4). However, many of the states currently rolling out these models do not have the same conducive environment, posing challenges to adoption that require a local lens through which to address.

“We implemented our ACO-like model within the California HMO structure, which supports our ACO-like capabilities. This is very different than what has emerged across the country. Not everyone is going to have the system we have in place to support implementation.” - Ann Boynton, deputy executive officer, benefit programs policy and planning, CalPERS

The functionalities enabled by the existing HMO data infrastructure include member outreach, drug purchasing strategies, and contracting strategies to reduce pharmacy and utilization costs. It is not clear how the ACO’s formulary management accounts for patient access to novel therapies, as well as how the ACO in the inpatient setting accounts for additional costs associated with new devices and drugs. The pilot employs health plan-level quality metrics that focus on health outcomes, patient experience, and cost reduction; however, there are currently no hospital- or provider-level quality measures in place, and “metrics have yet to be built into the ACO-like payment structure,”39,40 though this is likely to change going forward.

Accountable Care Organizations

Defining ACOs

An ACO consists of an integrated network of coordinated healthcare providers that agree to joint accountability for the cost and quality of care delivered to a defined patient population across the continuum of care, including acute care, post-acute care, and long-term care (see Figure 5). Although ACOs assume a number of different forms, the general model is intended to create incentives for providers to coordinate care across settings so that patients receive timely and appropriate care in the most efficient manner.

An ACO may employ many different payment structures, including traditional FFS; bundled payment, in which providers are paid for a defined episode of care; or capitated models, in which providers receive a set payment per patient, rather than per service. In addition to these payments, participating providers may share in savings if they deliver care at costs below baseline projections. Many ACOs also require that providers meet certain quality benchmarks, thereby ensuring that they are not compromising care. The Pioneer and MSSP ACOs are held accountable for their performance and reporting on 33 quality metrics, including seven measures of patient and caregiver experience. However, a standard set of quality measures are not a requirement for private ACOs.

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Recent Expansion of ACOs

More than 150 private-sector ACOs were already operating before the launch of Medicare’s Pioneer and MSSP models.41 As federally sponsored ACOs have proliferated (see Figure 4), the private sector has further experimented with these models. While many of these are based on Medicare’s shared savings model, private payers, state-level public payers or community-based organizations, and provider groups42 (such as hospital systems or independent practice associations) are launching their own ACOs.

Private-sector ACOs operate with many types of delivery systems and financial configurations, including full or partial capitation models, bundled payments, retainer agreements, in-kind services and payer subsidies, and pay-for-performance incentives. Some use evidence-based decision-making tools, such as HTA and clinical pathways, to meet internal benchmarks. Some are specializing in specific therapeutic areas, such as cancer or end-stage renal disease, to gain efficiencies that accompany sharp focus.

Key Challenges

While the ACO model seeks to address misaligned payment incentives, gaps in quality, and rising costs, the current configurations of ACOs are numerous and disparate. Though a customized approach to implementation will ensure that an ACO meets local needs, the lack of predictability in payment incentive structures, therapeutic focus, and even treatment approach reflects varied understandings among these models of what comprises “value,” which poses challenges to providers to deliver it, life sciences companies to demonstrate it, and, ultimately, patients in understanding their care options. Today, it remains unclear whether ACOs, in any of their varying sizes and shapes, will manage to produce the cost and quality results their advocates promise. As for evaluating their performance, the CMMI recently established a new rapid-cycle approach to program evaluation, which will offer frequent feedback and evaluation of the outcomes of the Pioneer ACOs.43

Unfortunately, no publicly available information exists on what the evaluation metrics will look like. Though the Pioneer and MSSP ACOs will be held to quality benchmarks, reporting of quality measures (let alone achievement of certain standards) is not a requirement for private-sector ACOs.

As providers target annual spending benchmarks, care may be increasingly standardized, which limits providers’ flexibility in choosing the best treatment for an individual patient’s needs. For example, since pharmacy-benefit costs are currently excluded from the spending benchmark within Medicare-sponsored ACOs, Medicare ACOs could implement treatment protocols to discourage providers from utilizing physician-administered drugs when

Spotlight on BPCI

On January 31, 2013, CMS selected more than 100 participating healthcare organizations, such as hospitals, post-acute care providers, doctors, and other practitioners, in the BPCI initiative to test how bundling payments for episodes of care can result in more coordinated care for beneficiaries and lower costs for Medicare. BPCI focuses on 48 diverse conditions, including stroke, syncope and collapse, and transient ischemia. The initiative also includes four models of care distinguished by the types of healthcare providers involved and the services included in the bundle. BPCI represents a significant effort by CMMI to test the viability of bundled payments across providers and episodes.

pharmacy-benefit drugs are available, regardless of what is in a patient’s best interest. In addition, most spending benchmarks are updated annually at best, which may discourage early adopters of innovative technologies from offering novel treatments to patients mid-cycle, even when they may be the best options.

Bundled Payments

Defining Bundled Payments

Bundled payment means that healthcare professionals or entities are paid a lump sum for a set of services related to a diagnosis, usually over a specific period of time.44,45 In a traditional FFS model, providers (e.g., hospital, primary care physician, surgeon and anesthesiologist) who may all deliver services (e.g., diagnosis, hospitalization and outpatient follow-up) to a patient receive separate payments for any and all services rendered.

In contrast, bundling offers a combined payment, aiming to align providers in the delivery of efficient care.46 Substantial financial risk shifts to providers, who become collectively responsible for a patient’s care. This accountability may extend throughout the course of treatment for a disease (including multiple treatments in different settings) or may cover a designated period of time. There is at present wide variation in configurations of what is included in various bundles.

“There needs to be a better way to make sure the payment [in the ESRD bundle] actually reflects the cost of the services. Maybe the base rate will catch up eventually, but it’s really not clear.” – Dolph Chianchiano, health policy advisor, National Kidney Foundation

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Healthcare professionals delivering services and treatments in a bundle must manage care utilization against a target price set by the payer (based on historical spending minus a discount). Providers may also be held accountable to public reporting on quality measures.

Recent Expansion of Bundled Payments Bundled payments have existed for years in certain therapeutic areas, such as organ transplantation and orthopedic surgery. Since the mid-1980s, CMS has implemented bundled payment systems in the inpatient setting through Diagnosis-Related Groups (DRGs) and in the outpatient setting through Ambulatory Payment Classifications (APCs); both public and private payers are now exploring ways to expand use of the model to chronic care and new settings of care.52 Private collaborations are also emerging, such as a recent 21st Century Oncology and Humana partnership to establish a case-rate reimbursement for radiation therapy services.53

Spotlight on TAVR: Recognizing Long Term Value

Transcatheter aortic valve replacement (TAVR) is an innovative procedure that provides an important treatment option for patients with severe aortic stenosis, especially for older or sicker patients that are considered too high risk for conventional heart valve replacement (which requires open-heart surgery and extensive medical management). In the short term, the cost of TAVR may be higher than the alternative therapy and any savings it generates. Thus, use of the therapy may reduce rewards to providers either in ACOs or under a bundled payment system on a narrower measurement window of one year or even 30 days. However, in the long run (over a year), TAVR provides a substantial survival benefit and is a cost-effective alternative to medical management in patients that are too high risk for conventional heart valve replacement.56

Key Challenges

Like the ACO model, bundled payments lack predictability, sufficient data to evaluate successes or identify best practices,54 and flexible spending benchmarks that would encourage the adoption of new technologies. Other

“We cannot just look at year-to-year cost comparisons. Moving forward, we need to ask ourselves: if this drug has the clinical benefit that justifies the increase in cost, there is the potential for longer-term savings.” - Dr. Johnathan Lancaster, president, Moffitt Center

Spotlight on the End-Stage Renal Disease Bundle

The first of CMS’ bundled payment systems, the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) pays dialysis facilities a set payment for dialysis-related care (includes almost all drugs and services). In addition to the set payment rates, dialysis facilities can receive additional payments for sicker patients with other conditions, encouraging facilities not to “cherry pick” healthier patients.47 The ESRD Quality Incentive Program (QIP) also reduces facility payments if they do not meet certain quality measures.48 It is not clear what effect the bundle has had on the quality of dialysis care, as some studies have found that the bundle has helped maintain a consistent level of care for beneficiaries,49 while other studies have shown that the quality of care has decreased. One study found that implementation of the bundle may have caused a decrease in the use of erythropoiesis-stimulating agents (ESAs), which lead to a decrease in hemoglobin levels of dialysis patients and an increase in blood transfusions.50

Recently passed legislation rebased the ESRD bundle, in response to a report that found the current ESRD bundled rate was “excessive” based on actual drug utilization.51 While this legislation includes a rebasing mandate, the ESRD PPS does not have any regularly scheduled rebasing requirements. Without such updates, the ESRD PPS payment amount is less likely to reflect changing costs incurred by dialysis facilities. There is also uncertainty around the appropriate components of the bundled payment. Further impacting the care dialysis patients receive is the lack of an innovation payment for new drugs and technologies under the ESRD PPS.

“Unless there are measures in the QIP program that are related to outcomes, the patients will suffer when oral-only drugs are included in the bundle.” - Dolph Chianchiano, health policy advisor, National Kidney Foundation

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barriers to success include insufficient risk-adjustment and a lack of robust quality measures to offset the emphasis on containing costs.

Given that bundled payments may focus on a particular therapeutic area or disease, it is surprising that many of the spending benchmarks are inconsistently and inadequately risk-adjusted (particularly where co-morbidities exist), leading providers to avoid high-risk patients, for whom they would be poorly reimbursed.55

In practice, quality measures across existing bundled payment initiatives have been criticized for being mainly

process-oriented. With the current measures, providers can meet process-oriented metrics with treatments that may not be the most clinically appropriate, particularly if they are low cost and can achieve spending benchmarks.

Finally, bundled payments that cover limited periods of time for an episode of care (e.g., 30, 60, and 90 days) account for only short-term costs and benefits while failing to recognize value in the longer term. This may discourage strategies in prevention and wellness, as well as adoption of therapies that demonstrate cost savings beyond the designated time frame.

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Providers face increasing pressure when they prescribe innovative technologies. Incentive structures within ACOs and bundled payment systems, potential barriers within pathway programs, and wider use of HTA and CER—present potential roadblocks. Since they are all features of the U.S. healthcare system as it adapts to the ACA, the question is how patients can be assured of getting the best, most advanced treatments when providers have financial incentives to limit their use.57 This is partly a question about the practice of medicine and professional standards. However, it is also a matter for policymakers, whose constituents have an interest in medical innovation and in cost-effective, high-quality care.

To this end, CHI articulated principles for healthcare decision-makers including policymakers and legislatures, as well as private-sector leaders in these new models, to ensure that evolving payment and delivery reform models deliver high value. These principles are grouped into five key imperatives:

• Evaluate and Account for Medical Innovations• Adjust Payments for Medical Innovations• Measure Quality• Protect Patients’ Treatment Options• Evaluate Programs

Evaluate and Account for Medical Innovations

The U.S. healthcare system is a variation of public and private programs, with huge regional diversity in medical intensity and equally large discrepancies in practice patterns from one specialty to another. As a result, there is no uniform approach to evaluating innovative products and medical advances, including how they are employed in the clinic.

Articulating Principles to Protect Patients’ Access to Medical Innovations

“There needs to be transparency in the financial arrangements among providers and between providers and plans, because that is what drives behavior.” – Ann Boynton, deputy executive officer, benefit programs policy and planning, CalPERS

U.S. payers have various levels of sophistication in the economic evaluation of technologies and services. The concern here, of course, is that cost-effectiveness is approached inconsistently by payers and is an inexact science that in many instances focuses on near-term costs, given the rapid churn of patients within a payer’s population.

Similarly, the measurement period for ACOs and bundled payments may also limit the ability for medical advances to demonstrate the full scope of their value, particularly for preventive or chronic disease-related therapies.58 For example, the CalPERS ACO has been evaluated annually, but there have been no plans to measure the pilot over a longer period to assess how innovations are incorporated into clinical practice.

Principle: Stakeholders should develop a well-characterized and transparent process for integrating medical innovations. It should be

technology agnostic, offer patient- and/or system-level benefits, and ensure patients’ access

to and providers’ adoption of optimal care without undue delay.

While CHI recognizes the need to customize the application to each health system, the process itself must be formalized and made transparent. It must also be

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technology agnostic so that it does not create incentives for therapies based on non-clinical classifications (such as pharmacy benefit vs. physician administered) (see above Spotlight on Cardiovascular Care).

As these processes are formalized, new payment and delivery model leaders and evidence-based decision-making tool developers must specify elements such as frequency of updates; process for considering medical innovations; dimensions of assessment (including consideration of long-term costs and benefits); role of manufactured-sponsored evidence in the assessment; and key players involved in this process.

To guide the formation of these processes, an external organization, such as the Institute of Medicine, should develop a framework for covering and paying for medical innovations within the context of new payment and delivery models. Once implemented, these processes should be rigorously evaluated to ensure they do not discourage the early, appropriate adoption of medical innovation. This could be achieved through the use of scorecards, evaluation by an independent entity, and/or input from practitioners or key opinion leaders.

Adjust Payments for Medical Innovations

New payment and delivery models’ financial incentives are frequently inconsistent with optimal care. As illustrated in the Spotlight on Cardiovascular Care above, Medicare ACOs have financial incentives to select Part D-covered drugs over treatments covered under Parts A or B even if the latter are more clinically appropriate.

Moreover, the ACO baseline spending target is largely based on historical data that cannot anticipate emerging medical innovations entering the market. Processes to pay for medical innovations in existing payment programs, such as the Medicare Inpatient Prospective Payment System (IPPS) new technology add-on payment program have rigid qualification criteria and spending targets that do not update on a timely basis. In many cases, payment policies drive how technologies are applied.

For example, Medicare reimburses an echocardiogram in a hospital setting and a physician’s office at $450 and $180 respectively, creating a bias for the more expensive setting.60 Ensuring that patients receive the most clinically appropriate treatment, regardless of setting of care or benefit design is paramount to providing value. Current payment and delivery systems need to be revised to reach this goal.

Principle: Stakeholders should develop a scheduled payment update process that occurs at

least annually with input from all stakeholders. This system must have a specific channel for including

medical innovations to be reimbursed appropriately, either broadly or on a per-technology basis.

This payment-update mechanism should recognize the challenge in keeping track of medical innovations and continuously evolving treatment protocols. Accordingly, the process should be forward-looking, adjusting payments in ways that go beyond historical spending patterns.

Time-limited adjustments could build off existing efforts as a starting point, such as CMS’ new technology add-on payment program for inpatient services and the new technology pass-through payment for outpatient services. Payments should align with other systematic updates, such as the annual rate-setting processes found in the private market, and existing payment and spending baselines to ensure they are set appropriately.

Measure Quality

Quality measures have long been used as to evaluate clinical care and hold providers accountable for specific performance standards. Even so, nationally there is no uniform approach to collecting, interpreting, and disseminating data about the quality of healthcare services. Organizations like the National Quality Forum aim to build consensus about measures that reflect quality, but adoption has been slow.

Spotlight on Cardiovascular Care

In areas like atrial fibrillation, providers in a Medi-care ACO have an incentive to switch patients to Part D (pharmacy-benefit) therapies, even if cardiac ablation or another procedure reimbursed through Medicare Parts A or B (physician-administered) may be more clinically appropriate.59 This is because Part D therapies do not affect the ACO’s spending target, whereas treatments covered under Parts A or B are included in the spending target.

“Quality measurement is not exactly where it needs to be yet. We need true outcomes measures that are associated with morbidity, mortality, and patient quality of life. Reporting measures is important, but they need to be meaningful measures.” – Tonya Saffer, senior federal health policy director, National Kidney Foundation

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It remains to be seen how efforts to measure quality interact with new models of care.61 At the same time, physicians and hospital administrators, who already feel burdened by paperwork, worry about new layers of compliance and additional reporting. Some quality measures are redundant and inefficiently require reporting of the same clinical values (e.g., Hemoglobin A1c) in different ways. In fact, several of the Pioneer ACOs plan to withdraw from the program since CMS did not delay pay-for-performance, despite the ACOs’ difficulties with its precursor, pay-for-reporting.62

While process measurements in the program are comparatively easy to report on, outcomes are far more complicated, especially for patients with multiple co-morbidities or psychiatric disorders. In certain disease areas, measuring proxies for quality of care face data inconsistencies – particularly those that are shaped by subjective patient experience (e.g., pain).

Principle: Stakeholders should use consensus-based, outcomes-driven quality

measures to safeguard against undue emphasis on cost cutting and encourage the use of clinically

appropriate technology.

Quality measures have the potential to counterbalance healthcare reform’s emphasis on cost containment. Importantly, ideal quality measures would better measure patient outcomes that are truly reflective of quality care, either through direct outcomes measures or, where not possible, up-to-date evidence-based surrogates such as intermediate outcomes measures, process measures that are validated proxies for patient outcomes, and/or measurement of adherence to treatment protocols such as clinical guidelines.

Stakeholders, including the Urban Institute63 and Robert Wood Johnson Foundation,64 are increasingly calling for outcomes-driven measures (or adequate surrogates) to promote the use of the most clinically appropriate treatment option, including medical innovations. Such multi-stakeholder perspectives should be included in the full cycle of measure development, endorsement, and use to ensure that measures are “patient-important”65 and that providers “are bought in when it comes time to apply them.”66

Principle: Stakeholders should reduce reporting burden through developing and harmonizing

measures that aim for simplicity.

All stakeholders in the healthcare system share an interest in measuring quality. The challenge is to develop metrics that apply across different therapeutic areas and to make data collection simple enough to encourage widespread adoption. Electronic health records will help, as will initiatives at the National Institutes of Health (NIH), U.S. Food and Drug Administration (FDA), and California Department of Aging (CDA) to make large sets of data available.

Going forward, measures should operate within the day-to-day healthcare practitioner workflow. The National Committee for Quality Assurance (NCQA), for one, has already begun to move toward this kind of quality instrument (e.g., Global Cardiovascular Risk Score).67

Protect Patients’ Treatment Options

Information asymmetry – in which patients typically understand far less about products and treatments than physicians – is a central problem in healthcare. With limited accountability to patients and clear financial incentives for providers, there is a tendency for physicians to make decisions that favor the incentives. This has historically been a key issue in a FFS model, in which doing less, even if it is best for the patient, reduces the doctor’s income.

Patients may be equally at risk when financial incentives are reversed and providers gain from limiting care. Internal pharmacy and therapeutic-like committees within health systems or plans may designate specific products and services and exclude others. They may also penalize patients for receiving care outside a contracted network or filling a prescription for a drug not on the formulary. As a result, medical innovations that are “off-pathway” come at higher costs to providers who offer the innovation, payers who reimburse it, and patients who face out-of-pocket costs – posing significant barriers to patient access, despite when medically necessary.

Principle: Stakeholders should agree on and use a standard set of shared decision-making tools so

that providers can educate patients on the value of all available care options.

To establish a truly patient-centered healthcare system, providers should present patients with an objective view of the risk-benefit profile and out-of-pocket costs of different treatment options. Providers should discuss optimal care options independent of whether they are in- or out-of-network or -pathway, particularly when advising treatment for rare or complex conditions.

“New payment models must promote accountability for high quality care, but accountability to the wrong measures can do more harm than good. You have to have the right measures in place.” – Randy Burkholder, deputy vice president of policy, Pharmaceutical Research and Manufacturers of America (PhRMA)

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Principle: Stakeholders should ensure that patients have access to all medically necessary

out-of-network or -pathway care without substantial financial penalties and with a clear

appeals process for seeking such care.

Not all therapies are created equal. When a medical innovation offers a substantial benefit to a patient, regardless of cost, it should be considered in the spectrum of valid treatment options.

Today’s environment, however, brings financial disincentives that potentially inhibit patient access to those substantially beneficial, often expensive, medical innovations. These incentives need to be reconsidered: payers and/or independent evaluators should not penalize providers who prescribe medically necessary out-of-pathways care (i.e., such care should not negatively affect metrics for provider’s adherence to pathways).

There also must be upper bounds to payer increases in patient cost sharing (e.g., co-pays, deductibles) relative to in-network or -pathways care if the out-of-network or -pathways care is medically necessary. Finally, payers and providers need to consider applying a mechanism to circumvent such limitations on available care via an appeals process. This process could be initiated by a provider or patient seeking access to care not otherwise adequately reimbursed and would likely involve documentation on the clinical rationale in support of the novel treatment use for the patient. Time sensitivities around urgent care would need to expedite the process and review of appeals materials.

Evaluate Programs

For new models of care, both in the public and private sectors, regular, continuous, and multi-rater evaluation should be a core component of the ideal healthcare environment.

Principle: Stakeholders should conduct an independent evaluation at least annually to ensure

program updates reflect clinical standards set by nationally recognized organizations.

Independent evaluators should have expertise and independence similar to Medicare’s Quality Improvement Organizations (formerly Peer Review Organizations). Evaluations should include, but not be limited to, the following:

• Provider or hospital offerings of a baseline level of novel technologies.

• Access to medical innovations.• Referral patterns and rates of access.• Structure of financial incentives and shared savings

arrangements.• Risk-stratified outcomes associated with clinically

appropriate quality measures.• Changes in clinical practice designed to generate cost

savings and improve clinical outcomes.• Use of best practices and evidence-based medicine

(e.g., shared decision-making tools and clinical pathways).

Principle: Stakeholders should report results publicly to ensure all entities are held accountable.

Public reporting strengthens program evaluation by providing a transparency incentive. Public reporting can affect healthcare patient, payer, and provider perception of an organization, its marketability to deliver products and services, and subsequently its bottom line. This level of accountability is necessary to embed adequate patient protections into our evolving healthcare system, though there are undoubtedly practical difficulties and administrative burdens to public reporting.

“Patients should understand what it means when they are in an ACO and why they are getting the care that they are getting.” – Mark Domyahn, senior director, global healthcare economics, St. Jude Medical

“There needs to be some type of independent entity, office, or group that reviews and assesses performance of ACOs across a variety of metrics, including patient outcomes (individually or in aggregate). There should be an independent review and assessment across the various ACOs as well – one ACO’s experience is one ACO’s experience. We need to look broadly across the various experiences and lessons learned and anticipate significant problems before they occur.” – Dr. Dora Hughes, senior policy advisor, Sidley Austin, LLP

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A Look Ahead

We encourage healthcare stakeholders to consider the road ahead, understanding that medical progress is both rapid and ongoing.68 Closing the gap between best clinical practice and what actually happens in hospitals and physicians’ offices requires assurances that patients can access value-enhancing medical innovations, even in the face of cost containment. Only with such assurances can the U.S. healthcare system support continued progress led by innovators in wellness, prevention, therapeutic and diagnostic treatments, and service delivery.

We recognize that providers and payers must have the ability to customize their payment and delivery models to best meet the needs of the patients they serve. A rural community hospital has different needs than an academic hospital center in an urban area. However, a standard set of principles should connect and align stakeholders’ understanding of value to ensure patient access to care and encourage sustainable innovation. The principles presented in this paper are intended to act as guidelines in the implementation of new payment and delivery models and evidence-based decision-making tools. We believe that the systematic application of these principles will drive us toward the pinnacle of medicine;69 toward a patient-centered U.S. healthcare system that delivers value by efficiently enabling patient access to medical innovations.

Principles

• Stakeholders should develop a well-characterized and transparent process for integrating medical innovations. It should be technology agnostic, offer patient- and/or system-level benefits, and ensure patients’ access to and providers’ adoption of optimal care.

• Stakeholders should develop a scheduled payment update process that occurs at least annually with input from all stakeholders. This system must have a specific channel for including medical innovations to be reimbursed appropriately, either broadly or on a per-technology basis.

• Stakeholders should use consensus-based, outcomes-driven quality measures to safeguard against undue emphasis on cost cutting and encourage the use of clinically appropriate technology.

• Stakeholders should reduce reporting burden through developing and harmonizing measures that aim for simplicity.

• Stakeholders should agree on and use a standard set of shared decision-making tools so that providers can educate patients on the value of all available care options.

• Stakeholders should ensure that patients have access to all medically necessary out-of-network or -pathway care without substantial financial penalties and with a clear appeals process for seeking such care.

• Stakeholders should conduct an independent evaluation at least annually to ensure program updates reflect clinical standards set by nationally recognized organizations.

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Appendices

Appendix A: Executive Summary of Findings

A Vision for Healthcare A patient-centered healthcare system that delivers value by efficiently maximizing

access to clinically appropriate, provider-recommended care, and encourages medical innovations in wellness, prevention, therapeutic and diagnostic treatment options, and

delivery to support continuous and systematic improvement.

Five Imperatives Principles for the U.S. Healthcare System Examples In Practice

Evaluate and Account for Medical Innovations

Develop a well-characterized and transparent process for integrating medical innovations. It should be technology agnostic, offer patient- and/or system-level benefits, and ensure patients’ access to and providers’ adoption of optimal care without undue delay.

Horizon scanningRegular updates

Adjust Payments for Medical Innovations

Develop a scheduled payment update process that occurs at least annually with input from all stakeholders. This system must have a specific channel for including medical innovations to be reimbursed appropriately, either broadly or on a per-technology basis.

Time-limited adjustmentCarve-outs

Measure Quality

Use consensus-based, outcomes-driven quality measures to safeguard against undue emphasis on cost cutting and encourage the use of clinically appropriate technology.

Reduce reporting burden through developing and harmonizing measures that aim for simplicity.

Comment opportunities throughout measure development, endorsement, and program uptake

Protect Patients’ Treatment Options

Agree on and use a standard set of shared decision-making tools so that providers can educate patients on the value of all available care options.

Ensure that patients have access to all medically necessary out-of-network or -pathway care without substantial financial disincentives and with a clear appeals process for seeking such care.

Platforms for patient education and shared decision-makingAppeals process for

non-covered treatment options

Evaluate Programs

Conduct an independent evaluation at least annually to ensure program updates reflect clinical standards set by nationally recognized organizations.

Report results publicly to ensure all entities are held accountable.

Evaluation by third partyPublic reporting on

more criteria than just quality measures

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Appendix B: Key Findings across Case Studies

Evaluate and Account for Medical Innovations

Adjust Payments for Medical Innovations

Measure Quality

Protect Patients’ Treatment Options

Evaluate Programs

Key Challenges

ACOs

Inflexible spending benchmarks that are prohibitive of using potentially expensive medical innovations.

Variable and infrequent timeline for updating spending targets.

No requirement for use and reporting of quality measures in private-sector ACOs.

Various approaches and configurations of ACOs that result in lack of predictability payment incentive structures, therapeutic focus, and treatment approach.

Use of standardized treatment protocols that use of certain types of technologies over others.

Limited mechanisms or data in place to evaluate ACOs.

Bundled Payment

Inflexible spending benchmarks that are prohibitive of using potentially expensive medical innovations.

Variable and infrequent timeline for updating spending targets.

Inadequate and inconsistent risk-adjustment of spending targets.

Inadequate consideration of long-term value outside of designated bundled payment period.

Excessive use of process-oriented quality measures.

Lack of predictability payment incentive structures, therapeutic focus, and treatment approach.

Limited mechanisms or data in place to evaluate bundled payment programs.

HTA & CER

Lag between product market entrance, evaluation, and provider adoption of clinically more effective technologies when identified by HTA & CER as a result of conservative payment policies.

Unclear use of HTA & CER information in clinical practice.

Clinical Pathways

Lack of transparency around evidence sources and processes for updating.

Variable and infrequent timeline for updating.

No accountability to report or achieve performance or quality measures (only adherence requirements).

Lack of flexibility to customize patient care by deviating from pathways.

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Health Technology Assessments (HTA) and Comparative Effectiveness Research (CER)

Defining HTA and CER

Health technology assessment (HTA) is, “a multidisciplinary field of policy analysis, studying the medical, economic, social, and ethical implications of development, diffusion, and use of health technology.”70 Broadly defined, CER is “the generation and synthesis of evidence that compares the benefits and harms of alternative methods to prevent, diagnose, treat and monitor a clinical condition, or to improve the delivery of care […] at both the individual and population levels” in routine practice settings.71,72

While the terms are often used interchangeably, HTA is viewed more as a method of evidence synthesis that receives inputs from CER, economic evaluation, and considers social, ethical, and legal aspects.73 An HTA is typically developed to inform healthcare decisions at the population-level and used by payers to influence coverage and reimbursement decisions. CER is focused more on the generation of evidence of effectiveness and is less likely to have a direct link to any decision process, though it often influences patient and payer decision-making through evidence-based medicine or HTA.74

Recent Expansion of HTA and CER

Various public and private organizations conduct such assessments, including AHRQ in support of CMS’ National Coverage Determination process, as well as private payers such as Blue Cross Blue Shield Technology Evaluation Center and private organizations like Hayes Inc., Cochrane, and ECRI. Hospitals and health systems endeavoring to deliver high-quality care at low costs are increasingly relying on HTA and CER as part of a larger strategy to define evidence-based best practices in clinical treatment protocols. Physician groups may have in-house members that independently conduct assessments, or they may rely on external sources or outside partners to determine a more customized approach to implementing evidence-based, value-driven processes.

Key Challenges

While HTA and CER entities have varying timelines, there is a clear lag between the release of a new product onto the market and the time in which its evaluation is completed. Moreover, when providers finally access an assessment, it is unclear how this new information is incorporated into practice. When assessments produce findings that a new technology does not deliver higher value compared

Hayes’ Evidence-Based Value Analyses

Hospitals and health systems are collaborating with Hayes, Inc., an outsourced research partner, to conduct Evidence-Based Value Analyses (EBVA). These analyses are designed to guide provider decision-making relative to the use of high-cost healthcare technologies. EBVA results in definitive recommendations from Hayes regarding formulary placement for the technologies under evaluation.

Unique to Hayes’ EBVA standardized methodology is the inclusion of physicians and hospital executives in the process of analysis to promote higher adoption rates of new technologies. Beginning with topic selection, providers are relied on to actively participate in the EBVA process, addressing sources of expense such as physician-preference items (PPIs) and other high-cost devices, like cardiac stents and orthopedic implants. In fact, Hayes’ application of EBVA to surgical mesh products resulted in one hospital system’s 50 percent cost reduction.

It is unclear how new technologies will be considered under Hayes’ collaborative topic selection process and the frequency with which individual hospitals and health systems will initiate these assessments.

to existing alternatives, stakeholders may resist findings under the assumption that newer must be better, no matter that new is not an adequate proxy for innovation.

Conversely, when HTA or CER do identify clinically more effective new technologies, hospitals and health systems may be slow to adopt them, as a result of reluctance to diverge from traditional medical practices, conservative payment policies, or outdated education. Equally important, physician payments tend to lag behind technology, given cumbersome processes for accounting for medical innovations.

As a result, stakeholders have questioned the capacity of HTA and CER to strike the right balance of rewarding valuable new technologies and discouraging the adoption of less effective ones. While these challenges are not unique to HTA and CER, they represent the distinct tensions faced by stakeholders in the delivery of evidence-based care.

Appendix C: A Closer Look at HTA, CER and Clinical Pathways

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Unlike in much of Europe, where it is routinely accepted as part of national healthcare systems, HTA in the U.S. has commonly been thought of as a mechanism by which to rigorously assess risks and benefits as well as determine economic or cost-related factors. Still, a byproduct of the ACA is the Patient-Centered Outcomes Research Institute (PCORI) which, when fully implemented in 2014, will constitute by far the best-funded CER program in the world. The implications for medical technology innovators and patients are profound. To date, PCORI has operated as a grant-funding institution, awarding dozens of health sciences grants (typically between $2-3 million) to academic research centers. If there is a main theme to these grants, it lies in “patient-centered.” Most of the money has not gone to evaluate the comparative effectiveness of various medical devices, or of one drug versus another, but to strategies that foster better communication between doctors and patients and that enable patients to play a more informed role in evaluating treatment choices.

Clinical Pathways

Defining Clinical Pathways

Clinical pathways are care plans that describe the sequence and timing of treatments providers are advised to follow for a given patient population. Providers and payers are increasingly implementing pathways to bolster adherence to evidence-based medicine and reduce costs, particularly for complex and expensive therapeutic areas like oncology and rheumatology.77

Unlike clinical guidelines, pathways are not necessarily consensus-based; they are often proprietary algorithms developed by select physician groups, payers, and third parties. Moreover, while many of these pathways use nationally recognized guidelines as a starting point, they also consider the cost and cost-effectiveness profiles of available treatments.

In practice, physicians are often paid based on their adherence to pathways. Participation in pathway programs may include financial incentives, such as an upfront payment, per-member reimbursement, or a share in savings realized from expenditures for chemotherapy or prescription drugs.78

Spotlight on Aetna and US Oncology: Lung Cancer Pathways Reduce Costs

From July 2006 - December 2007, eight practices within the US Oncology Network implemented Inno-vent Oncology’s Level I Pathways for non-small cell lung cancer patients initiating chemotherapy.75 Over 12 months, on-pathway patients exhibited 35 per-cent lower average costs compared to off-pathways patients, with similar survival rates across both patient groups. Of note, cost savings largely re-sulted from lower toxicity-related medical costs, use of less expensive drugs, and lower total drug use. However, there is limited evidence on the impact of pathways on long-term patient outcomes.76

While these findings show promise for driving value, Innovent’s pathways demonstrated a clear inclina-tion for lower-cost treatments. This raises the ques-tion of the how more expensive medical innovations are incorporated into these tools.

Recent Expansion of Clinical Pathways

Clinical pathway development and use has increased steadily in recent years, with more payers experimenting with them to drive value. With only 17 percent of health plans claiming to have one or more pathways in place in 2011, implementation is expected to grow to 63 percent in 2014,79 covering 25 percent of all lives in the oncology marketplace.80 While early attempts focused on oncology, due to high costs and extreme variation in treatment protocols, the use of clinical pathways has expanded to new therapeutic areas prioritized by payers and providers as needing more structured, cost-containing treatment practices (e.g., rheumatoid arthritis).81 Multi-stakeholder partnerships focused on clinical pathways are becoming more common.82

Current Challenges The life sciences industry, providers, and patient groups frequently complain about overemphasis on cost, lack of flexibility to customize patient care, and lack of transparency around evidence sources and processes for updating tools as the major concerns with clinical pathway programs.

To measure physician compliance to pathways, pathway developers, such as Innovent, P4, and Via, work with major health plan networks to capture claims and remittance data electronically.83 Most programs call for 80-85 percent

“The key is not in the development but in the implementation.” – Dr. Marcus Neubauer, medical director, oncology services, McKesson Specialty Health

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adherence to the prescribed pathways, and in some cases, may require that providers who deviate more than 30 percent from pathways provide a rationale for doing so.

While pathway adherence is intended to enhance patient outcomes and standardize care, providers have felt challenged to appropriately customize care while deviating from pathways only in select instances. In fact, physicians are not directly held accountable for reporting on performance or quality measures, but are instead evaluated based on their adherence to the pathways.84 This may prevent physicians from adequately considering factors such as individual responses (such as those based on treatment side effects) and patient heterogeneity, encouraging “cookie cutter approach.” Even off-pathways medically necessary care could count against a provider’s adherence requirement.

In addition, it is unclear the evidence sources that pathways are based on and how they are weighted relative to cost information, which have called into

question the reliability of pathways to improve outcomes in a methodologically rigorous manner. Though some developers have linked pathways (e.g., Value PathwaysTM) to clinical practice guidelines,85 the process for updating this evidence source can be lengthy, particularly for rare conditions where unmet medical need for novel therapies is abundant. There has been no publicized or formal mechanism for updating clinical pathways to account for the latest evidence on medical advancements.86

“We do have to be mindful that we cannot adopt a one-size-fits-all approach without having some flexibility for extenuating circumstances.” – Dr. Dora Hughes, senior policy advisor, Sidley Austin, LLP

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On behalf of the California Healthcare Institute (CHI), Avalere Health, a healthcare research and advisory services firm, conducted primary and secondary research to evaluate new payment and delivery models as well as various evidence-based decision-making tools, focusing on four key areas: ACOs, bundled payment, clinical pathways, and health technology assessments (HTAs).

Secondary research sources included Health Affairs, Agency for Healthcare Research and Quality (AHRQ) reports, The New England Journal of Medicine, transmittals and fact sheets published by CMS, Avalere’s EBM Insights, among others.

Avalere search terms included ACO’s, bundled payments, pathways programs, HTAs, quality measures, payment and delivery reforms, evaluation frameworks, payment adjustments for new technologies and spending benchmarks.

To understand the various perspectives on the tension between value and innovation, as well as the key challenges across these case studies, Avalere surveyed and interviewed more than 30 healthcare experts, thought leaders, and stakeholders representing providers, payers, patients, academia, evidence-based decision-making tool developers, and industry. To conduct the interviews, Avalere developed and used structured interview guides tailored for each stakeholder group. The interviews explored a number of topics:

• What evaluation frameworks do ACOs/bundled payments/pathways/HTAs employ?

• What quality measures do ACOs/bundled payments/pathways programs employ?

• How do ACOs/bundled payments/pathways programs/HTAs incorporate new technologies?

• How do ACOs/bundled payments/pathways pay for new technologies?

• How do ACOs/bundled payments/pathways and HTAs evaluate new technologies?

• What are some of the current challenges in implementing new payment and delivery reform models?

The survey questions explored similar issues, requesting that survey respondents rank the importance of certain standards for payment and delivery reform initiatives on a scale of 1-5. Standards included:

• Patient protections.• Transparency.• Allowance for clinical discretion in decision making.• Process for evaluating and accounting for new

technologies.• Frequency of updating payment and spending targets• Robust data infrastructure.• Independent program evaluation of clinical and

financial performance.

On April 30, 2013, Avalere convened a dedicated CHI work group to articulate both a vision for healthcare that supports innovation, and the key principles needed in these new payment and delivery models and evidence-based decision-making tools to drive toward this vision. Findings from Avalere’s primary and secondary research and the work group meeting have informed this report.

About Avalere Health

Avalere Health is an advisory services company whose core purpose is to create innovative solutions to complex healthcare problems. Based in Washington, DC, the firm delivers research, analysis, insight, and strategy for leaders in healthcare business and policy. Avalere’s experts span 170 staff drawn from the federal government (e.g., CMS, OMB, CBO, and the Congress), Fortune 500 healthcare companies, top consultancies, and nonprofits. The firm offers deep substance in areas ranging from healthcare coverage and financing to the changing role of evidence in healthcare decision-making. For more information, visit avalerehealth.net. Follow Avalere Health on Twitter @avalerehealth.

Avalere’s core team for this work included:

Tanisha Carino, PhD, executive vice presidentLauren Barnes, MHS, senior vice presidentRichard Chapman, PhD, MS, vice presidentJenny Gaffney, directorFrancesca Pirog, managerNikita Jeswani, senior associate

Appendix D: Methodology

Page 27

CHI greatly appreciates the time, perspective, and insights offered by all of those interviewed and surveyed for the research project. Those who provided consent to be acknowledged are listed on the following page. The views expressed herein are solely those of the California Healthcare Institute and not intended to represent the individual viewpoints of those that were interviewed or surveyed as part of this research project.

EdwardAbrahams, PhD, president, Personalized Medicine CoalitionGregAronin, director, Federal Affairs and Political Programs, Johnson & JohnsonDonaldC.BalfourIII, MD, president and medical director, Sharp Rees-Stealy Medical Group MarcBoutin, JD, executive vice president and chief operating officer, National Health Council AnnBoynton, MA, deputy executive officer, benefit programs policy and planning, California Public Employees’ Retirement SystemBarbaraCalvert,director, medical products reimbursement, Abbott Laboratories DavidCutler, PhD, HarvardPerryBridger, MHS, vice president, reimbursement and public policy, Edwards LifesciencesRandyBurkholder, deputy vice president, policy, Pharmaceutical Research and Manufacturers of America DolphChianchiano, JD, health policy advisor, National Kidney FoundationMarkDomyahn, MBA, senior director, global healthcare economics, St. Jude MedicalMichelleDrozd, ScM, senior director, policy and research, Pharmaceutical Research and Manufacturers of America StephanieDyson, RN, MPP, senior director, government affairs, GenentechJeffFarkas, MBA, vice president, health policy and payment, Medtronic, Inc. JoeGrogan, JD, government affairs, Gilead SciencesNancyFoster, vice president, quality and patient safety policy, American Hospital AssociationElizabethFowler, PhD, JD, vice president, global health policy, Johnson & JohnsonDoraHughes, MD, PhD, senior policy advisor, Sidley Austin, LLPMacyJohnson, director, managed care marketing, Genomic HealthLeonardKalman, MD, chairman, Advanced Medical SpecialtiesJohnKaelin, formerly senior vice president, UnitedHealth Group

IraKlein, MD, MBA, FACP, chief medical officer, national accounts clinical sales & strategy, AetnaJohnathanM.Lancaster, MD, PhD, president, Moffitt Medical GroupSusanA.Levine, MS, DVM, PhD, senior vice president, health technology research & consulting, Hayes, Inc.ChrisMancill, MA, executive director, U.S. health policy & reimbursement, AmgenMarcusNeubauer, MD, medical director, oncology services, McKesson Specialty HealthStevePhillips, MPA, senior director, global health policy, Johnson & JohnsonRichardJ.Price, MA, senior vice president, payment and health care delivery policy, Advanced Medical Technology AssociationEdwardClementRenoIII, director, federal government affairs, Allergan, Inc.TonyaSaffer, MPH, senior federal health policy director, National Kidney Foundation DanielleScelfo, MHSA, director, government affairs, Genomic HealthLaurelTodd, MBA, managing director, reimbursement and health policy, Biotechnology Industry Organization Liang-RueyTu, MS, director, strategic initiatives, global strategic marketing, Abbott Laboratories DianeWish, MBA, president and CEO, Centers for Dialysis Care

About CHI

CHI represents more than 275 leading biotechnology, medical device, diagnostics, and pharmaceutical companies, and public and private academic biomedical research organizations, and the legal, accounting, consulting and financial service organizations that support them. CHI’s mission is to advance responsible public policies that foster medical innovation and promote scientific discovery. CHI’s website is www.chi.org. Follow us on Twitter @calhealthcare and Facebook.

CHI’s core leadership team for this work included:

DavidL.Gollaher, PhD, president and CEO

ToddGillenwater, senior vice president, public policy

JenniferNietoCarey, associate director, federal government relations and programs

EricaHiar, director, public relations and communications

Appendix E: Acknowledgments

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1 “Insights from Monthly National Health Expenditures through August 2012.” Center for Sustainable Health Spending: Health Sector Economic Indicators. Altarum Institute. 11 October 2012. http://www.altarum.org/files/imce/CSHS-Spending-Brief_Oct%202012.pdf 2 Keehan, Sean P. CMS Office of the Actuary. CMS Press Conference cited in MedPage. June 2012. http://www.medpagetoday.com/Washington-Watch/Reform/33236 3 Dr. David Bernstein. Hepatitis C: A 21st Century Oncology Success Story (Op-Ed). Live Science. 22 May 2013. http://www.livescience.com/34606-hepatitis-treatment.html4 Avalere Health. 2013 Expert Webinar Series: Delivering Value in Healthcare: A Multi-Stakeholder Vision for Innovation. 28 March 2013. http://www.avalerehealth.net/conferences/support-innovation/ 5 Abelson, Reed. “Insurers Test New Cancer Pay Systems.” The New York Times. 19 October 2010. http://www.nytimes.com/2010/10/20/health/policy/20cancer.html?pagewanted=all&_r=1& 6 Concept. Value-Based Insurance Design. University of Michigan Center for Value-Based Insurance Design. Accessed 29 July 2013. http://www.sph.umich.edu/vbidcenter/about/index.html 7 Japsen, Bruce. “Half of U.S. Patients Can Access Obamacare’s ‘Accountable Care Organizations.’ Forbes. (February 2013).8 As of late 20119 As of March 201310 Muhlestein, David. “Continued Growth of Public and Private ACOs.” Health Affairs Blog. February 2013. http://healthaffairs.org/blog/2013/02/19/continued-growth-of-public-and-private-accountable-care-organizations/11 In 201212 As of June 201313 Ibid.14 “Bundled Payments for Care Improvement (BPCI) Initiative: General Information.” Center for Medicare & Medicaid Innovation. http://innovation.cms.gov/initiatives/bundled-payments/. Accessed 23 May 2013.15 Laderman, Mara et al. “The Effect of Medicare Readmissions Penalties on Hospitals’ Efforts to Reduce Readmissions: Perspectives from the Field.” The Commonwealth Fund. 26 February 2013.16 “Medicare’s Physician Quality Reporting System: Early National Radiologist Experience and Near-Future Performance Projections,” Journal of the American College of Radiology, Dec. 28, 2012 17 By 201418 Health Industries Research Companies. “Trends and Utilization Management in Oncology.” 2012. http://www.hirc.com/files/public/MOS_UtilizationMgt_2012_Updated.pdf 19 Muhlestein, David. “Continued Growth of Public and Private ACOs.” Health Affairs Blog. February 2013. 20 “Accountable Care Organizations: AHA Synthesis Report.” American Hospital Association Committee on Research. June 2010.21 “Bundled Payments for Care Improvement (BPCI) Initiative: General Information.” Center for Medicare & Medicaid Innovation. http://innovation.cms.gov/initiatives/bundled-payments/. Accessed 23 May 2013.

22 “Commercial Bundled Payment Tracker.” The Advisory Board Company. http://www.advisory.com/Research/Health-Care-Advisory-Board/Resources/2013/Commercial-Bundled-Payment-Tracker#lightbox/0/. Accessed 6 June 2013.23 Ibid.24 Robert Kocher, MD and Nikhil R. Sahni. “Hospitals’ Race to Employ Physicians—The Logic behind a Money-Losing Proposition.” The New England Journal of Medicine. (2011).25 Based on Avalere survey and interview findings26 Berenson, Robert A et al. “Achieving the Potential of Health Care Performance Measures: Timely Analysis of Immediate Health Policy Issues.” Urban. May 2013. http://www.urban.org/UploadedPDF/412823-Achieving-the-Potential-of-Health-Care-Performance-Measures.pdf 27 A more comprehensive methodology is available in the Appendix.28 A full list of survey participants and interviewees can be found in the Appendix.29 A full list of work group participants can be found in the Appendix.30 Todd, Laurel. Biotechnology Industry Organization. Telephonic Interview with Avalere Health. 8 March 2013. 31 Institute of Medicine. Best Care at Lower Cost: The Path to Continuously Learning Health Care in America.” 6 September 2012. http://www.iom.edu/Reports/2012/Best-Care-at-Lower-Cost-The-Path-to-Continuously-Learning-Health-Care-in-America.aspx 32 Tocknell M. Florida Blue Launches Oncology ACO. HealthLeaders Media. May, 2012. http://www.healthleadersmedia.com/page-2/LED-280059/Florida-Blue-Launches-Oncology-ACO33 Ibid.34 Lancaster, Johnathan. Moffitt Cancer Center. Telephonic Interview with Avalere Health. 12 March 201335 Health Industries Research Companies. “Trends and Utilization Management in Oncology.” 2012. http://www.hirc.com/files/public/MOS_UtilizationMgt_2012_Updated.pdf 36 “Strategies in oncology: Spotlight on clinical Pathways.” Oncology Knowledge Bulletin. McKinsey & Company. January 2012. 37 Blue Shield of California. “Accountable Care Organization Pilot: Lessons Learned”. 2012. https://www.blueshieldca.com/employer/documents/knowledge-center/features/EKH_ACO%20Lessons%20Learned%20Case%20Study.pdf38 Ibid.39 Ibid. 40 Boynton, Ann. CalPERS ACO. Telephonic Interview with Avalere Health. 12 March 201341 Muhlestein, David. “Continued Growth of Public and Private ACOs.” Health Affairs Blog. February 2013. http://healthaffairs.org/blog/2013/02/19/continued-growth-of-public-and-private-accountable-care-organizations/ 42 For example, Premier, a provider-owned alliance over 2,600 U.S. hospitals and 86,000-plus other sites, has established collaboratives for hospitals interested in preparing for and implementing ACOs. Source: Premier. “Premier’s Partnership for Care Transformation™ (PACT) Collaboratives.” https://www.premierinc.com/quality-safety/tools-services/ACO/index.jsp

Appendix F: References

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43 On July 16, CMS released long-awaited results for the first-year of the Pioneer ACO program. All 32 participating health systems improved patient care on quality measures. Additionally, 25 of the 32 participants demonstrated lower readmission rates compared to Medicare FFS beneficiaries not in the ACO program. While 18 ACOs were able to reduce costs and achieve savings, only 13 of the 18 were able to save enough money to share their savings with Medicare, and 2 ACOs face shared losses and will combined owe Medicare about $4 million. The nine Pioneer ACOs that did not save money will drop out of the Pioneer program; seven of the nine, will apply to the MSSP. The remaining two ACOs will leave the Medicare ACO program altogether. Source: CMS. Pioneer Accountable Care Organizations Succeed in Improving Care, Lowering Costs. http://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-Releases/2013-Press-Releases-Items/2013-07-16.html44 American Medical Association. Bundled Payments. http://www.ama-assn.org/ama/pub/physician-resources/practice-management-center/claims-revenue-cycle/managed-care-contracting/evaluating-payment-options/bundled-payments.page45 Satin DJ, Miles J (2009). “Performance-based bundled payments: potential benefits and burdens”. Minn Med 92 (10): 33–5. http://www.minnesotamedicine.com/PastIssues/October2009/SpecialReportOct2009/tabid/3209/Default.aspx 46 American Medical Association. Bundled Payments. 47 Centers for Medicare & Medicaid Services. MLN Matters Number: MM7064. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) and Consolidated Billing for Limited Part B Services. January 14, 2011. http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM7064.pdf48 Centers for Medicare & Medicaid Services. End-Stage Renal Disease (ESRD) Quality Measures. http://www.dialysisreports.org/ESRDMeasures.aspx49 Avalere Analysis of ESRD PPS 2011-2012 Claim-Based Monitoring Program Through September50 Fiore, Kristina. Hemoglobin Down After ESA Pay, Label Change. May 15, 2012. http://www.medpagetoday.com/MeetingCoverage/NKF/3270051 United States Government Accountability Office. End-Stage Renal Disease: Reduction in Drug Utilization Suggests Bundled Payment Is Too High. December, 2012. http://www.gao.gov/assets/660/650667.pdf52 United Healthcare’s (UHC’s) Cancer Care Payment Model provides upfront reimbursement for entire cancer treatment episodes for each of 19 clinical presentations. The upfront fee covers a standard chemotherapy treatment period of 6 to 12 months. Payment is determined based on the expected cost of a standard chemotherapy regimen with an additional case management fee. Quality measures incorporated into the bundle address a number of ER visits, incidence of complications, side effects, and health outcomes. Early results have shown that while all groups of patients chose a regimen of docetaxel and cyclophosphamide chemotherapy for early stage breast cancer, treatment costs varied by 100 percent among these groups. Additionally, there was a wide variation in the number of radiology tests used to evaluate new patients with breast or lung cancer.

Sources: UnitedHealthcare. New UnitedHealth care Cancer Care Payment Model To Focus On Best Treatment Practices And Better Health Outcomes. October, 2010. http://www.unitedhealthgroup.com/newsroom/news.aspx?id=efeefe23-c20a-47b1-ad72-73bba875d46c

Specialty Pharmacy News. May 2012. Health Plan Explores Change in Physician Reimbursement to Improve Cancer Care53 Humana. FL Physicians Group Bundle Radiation Services.

HealthLeaders Media August 15, 2012. http://www.healthleadersmedia.com/page-1/FIN-283436/Humana-FL-Physicians-Group-Bundle-Radiation-Services##54 Agency for Healthcare Quality and Research. “Bundled Payment: Effects on Healthcare Spending and Quality.” Closing the Quality Gap: Revisiting the State of the Science. August 2012. http://effectivehealthcare.ahrq.gov/ehc/products/324/1235/EvidenceReport208_CQGBundledPayment_FinalReport_20120823.pdf 55 National Commission on Physician Payment Reform. Report of the National Commission on Physician Payment Reform. March 2013. http://physicianpaymentcommission.org/wp-content/uploads/2013/03/physician_payment_report.pdf 56 Reynolds MR, Magnuson EA, Wang K, et al. Cost Effectiveness of Transcatheter Aortic Valve Replacement Compared with Standard Care Among Inoperable Patients with Severe Aortic Stenosis: Results from The PARTNER Trial (Cohort B). Circulation. Feb 3 2012. 57 AdvaMed. “Supporting Medical Progress in the Pioneer ACOs and Bundled Payments Pilot Program.” December 2012. http://advamed.org/res.download/4158 AdvaMed. “Supporting Medical Progress in the Pioneer ACOs and Bundled Payments Pilot Program.” December 2012. http://advamed.org/res.download/4159 Phillips, Steve. Johnson & Johnson. In-person Interview with Avalere Health. Washington, DC. 3 April 2013.60 Physician Payment Commission. “Report on the National Commission of Physician Payment Reform.” March 2013. http://physicianpaymentcommission.org/wp-content/uploads/2013/03/physician_payment_report.pdf61 Berenson, Robert A et al. Urban. May 2013. 62 Avalere Health. “ACOs Threaten Pioneer Program Departure if CMMI Does Not Delay Pay-for-Performance.” EBM Insights. 11 March 201363 Berenson, Robert A et al. Urban. May 2013.64 Berenson, Robert A et al. “Seven Policy Recommendations to Improve Quality Improvement.” Health Affairs Blog. 22 May 2013. http://healthaffairs.org/blog/2013/05/22/seven-policy-recommendations-to-improve-quality-measurement/65 Levine, Susan. Hayes Inc. Telephonic Interview with Avalere Health. 12 March 201366 Burkholder, Randy. Pharmaceutical Research and Manufacturers of America. Telephonic Interview with Avalere Health. 7 March 201367 Avalere Health. “New NCQA Tool Assesses Cardiovascular Risk and Effective Prevention.” EBM Insights. 29 April 201368 Todd, Laurel. Biotechnology Industry Organization. Telephonic Interview with Avalere Health. 8 March 2013.69 Ibid.70 INAHTA (International Network of Agencies for Health Technology Assessment) HTA Resources. 2009. Available at http://www.inahta.org/HTA/ (accessed November 25, 2009).71 IOM (Institute of Medicine) Initial National Priorities for Comparative Effectiveness Research. Washington, DC: National Academies Press; 2009. Available at http://www.iom.edu/Reports/2009/ComparativeEffectivenessResearchPriorities.aspx (accessed November 25, 2009).72 Luce, Bryan et al. “EBM, HTA, and CER: Clearing the Confusion.” Milbank Q. 2010 June; 88(2): 256–276. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2980346/#b16 73 Luce, Bryan et al. “EBM, HTA, and CER: Clearing the Confusion.”

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Milbank Q. 2010 June; 88(2): 256–276. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2980346/#b16 74 Luce, Bryan et al. “EBM, HTA, and CER: Clearing the Confusion.” Milbank Q. 2010 June; 88(2): 256–276. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2980346/#b16 75 “Study of Evidence-Based Treatment for Lung Cancer Patients Shows Enhanced Value: Equivalent Outcomes and a 35 Percent Cost Savings.” Aetna News Hub. 12 January 2010. http://newshub.aetna.com/press-release/corporate-and-financial/study-evidence-based-treatment-lung-cancer-patients-shows-enha 76 Nash, Colin et al. “Emerging Development and Use of Clinical Pathways to Improve Quality and Standardize Care in Oncology.” J Clin Oncol 30, 2012 (suppl 34; abstr 139)77 The Cochrane Collaboration. “Clinical pathways: effects on professional practice, patient outcomes, length of stay and hospital costs (Review)”. 2010. http://www2.cochrane.org/reviews/en/ab006632.html78 Gesme, Dean H. “Strategic Use of Clinical Pathways.” Journal of Oncology Practice. vol. 7, no. 1 54-56. January 201179 Health Industries Research Companies. “Trends and Utilization Management in Oncology.” 2012. http://www.hirc.com/files/public/MOS_UtilizationMgt_2012_Updated.pdf 80 “Strategies in oncology: Spotlight on clinical Pathways.” Oncology Knowledge Bulletin. McKinsey & Company. January 2012. 81 “CareFirst BlueCross BlueShield, Cardinal Health Specialty Solutions Launch First Clinical Pathways Program for Rheumatoid Arthritis.” Cardinal Health Press Release. 1 November 2011. http://ir.cardinalhealth.com/releasedetail.cfm?ReleaseID=628837

82 The National Comprehensive Cancer Network (NCCN), the US Oncology Network, and McKesson recently partnered to develop Value PathwaysTM, which provides treatment support and clinical guideline information at the point of care. Blue Cross Blue Shield of Louisiana and Cardinal Health PathWareTM Decision Transaction Solutions clinical informatics software will provide automated therapeutic algorithms and prior authorization management tools to support easy access to established pathways and increase adherence to them. Finally, Aetna, P4 Pathways, and Cardinal Health have teamed up to create pathways regionally, and US Oncology and Aetna have explored the use of pathways in non-small cell lung cancer patients.

Sources: Avalere Health. “NCCN, US Oncology, and McKesson Create Evidence-Based Value Pathways.” EBM Insights. 10 December 2012; Avalere Health. “BCBSL and Cardinal Health Partner to Develop and Implement Clinical Pathways.” EBM Insights. 10 December 2012; “Aetna, P4 Healthcare Join Forces To Help Make Cancer Care More Effective And More Affordable.” Aetna News Hub. 22 February 2011. http://newshub.aetna.com/press-release/health-care-professionals-and-networks/aetna-p4-healthcare-join-forces-help-make-cancer-car; “Study of Evidence-Based Treatment for Lung Cancer Patients Shows Enhanced Value: Equivalent Outcomes and a 35 Percent Cost Savings.” Aetna News Hub. 12 January 2010. http://newshub.aetna.com/press-release/corporate-and-financial/study-evidence-based-treatment-lung-cancer-patients-shows-enha83 P4 Pathways Website. Compliance. https://www.p4pathways.com/go/p4pathways/program/compliance.htm 84 Nash, Colin et al. “Emerging Development and Use of Clinical Pathways to Improve Quality and Standardize Care in Oncology.” 85 Neubauer, Marcus. McKesson Specialty Health. Telephonic Interview with Avalere Health. 19 March 2013.86 Ibid.

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