This report describes research related to the simulation of the possible effects of a payment model for specialty oncology services. That payment model is being developed for possible testing by the Center for Medicare and Medicaid Innovation at the Centers for Medicare & Medicaid Services (CMS). This report builds on the methods and findings in a previous report on the design of an oncology payment model by The MITRE Corporation (MITRE) and RAND (Huckfeldt et al., 2014; referred to hereafter as the “Model Design Report”) that examined the design features of the oncology payment model.

As described in the Model...

As the basis for the simulation modeling, we created an episode-level dataset based on all episodes of chemotherapy initiation for Medicare beneficiaries in 2010 for the eight targeted types of cancer, as described in the Model Design Report (Huckfeldt et al., 2014). We used the first chemotherapy drug claim in 2010 (with no prior claims within six months) as the marker of the initiation of an episode of care. For the simulation, episodes terminated six months after initiation or earlier if the beneficiary died. That episode length was chosen in consultation with CMS, taking into account RAND’s analysis of the...

For each episode, we simulate a spending amount in 2016, the formula for which is shown in the appendix. The first step in the simulation is to assign a per-episode spending benchmark to each practice. The next step is simulating whether each practice participates in the model. That participation decision reflects the practice’s volume of oncology episodes. In a sensitivity test, the probability of participation is modeled as an increasing function of the generosity of the per-episode spending benchmark; this sensitivity test reflects a situation in which practices know, or can anticipate, that their benchmarks are overstated. Once the participation...

There are four lines of research findings that can help inform our expectations regarding the possible impacts of participation in the payment model on total spending (Table 4.1):

1. patient-centered medical homes (PCMHs);

2. oncology treatment guidelines or “clinical pathways” for treatment of specific types of cancer;

3. episode-based payments for oncology; and

4. shared savings models and accountable care organizations.

The proposed payment model for oncology combines some of the elements of a PCMH and a shared savings model. Although the payment model does not incorporate a requirement that participating practices adhere to clinical pathways, experience with those programs...

In Figure 5.1, we present the simulated total Medicare spending on episodes of chemotherapy provided by participating practices. Three scenarios are reported: “no behavior” (i.e., oncology practices do not change the quantity or intensity of services provided in response to participating in the model), “5-percent reduction” (i.e., oncology practices reduce the quantity and/or intensity of services in a way that results in 5-percent lower Medicare FFS spending for the episode), and “10-percent reduction.” Under the no-behavior scenario, we estimate that total spending is increased by 4 percent, which reflects the fact that all participating oncology practices are receiving care management...

To explore the implications of alternative model designs, we ran the simulation model using four alternative designs:

1. a minimum practice volume of 100 episodes (rather than the assumed effective minimum of 50 episodes);

2. a performance-based payment share of 50 percent (rather than 100 percent);

3. a 10-percent ceiling on the performance-based payment (rather than 20 percent); and

4. a monthly care management payment of $80 (rather than $160).

Increasing the minimum practice volume reduces the potential for payment of “noise bonuses,” while the second and third alternatives would reduce both “noise bonuses” and earned performance payments (meaning payments...

The simulation described in this report offers several insights into the proposed payment model for oncology.

1. The proposed care management payments are large relative to oncology practices’ FFS revenues. The proposed care management payments will equal $960 in 2016 for a full six-month episode, compared to average estimated physician practice revenues per episode in that year of around $2,000 and total spending per episode of around $27,000. By themselves, therefore, the care management payments would increase physician practices’ Medicare revenues by roughly 50 percent on average and would increase total Medicare spending by 4 percent.

2. The use of...