While clinical outcomes are a cornerstone of quality, the definition of quality in healthcare encompasses far more about the structures, processes, and experience of care beyond clinical outcomes alone. The Centers for Medicare and Medicaid Services (CMS) Innovation Center defines quality of care as “The degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge,” adding that “high quality care means that providers follow current best medical evidence and prioritize decisions that are consistent with peoples’ values, needs, and preferences.”

This has been codified through the Agency for Healthcare Research & Quality’s use of the Institute of Medicine quality domains of safety, timeliness, equity, efficiency, effectiveness, and patient-centeredness. More recently the Institute for Healthcare Improvement has expanded its triple aim for improvement to a quintuple aim: the goal of elevating the importance of reducing clinician burnout and advancing health equity has been added to the original aims of improved health of populations, improved care experience, and reduced cost of care.

This broader definition of quality takes center stage in the shift from fee-for-service to value-based payment, reshaping how providers are paid, performance is measured, and innovation is rewarded. Quality, and particularly the measurement of quality, is central to this transition, ensuring that there is a dual, equal focus on both cost reduction and improvement in care quality in the definition and payment for “value.”

Quality measures are tools that quantify quality: how often are evidence-based structures and processes adhered to in the care delivery process?  What are the rates of desired outcomes? Are there disparities in outcomes among different sociodemographic groups? Measures are defined in great detail to ensure that the concept being measured and the measure results can be used consistently and across populations to understand the quality concept of interest, identify gaps in performance, the causes of those gaps, and improvement strategies that can lead to better measure performance.

Quality measure performance results incentivize improvement by tying payment or recognition to high-value care delivery. Both public and private payers use quality benchmarks across programs like the Hospital Value-based Purchasing Program, Medicare Advantage Star Ratings, and commercial accountable care models to influence provider and health system behavior in ways that improve measure performance. For example, results from the hospital quality programs are published on the CMS Care Compare website for the public and other payers to see, informing patients’ hospital choice or payers’ choice of which hospitals to include in network.

Inclusion of measures in high-impact programs like Medicare Advantage Star Ratings, which can offer millions of dollars in quality performance bonus payments, increases visibility and accountability at all levels of care delivery. This creates a compelling reason for providers, facilities, and payers to align expectations and implement evidence-based improvement strategies.

The influence of quality measures and their use in value-based care programs strongly impacts both clinical behavior and system-level decisions in all aspects of care, driving which aspects of quality are prioritized for improvement and the level of effort allocated to improvement strategies. This could manifest as how providers and health systems evaluate care pathways, build standard order sets, and select which drugs, devices, and diagnostics they prescribe. Accounting for quality measures may also impact a range of tactics implemented, like alerts in electronic health record systems reminding providers to order recommended preventive screenings, implementing shared decision-making models at the point of care, or weighing a drug or diagnostic’s impact on quality when making system-level formulary and purchasing decisions.

Why Quality Matters for Manufacturers

For life sciences manufacturers, this environment creates exposure to both risk and opportunity. The inclusion— or absence— of specific quality measures can significantly affect uptake, access, and preferred formulary placement. In some cases, measures become de facto coverage criteria.  For example, the inclusion of statin use in persons with diabetes as a quality measure in Star Ratings has driven broad adoption of statins in this population, which in turn impacts prescribing behavior, plan performance strategies, and formulary design to ensure access to guideline-directed therapy. Moreover, manufacturers are increasingly expected to support quality improvement initiatives or generate evidence aligned with high-profile measures to demonstrate value beyond clinical trial data.

Understanding and aligning with quality priorities also enables manufacturers to map their product’s value proposition to the needs of their target clinicians, health systems, and payers.  This is critical even in the absence of measures that are directly relevant to the product of interest. Knowing that a health system is engaged in an accountable care model, for example,  should prompt evidence generation and value messaging for how the product can support goals of reducing hospital readmission rates or total cost of care.

Developing a quality strategy can help assess how well a product aligns with prioritized domains such as cardiometabolic health, patient-centered outcomes, or equity. Therapeutics that align with existing quality programs and measures or that fill clear gaps are more likely to be adopted and rewarded in VBC arrangements. Conversely, products that fail to map to prioritized quality domains (e.g., prevention of complications, patient-reported outcomes, patient-centered care) risk marginalization even with strong clinical data. Building a quality strategy is essential for understanding customers and the broader environment in which innovative treatments, diagnostics, and technology are introduced. Linking existing and pipeline offerings to key quality priorities underscores the potential and realized benefits for patients, payers, and the healthcare ecosystem writ large.

Entities like CMS, the National Committee for Quality Assurance (NCQA), and Partnership for Quality Measurement are actively shaping the next generation of quality programs and measures, including condition-specific outcomes, digital measures, and patient-centered stratifications. Manufacturers who engage early by supporting measure development, piloting value-based contracting, or partnering on care transformation initiatives can help ensure their innovations are positioned for future success.

Recent Developments

Recent CMS efforts to refine the Medicare Quality Payment Program and Medicare Advantage Star Ratings, as well as Food and Drug Administration-CMS collaborations on real-world evidence and outcomes-based contracting, have highlighted the growing convergence of regulatory, clinical, and quality policy domains. CMS and particularly the CMS Innovation Center are actively updating their quality strategies to reflect the agency’s current priorities. Additionally, organizations like NCQA and the Core Quality Measures Collaborative are inviting public comment on new measures relevant to therapeutics in areas like oncology, obesity, and chronic disease prevention with a greater emphasis on patient-reported outcome measures.

Next Steps
Avalere Health brings deep expertise across evidence generation, quality strategy, and market access to help manufacturers navigate this complex terrain. We support clients in identifying developing pre- and post-launch quality strategies, supporting measure development, and aligning product strategy with payer and provider incentives. Whether informing pipeline decisions or shaping policy conversations, Avalere Health is uniquely positioned to help manufacturers succeed in a value-based care world. To learn more, connect with us.

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Background

Over the last several decades, the United States healthcare landscape has seen a significant shift of formerly independent physician practices joining health systems, as well as mergers and acquisitions between health systems. While similar healthcare consolidation trends have been present in Chicago, Illinois, a unique confluence of regional factors, including the presence of several large health systems and a dominant commercial payer, has disproportionately impacted the Chicago market. These factors, as demonstrated in this paper, have resulted in high healthcare costs for the region’s employers and beneficiaries and underutilization of community-based physicians, who represent more cost-effective and accessible care. At the same time, physician reimbursements from Medicare have declined 33% from 2001 to 2025 after adjusting for inflation in practice costs—further exacerbating the challenges physicians face to remain independent.

This analysis uses multiple sources of claims data to derive market-level learnings—including analyses of (1) total Medicare fee-for-service (FFS) expenditures and quality metrics by specialty, as well as (2) site-of-care differentials for the most common and expensive services in the commercial market—to detail the impact of health system consolidation in the Chicago healthcare market on employers and its implications for provider contracting and benefit design.

Key findings

Chicago market

• The significant number of large health systems in the Chicago metropolitan area has contributed to a higher proportion of specialty physicians affiliated with hospital systems than nationally (58% in Chicago versus 45% nationally, across five specialties analyzed). The greatest difference is in gastroenterology (GI): 65% of specialists in Chicago are affiliated with hospitals, compared to 32% of specialists nationwide.
• On the payer side, the confluence of Health Care Service Corporation (HCSC)’s market dominance – controlling nearly 75% of Illinois’ individual market and 80% of the group market – and the predominance of large, self-insured employers likely shape market dynamics in Chicago. However, the impact of these dynamics warrants further study, as this analysis focuses on providers.

Medicare results

• The 2023 single-specialty analysis shows that Duly beneficiaries had lower total risk-adjusted annual Medicare expenditures by an average of $7,777 (24.8%) across specialties compared to beneficiaries of hospital-affiliated physicians. The difference ranged from 17.1% ($6,190) lower in gastroenterology to 32.1% ($19,510) lower in oncology.
• Beneficiaries attributed to Duly physicians had 14.8% fewer inpatient (IP) days, 12.3% fewer emergency department (ED) visits, and a 4.5% reduction in all-cause readmissions than beneficiaries attributed to hospital-affiliated physicians. They also had 5.1% more follow-up visits within 14 days of discharge. All results are risk-adjusted.
• Beneficiaries who received coordinated (Duly primary and specialty) care saw further reductions in risk-adjusted total Medicare expenditures. For example, in addition to the 17.1% difference between hospital and Duly GI cohorts, patients of Duly PCP and GI physicians saw an additional 36.1% savings (a total of $17,021) compared to hospital-affiliated GI patients. Across specialties, they also had fewer IP days, ED visits, and a lower rate of all-cause readmissions, as well as more follow-up visits within 14 days of a discharge.

Commercial results

• In 2024, utilization of hospital settings for core services such as screenings, joint replacements, and imaging was consistently higher in Chicago than nationally, inflating employer costs in already-expensive areas such as GI and musculoskeletal (MSK) care.
• For example, colonoscopies were about 20% more likely to be performed in a hospital setting compared to the national average. In 2024, a hospital outpatient department (HOPD) visit for a diagnostic colonoscopy cost, on average, two to three times more than a visit to an office ($2,159 vs. $577, respectively), as shown in Figure 1. A visit to an ambulatory surgical center (ASC) for the same service was $1,345, still only two-thirds of the HOPD procedure.
• Imaging services, which are critical for the health of employed populations and can be performed in low-cost settings, were performed in hospitals more than 70% of the time in Chicago, despite being more expensive compared to the office setting. For example, a bilateral mammogram screening in the HOPD ($343) is 55% more expensive compared to the office ($222). Similar trends occur across other high-volume imaging procedures.

Key takeaways for employers and policymakers

Comparative analyses of Medicare and commercial data highlight that non-hospital, multispecialty groups can offer more cost-effective, coordinated care, reducing overall healthcare expenditures.

Employers, payers, and policymakers can influence how and where care is delivered to curb cost growth in Chicago. While the current system steers patients toward costly hospital settings, evidence indicates that private practices deliver the same or better outcomes at significantly lower costs. Employers and payers may consider developing innovative provider-level partnerships, while policymakers and researchers can continue to study the merits of site-neutral payments and greater price transparency to support lower costs for employers, employees, and taxpayers.

Read the full white paper.

Funding for this research was provided by Duly Health and Care. Avalere Health retained full editorial control.

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Established under the Affordable Care Act, the Center for Medicare and Medicaid Innovation (CMMI) has continually evolved its approach to developing and testing innovations in healthcare payment and service delivery. Across multiple administrations, CMMI has worked to advance its three-pronged mission to lower costs, improve patient care, and align payment to promote patient centered practices.
Given ongoing stakeholder scrutiny as well as the Congressional Budget Office’s (CBO’s) 2023 fiscal assessment of CMMI’s impact and effectiveness, the Healthcare Leadership Council (HLC) commissioned Avalere Health to conduct a broader analysis of CMMI reflective of its expansive mission statement. To conduct this more complete assessment, Avalere Health evaluated 18 CMMI models by examining three components:

1. Impacts on federal expenditures
2. Effects on quality of care, and
3. Level of transparency available during model design and implementation.

In comparison to previous analyses, Avalere Health considered newer quality metrics for outcomes based on patient demographics (included since the agency’s 2021 Strategic Refresh), along with an assessment of transparency and opportunities for feedback.
In analyzing 18 CMMI models across these three categories, Avalere Health found the following:

• Net costs, which include the costs to implement and evaluate each model, aligned with the CBO’s findings: CMMI models, in aggregate, are not generating direct savings to Medicare. However, select models were effective at reducing net costs and offer specific positive indications for CMMI’s ability to generate savings in future models. Of the 18 models analyzed:
  • One-third of the models yielded substantial net savings for the federal government
  • One-third of the models generated substantial net losses
  • One-third of the models had nominal financial impacts as of their latest evaluation report
• There were measurable improvements in quality measures across several CMMI models, although there was little-to-no impact reflected in patient experience surveys and, where available, there were mixed results in outcomes across patient demographics. Of the 18 models analyzed:
  • Four showed quality performance improvement
  • Three showed nominal quality performance improvement
  • Four had no statistically significant impact on quality performance
  • Seven showed mixed results on quality performance
• There were limited opportunities for public input during the design stage of these models. There were also mixed results in the extent of publicly available financial and quality data during a model’s performance period. Of the 18 models analyzed:
  • Nine solicited comments on model development or refinement via rulemaking or Requests for Information
  • No models in the analysis were endorsed by the Physician-Focused Payment Model Technical Advisory Committee

Read the full whitepaper here. 

Funding for this research was provided by the Healthcare Leadership Council. Avalere Health retained full editorial control. 

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The Medicare Shared Savings Program (MSSP) is a permanent accountable care organization (ACO) program run through the Centers for Medicare and Medicaid Services (CMS). It was created in 2012 through the Affordable Care Act. The program allows groups of providers to form accountable care entities that are responsible for delivering coordinated, high-quality care while collectively reducing overall costs for Medicare beneficiaries across the full range of patient acuity.

In parallel, the Centers for Medicare and Medicaid Innovation (CMMI) has developed and tested concurrent ACO model demonstrations to encourage provider participation and maximize savings while testing various payment and care delivery modalities that operate outside the bounds of the traditional Medicare program. The ACO Realizing Equity, Access, and Community Health (REACH) model is the most recent iteration of an advanced ACO model, which was launched by the Biden administration in 2023 as a re-imagined version of the Trump administration’s Direct Contracting Model. The model is scheduled to run through 2026 and offers three types of participation: Standard (entities with fee-for-service [FFS] Medicare experience), New Entrant (entities with no FFS Medicare experience), and High Needs (entities focused on complex patient populations). Unlike MSSP, which offers a maximum 75% risk sharing arrangement, the ACO REACH model is the first to offer a global-risk track (100%) to its participants and provides waiver flexibilities such as those related to skilled nursing facility admissions, home visits, and telehealth that are not available in MSSP.

Novel Focus on High Needs

The Direct Contracting (now ACO REACH) model was the first CMMI model to include a track dedicated to high-needs Medicare beneficiaries, garnering significant interest from provider participants, investors, and policymakers. Eligibility for a High Needs ACO (HNACO) is based on beneficiaries having complex needs (e.g., one or more chronic conditions that impact mobility), reflected by a high-risk score, unplanned hospital admissions, signs of frailty, or at least 90 Medicare days of home health or 45 days in a skilled nursing facility.

The HNACO track has several distinct and novel features related to size, risk model, benchmarking, and waivers. HNACOs are only required to have a minimum of 1,200 attributed beneficiaries, whereas Standard and New Entrant–as well as MSSP–ACOs have a 5,000-benficiary minimum in 2025. ACO REACH also offers differential benchmark methodologies to HNACOs that consider the increased costs of high-needs patients, such as a concurrent risk model to capture abrupt declines in health and unique quality metrics more aligned to their patient population. In the most recent data from performance year 2023, HNACOs were the top performers, consistently achieving better savings rates and savings per beneficiary than Standard and New-Entrant REACH ACOs (Figure 1). On average, the top five performers in ACO REACH by earned savings–all HNACOs–earned over nine times the average program savings per beneficiary with 90% fewer assigned beneficiaries.

Figure 1: REACH ACOs with Largest Savings per Beneficiary and their Size vs. Program Average, 2023

ACO REACH is set to end in 2026, and an extension or successor model has not been announced. In the absence of a new model or dedicated high-needs track in other models (see Appendix), Avalere Health provides an evidence-based perspective on how HNACOs might perform should they be required to transition to the permanent MSSP model at the end of the performance period.

Methods

After observing that HNACOs consistently ranked as top performers in ACO REACH, we hypothesized that ACOs focusing on high-complexity and high-cost patients are likely to perform strongly in MSSP as well. We analyzed the most recent publicly available data from performance year 2023 for ACO REACH and MSSP models, identifying the top five performers for each program by earned net savings per beneficiary (Table 1). The analysis focused on determining whether there were any similar characteristics between the HNACOs in REACH and the highest performing MSSP ACOs, considering factors such as patient demographics, clinical model, historical benchmark, and savings achieved. While there are differences in the models (as noted above) that prevent a direct comparison of savings achieved, there are observed directional trends between them that provide support for positive future performance opportunities.

Table 1: HNACOs and MSSP ACOs with the Highest Earned Savings Per Beneficiary and Their Beneficiary Demographics, 2023

*While the percentage of dual-eligible beneficiaries and beneficiaries who were 85 years and older is not available in the ACO REACH data, the status of the top five performers as HNACOs indicates the complexity and fragility of their patient populations. Dual eligibility and elderly status are used as proxies in the MSSP program to draw parallels to HNACOs in the absence of formal designations.

ESPB: Earned savings per beneficiary; PBPM: Per beneficiary per month

Findings:

Patient Demographics

Avalere Health’s analysis concluded that in 2023, the top five MSSP ACOs, ranked by savings per beneficiary, were similar in several ways to HNACOs in the ACO REACH program. The top MSSP performers had a higher-than-average number of complex beneficiaries, including those dually eligible for Medicare and Medicaid (five times higher) and elderly beneficiaries aged 85+ (three times higher) (Figure 2).

Figure 2: Top MSSP Performers vs. Program Average Share of Beneficiaries Who Were Dual Eligibles or Aged 85+, 2023

Care Model

Primary care is associated with improved health outcomes and reduced overall healthcare costs; unsurprisingly, the top-performing MSSP ACOs had greater primary care physician (PCP) service utilization among their beneficiaries compared to the MSSP average (2.5 times higher) (Figure 3).

Figure 3: Top MSSP Performers vs. Program Average Use of Primary Care Services, 2023

By contrast, post-acute care (PAC) use–particularly in the skilled nursing facility (SNF) setting–has historically been considered a high-cost, low-value target for generating savings in MSSP and other VBC programs. However, a growing body of research is recognizing the vital role of post-acute care, particularly for frail, elderly adults. This recognition that post-acute care can drive quality improvement and savings (especially for higher-acuity patients) is validated in recent performance data: top-performing ACOs had three times greater proportion of PAC use–which includes hospice, home health, and SNF–compared to the MSSP average (Figure 4).

Figure 4: Top MSSP Performers vs. Program Average, Proportion of Total Spending in PAC Settings, 2023

“Total hospital” includes inpatient and outpatient hospital settings; total PAC includes home health, hospice, and SNF

Benchmark

The combination of these factors–beneficiaries with complex needs and an ACO’s high-touch clinical model to address those needs—contributes to a higher-than-average historical benchmark per capita for the top performing MSSP ACOs (three times higher than the program average). When an ACO’s benchmark for the total cost of care is higher, there are more opportunities to identify efficiencies, reduce costs, and ultimately improve financial performance through shared savings.

Discussion and Considerations

Based on the assessment of publicly available performance and utilization data from MSSP for 2023, HNACOs are well-positioned to succeed in MSSP should a transition to the program be necessary. They have similar high-needs patient populations and high-touch clinical models, which both contribute to an elevated historical benchmark with significant opportunity for cost savings.

A qualitative review further confirms that HNACOs and high-performing MSSP ACOs share a common mission and focus on patient-centered care and quality of life, which may not be reflected in publicly available performance data. This includes initiatives such as home-based primary care and end of life care, offered by Bloom Health Network and Nevada Care Connect in ACO REACH and Bluestone ACO and USMM Accountable Care Partners in MSSP.

While HNACOs have the potential to succeed in MSSP, participants should carefully consider key differences in the programs (outlined above). The prospective risk adjustment model in MSSP compared to the concurrent risk model in HNACO REACH may be less responsive to increasing patient acuity, and the 75% financial risk sharing arrangement ceiling could limit upside potential for more advanced ACOs used to taking 100% risk. At the same time, it could also reduce the downside risk in the event of losses and offer more predictable revenue. Additionally, with the higher beneficiary minimum, ensuring consistent and effective care management will be essential to maintain positive health outcomes for high-needs patients and generate savings for the ACO.

As policymakers consider which models should continue under the new administration, models that generate significant savings to Medicare while improving the quality of care for vulnerable patients – like the HNACO track in ACO REACH – are strong candidates for national expansion or incorporation into MSSP. In fact, in the 2025 Medicare Physician Fee Schedule final rule, CMS sought feedback on incorporating a 100% risk track into MSSP after it is tested in CMMI. Providers, investors, and other VBC stakeholders should continue to monitor the environment to identify emerging opportunities for businesses operating in the high-needs segment of the market.

Appendix: Timeline of Possible Outcomes When ACO REACH Ends

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To this end, allied health domains, such as orthotics and prosthetics (O&P), may advance the goals of better care at lower costs. In this paper, Avalere establishes a framework of necessary but not sufficient conditions of successful VBC payment models and uses O&P services as an example to illustrate how VBC payment models can benefit from incorporating care that focuses on patients’ functional needs. The paper additionally provides an overview of different aspects of VBC, the role O&P professionals can play in VBC payment model implementation, and recommended actions researchers and stakeholders can take in preparation for VBC payment model adoption.

The expected growth in both O&P care and the implementation of VBC payment models, driven by the increasing number of individuals aging into Medicare, will likely drive policymakers and researchers to evaluate new applications of VBC payment models. The Centers for Medicare and Medicaid Services aim to have 100% of traditional Medicare beneficiaries in a value-based program by 2030. Similarly, a recent report demonstrated that more than 5.7 million Americans are living with limb loss or limb difference, a number expected to double by 2050.  As the population ages and the burden of chronic disease rises, demand for orthoses will continue to grow, with orthopedic devices projected to an expected compound annual growth rate of 3.36% over the next 4 years. Given the O&P profession’s focus on managing chronic conditions, preventing complications, and delivering personalized care, it is reasonably positioned to adapt to value-based payment models.

Download the full white paper.

Funding for this white paper was provided by the American Orthotic and Prosthetic Association. Avalere retained full editorial control.

[1] Leao, D. L., Cremers, H. P., van Veghel, D., Pavlova, M., & Groot, W. (2023). The impact of value-based payment models for networks of care and transmural care: a systematic literature review. Applied Health Economics and Health Policy, 21(3), 441-466.

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“Emily’s extensive background in state policy and prescription drug benefits will prove invaluable as companies turn to us for support on issues related to commercial market health insurance, Medicaid, 340B, and state policies like prescription drug review boards,” says Miryam Frieder, practice director.   

Before joining our firm, Emily served as director of US Policy at AbbVie, where she developed policies and strategies to help the company navigate the private health insurance and Medicaid markets, the 340B program, and the state health policy landscape. Previously, she served as deputy vice president for Policy and Research at the Pharmaceutical Research and Manufacturers of America (PhRMA), where she led the commercial market and state issues portfolios. She has also served as director of state policy at the Blue Cross Blue Shield Association and policy counsel for BlueCross BlueShield of South Carolina. Emily also served as staff counsel for the South Carolina Senate after receiving her juris doctorate from the University of South Carolina. 

“Avalere has built an unparalleled reputation for delivering insights,” adds Emily. “As more companies in the industry struggle to steer their business through the paradigm of changes, I’m looking forward to working with clients on cost, coverage, and affordability issues. Whether we’re looking at changes to the private insurance landscape or the sudden intersection of various state and federal policy issues like healthcare pricing and 340B, I can’t imagine a more exciting time to join this talented team.” 

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Background

National trends in physician practice affiliation over the last decade show movement away from unaffiliated private practice toward models in which physicians align with a larger entity that can offer administrative and financial support. In addition to health system or corporate models, physicians may choose to align with an administrative organization, often referred to as a management services organization (MSO). MSOs vary considerably in the services they offer and often have financial capitalization, either from large groups of physicians, insurers, private equity (PE) sponsors, or other entities, such as retailers and distributors. Stakeholders demonstrate a high level of interest in the impact that the continued shift away from unaffiliated private practice has on the healthcare system—particularly the cost, utilization, and quality of healthcare services associated with these trends.

This study provides a more detailed understanding of the relationship between physician affiliation models and healthcare utilization and expenditures by looking at more specific definitions of four physician practice affiliation models: unaffiliated private practice (UPP), private equity-affiliated private practice (PEAPP), corporate, and hospital (Table 1). The analysis presented in this work focuses on five specialties: cardiology, gastroenterology, medical oncology, orthopedics, and urology. The specialties were chosen based on several criteria, including Medicare volume and utilization and current or expected PE investment.

These analyses are an important contribution to research on physician practice model affiliation as they consider all four physician practice models in a single study and focus on beneficiary-level measures of healthcare expenditures (total cost of care) and utilization (inpatient (IP) days and emergency department (ED) visits). They also consider differences in these measures (a) across physician affiliation models in a single year and (b) when physicians transition from UPP to an affiliated model. Together, these analyses provide a valuable perspective on the role of practice affiliation and inform an understanding of the evolving physician practice model landscape.

Study Research Questions

This study focuses on the following three research questions:

• What are the trends in physician practice affiliation from 2019 through 2022?
• Are there differences in Medicare utilization and expenditures for beneficiaries treated by physicians practicing under different affiliation models?
• What is the impact of a shift from unaffiliated private practice (UPP) to an affiliated model (PEAPP, corporate, or hospital) on beneficiary utilization and expenditures?

* Examples of corporate entities include Optum, Fresenius, Evolent, Permanente Medical Group Inc., etc.
Note: The definitions of UPP, corporate, and hospital correspond to categories of the owner type variable in the IQVIA OneKey data set: UPP corresponds to independent, corporate corresponds to corporate-owned practice, and hospital corresponds to integrated health system-owned practice. Because that data set does not distinguish PEAPP from corporate, Avalere performed additional segmentation of PEAPP (see below) in accordance with the definition of PEAPP above.

Analysis

Avalere leveraged several data sources to support the assignment of physicians to the four practice affiliation models. The starting point for this assignment was the IQVIA OneKey data set, which was used to identify UPP, corporate affiliation, and hospital affiliation. As IQVIA and other existing data sources generally recognize PE-backed MSOs as corporate, Avalere conducted a robust review of available financial transaction data from PitchBook (a data source that includes information on financial transactions), as well as press releases, investor websites, and publicly available lists of PE portfolio companies, to identify physician practices affiliated with PE-backed MSOs (PEAPP).

Following physician assignment to practice affiliation models, Medicare beneficiaries were assigned to a practice affiliation model based on analysis of physician claims in the 100% Medicare fee-for-service (FFS) data. Avalere conducted two primary analyses, both risk-adjusted to control for beneficiary and market-level characteristics. The first is a cross-sectional analysis that examines total healthcare expenditures, inpatient days, and emergency department visits for beneficiaries attributed to physicians practicing under the four practice affiliation models in 2022. The second is a pre-post analysis that examines total healthcare expenditures, inpatient days, and emergency department visits for beneficiaries attributed to physicians transitioning from UPP to one of the other three practice affiliation models: PEAPP, corporate, or hospital.

Key Findings

Trends in Physician Practice Model Affiliation

The proportion of Medicare-billing physicians in UPP decreased considerably from 2019 through 2022, representing only 12% of physicians in aggregate across the five specialties studied in 2022.

The share of physicians in UPP across the five specialties ranged from 5% in medical oncology to 16% in urology. In 2022, 6% of physicians across the five specialties were affiliated with the PEAPP model, 37% were affiliated with corporate entities, and 45% were affiliated with hospitals.

From 2019 through 2022, physicians shifted from UPP into the three other practice affiliation models. Generally, there was an increase in both corporate and hospital affiliation across the five specialties analyzed, except for a slight decrease in corporate affiliation among medical oncologists from 2019 through 2022. The number of physicians affiliated with the PEAPP model remains the lowest among the three types of affiliation in each specialty.

Comparison of Medicare Expenditures Across Affiliation Models

Beneficiaries attributed to physicians in the hospital affiliation model were generally associated with the highest Medicare expenditures, followed by beneficiaries attributed to corporate physicians, then PEAPP physicians, and finally UPP physicians.

Medicare expenditures for beneficiaries attributed to hospital-affiliated physicians had the highest percentage of expenditures in the facility setting (64% to 69%, with a weighted average of 67% across the five specialties) compared to other practice affiliation models.

Beneficiaries attributed to hospital-affiliated physicians had the highest number of IP days and ED visits.

Change in Expenditures Post Transition from UPP to an Affiliated Model

Compared to beneficiaries attributed to physicians who remained in UPP, total post-transition Medicare expenditures were lower for beneficiaries attributed to physicians who moved from UPP to PEAPP. The reduction in expenditures ranged from $231 to $1,423 across the five specialties assessed (weighted average reduction across the five specialties was $963).

For beneficiaries attributed to physicians who moved from UPP to corporate or hospital affiliation, the weighted average 12-month expenditures across the five specialties in the post period were $1,140 and $1,327 higher after the transition, respectively.

In the post period, beneficiaries attributed to physicians who transitioned from UPP to PEAPP utilized fewer IP days compared to the pre period. ED visits varied minimally in the post period across all models.

Discussion

The role of PE affiliation with physician practices has been an area of focus in recent studies and in the media. Our findings document that the share of physicians in PE-affiliated private practices is growing but remains a fraction of the share of physicians affiliated with hospitals or other corporate entities. The changing distribution of physician practice affiliation models will be important to monitor as physicians face ongoing challenges with practice operations and as the proportion of physicians in UPP continues to decrease.

While prior studies have focused on comparing PE, corporate, or hospital models to UPP alone, this study is the first to provide an understanding of the relative differences in expenditures and utilization across the full landscape of physician practice affiliation models, including PEAPP. We find that patients attributed to hospital-affiliated physicians are associated with the highest total Medicare expenditure – followed by beneficiaries attributed to corporate-affiliated physicians, then PEAPP physicians, and finally UPP physicians. Importantly, across all five specialties studied, beneficiaries attributed to physicians who transitioned from the UPP model to either corporate or hospital affiliation had higher 12-month Medicare expenditures when compared to the 12-month period prior to such affiliation. Conversely, expenditures for beneficiaries attributed to physicians who transitioned from UPP to PEAPP were lower in the 12-month period after affiliation when compared to the 12-month period prior to affiliation. Taken together, these results are relevant to policymakers and payers looking to understand potential drivers of expenditure in rapidly changing healthcare markets.

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Value-Based Cardiology Has Momentum, But Challenges Remain

Heart disease is the leading cause of death in the United States overall and for individuals aged 65 and older, as well as the second leading cause of death for individuals aged 45 to 64. According to census projections, more than 30 million Medicare enrollees could require cardiovascular care by 2030. In the United States, direct costs of cardiovascular disease are projected to reach nearly $750 billion annually by 2035.

Over the past several years, value-based care (VBC) has become increasingly established in cardiology. Bundled Payment for Care Improvement Advanced (BPCI Advanced) is the only Medicare alternative payment model with specific cardiology episodes, which accounted for 25.3% of all participant episode selections in 2023. Other models, such as the Cardiac Rehabilitation Incentive Payment Model that CMS announced in 2016 but cancelled in 2017, have stalled.

Alongside nascent growth in government-led VBC models in cardiology, commercial payers or plan partners may have their own value-based incentives, such as the cardiology delegated-risk model offered by the specialty care management platform New Century Health (part of Evolent Health). In a 2022 survey designed and administered by Avalere, payers across lines of business ranked cardiology highest with respect to potential for VBC, suggesting both strong interest and an undersaturated baseline. Both clinical need and growing costs indicate a need to improve care, although the factors that shape this dual opportunity and challenge are complex.

Clinical and Market Dynamics Relevant to VBC

1. Most cardiologists are employed by hospitals and health systems, intensifying competition for physician labor and complicating pathways to value.

Cardiologists and other cardiovascular specialists offer important revenue streams for hospitals, and competition for physicians will increase as the country experiences a potential net loss of more than 500 cardiologists annually. In 2021, cardiac electrophysiologists averaged approximately $5.57 million in charges per provider, the second highest of any specialty or subspecialty. In that year, cardiac electrophysiology was the specialty or subspecialty with the lowest number of active physicians (2,632) and the highest number of people in the United States per active physician (124,076).

Figure 1: Cardiology Employment Statistics, 2019 and 2022

A 2022 report by Avalere and the Physicians Advocacy Institute found that the proportion of cardiologists who were employed (as opposed to practicing independently) increased from 73% in January 2019 to 85% in January 2022, the fifth highest rate of any medical specialty (Figure 1). In January 2022, 79% of employed cardiologists were employed by hospitals or health systems, entities whose consolidation of provider labor limits incentives to enter into value-based agreements. Simultaneously, corporate platforms or independent practices with less contracting leverage may be reluctant to transition from fee-for-service (FFS) revenue. For cardiology platforms looking to grow, this fragmentation makes the prospect of add-on acquisitions of physician groups both iterative and expensive, especially when competing against health systems.

2. The transition of key services to lower-acuity settings of care (SOCs) has been sluggish, and while significant white space remains, operational barriers persist.

Historically, the availability of multiple SOCs has been critical to the success of VBC. Given the procedure-intensive nature of much of the most expensive cardiovascular care, the transition to lower-acuity SOCs could reduce the cost of care. However, one source found that, between 2016 and 2022, only 3.6% of interventional cardiology procedures transitioned from hospitals to ASCs.

Device costs may represent a substantial proportion of the total cost of a procedure, potentially contributing to a continued preference for higher-paid sites of care to maximize margin. For example, the 2024 final rule for the Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems lists 501 device-intensive procedures for which the device represents at least 30% of the overall cost. For Level 3 Pacemaker and Similar Procedures, the device may account for 51.3—63.1% of the total cost in the hospital outpatient department (HOPD) but up to 65.9—75.8% of the total ASC facility payment, potentially making it difficult to maintain margin in the ASC.

Outside of FFS Medicare, we observe the potential for high variability in episode cost. One payer found up to 532% variation in the cost of a percutaneous coronary intervention episode within a single market. The variable and unpredictable patterns of expenditure for chronic cardiology patients make value-based arrangements challenging, especially for independent practices with more overhead and less leverage to negotiate device acquisition costs. Lastly, while the transition of cardiology procedures to outpatient settings is a tailwind for VBC, operational constraints – such as the 11 states with certificate of need laws that specifically restrict cardiac catheterization – help explain latency in SOC shifts.

 3. Potential decreases to drug revenue may impact providers’ cost-benefit analysis around the relative attractiveness of FFS compared to VBC.

Many chronic cardiovascular conditions are treated with prescription drugs. In 2020, Medicare spent $7.7 billion on the 50 most utilized generic cardiology drugs. Five of the drugs selected for Medicare drug price negotiation in initial price applicability year 2026 (Eliquis, Jardiance, Xarelto, Farxiga, and Entresto) are cardiology drugs or are often prescribed by cardiologists. Avalere found that these drugs accounted for approximately $35.7 billion in Part D spending between June 2022 and May 2023, or about 30.5% of all Part D spending in fiscal year 2022.

Traditionally, value-based arrangements have focused on services (or Part A and B) spend while carving out drug (or Part D) spend. Thus, while a meaningful reduction in drug spend may not directly impact risk arrangements, it could impact their attractiveness. As the relative balance of traditional versus value-based arrangements evolves, a combination of education and investment will be critical to generating physician interest in VBC. Issues related to margin and profitability are compounded by the expansive scope of high-acuity cardiology services that patients are likely to need.

 4. To date, the limited value-based initiatives in cardiology have not shown compelling clinical outcomes or strong financial returns.

The Center for Medicare and Medicaid Services’ most recent report on BPCI Advanced covers Model Year 3 (2020) and indicates that BPCI Advanced resulted in net losses for Medicare. The program reduced non-standardized episode payments by roughly $514.1 million (about 3.8% of what payments would have been without the program), indicating gross savings. The program also paid $627.8 million in reconciliation payments (what participants earn when episode payments are below the target price), resulting in a net loss of $113.7 million to the Medicare program. Medical episodes represented a net loss of $200.5 million, but surgical episodes represented a net savings of $71.3 million. Together, these results demonstrate the challenges of value-based arrangements for medical cardiology while suggesting greater feasibility of such arrangements for surgical or interventional cardiology. Even if surgical costs are greater than medical costs on a per-episode basis, they may be more predictable.

Evaluation of the individual cohort data exemplifies the challenging nature of designing episodes of care that generate upside for both the participating provider and the payer. Table 1 shows that, across almost all cardiac medical and surgical episodes, both hospital and physician group practices generated savings (reductions in payments). After accounting for the reconciliation payments, however, the model generated net losses to Medicare across all but two hospital-based surgical episodes. Encouragingly, reductions in non-standardized payments suggest that cardiologists are able to generate savings by participating in VBC, but the relative magnitude of reconciliation payments suggests that providers and payers must pursue further alignment with respect to the expectation of savings.

Table 1: Net Medicare Savings, BPCI Advanced, Model Year 3 (January 1, 2020–December 31, 2020)

The evaluation report also shows mixed performance on patient-reported changes in functional status, activities of daily living, care experiences, and satisfaction with care. These results further exemplify the importance of alignment across stakeholders when developing an episode-based payment model, as well as the need to balance high-quality care with metrics that are achievable for participating providers.

Conclusion

As trends in disease burden, provider supply and demand, market fragmentation, site-of-care shifts, and drug and device costs have developed over the past several years, cardiology care has become increasingly expensive. Nonetheless, changing price dynamics and an aging population in need of cardiology services will accelerate the extent to which demand outpaces provider supply, creating compelling arguments for consolidation and value, though the macro environment for physician practice management (PPM) remains challenging.

To explore opportunities in cardiology or PPM, connect with us.

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CKD: Chronic Kidney Disease; ESRD: End-Stage Renal Disease; PPS: Prospective Payment System

ESRD PPS Bundle Changes

Since the implementation of the present system in 2011, the End-Stage Renal Disease Prospective Payment System has not incorporated oral-only products in its bundled payment. However, CMS has planned for oral-only products (i.e., phosphate binders) to be included in the bundle beginning in 2025.  Federal lawmakers with concerns about limited access and rising dialysis treatment costs are seeking to postpone this action until 2033 or until new therapies become available, whichever comes earlier.

Beyond the potential incorporation of these products, stakeholders also continue to navigate complexities surrounding the transitional drug add-on payment adjustment (TDAPA) and newly-finalized post-TDAPA bundle incorporation. The limited duration of these payment adjustments has introduced concerns over reimbursement opportunities and may limit broad utilization of new products that treat patients in the dialysis setting.

Medicare Advantage (MA) Enrollment

Since 2021 amendments to the 21^st Century Cures Act, patients with ESRD have been able to enroll directly in MA. ESRD Over this period, Medicare enrollment has increased dramatically: as of December 2022, the share of ESRD beneficiaries enrolled in MA plans was 47%. This shift in source of coverage has presented some challenges for stakeholders surrounding payment adequacy; we expect continued advocacy for reforms to determine reimbursement for MA payments.

Innovation in Stakeholder Capabilities

Across kidney care settings, payers and providers are increasingly entering into value-based care arrangements with organizations called specialty kidney care companies. These firms comprise a $15 billion dollar market and offer advanced analytic and care management capabilities. In value-based care arrangements, payers can incentivize high-touch care to drive improvements in outcomes and subsequently reduce the total cost to the plan. We expect to see continued partnerships in the coming year that provide a vehicle to drive innovation in kidney care.

Expanded Treatment Indications

While initially approved for treatment of diabetes and heart failure, sodium-glucose cotransporter-2 inhibitors (SGLT2is) have gained attention based on recently expanded labels to slow the advancements of CKD. This class of drugs is one of many that are increasingly being leveraged to treat patients before CKD progresses to later stages where dialysis may be required.

As is the case across several therapeutic areas, stakeholders are also closely monitoring the potential impacts from glucose-like peptide-1s (GLP-1s) being tested to treat patients with CKD. There is currently speculation about the impact these medications may have on the dialysis market overall, as obesity and diabetes are common drivers of kidney failure and increase patient risk of requiring dialysis treatment.

Transplant System Reforms

Although evidence exists for the clinical and economic benefits of kidney transplantation compared to dialysis as long-term management, longstanding barriers limit improvements in transplantation rates. In 2019, the federal government launched the Advancing American Kidney Health initiative, a top priority of which was to double the number of kidneys available for transplant by 2030. Efforts such as the Organ Procurement and Transplantation Network Modernization Initiative, launched by the Health Resources and Services Administration in March 2023, seek to improve organ donation and transplantation, with specific attention paid toward increasing transparency and availability of data to assist various stakeholder groups, build capacity for modernization, and collaborate with the US Data Service and healthcare industry stakeholders.

Looking Ahead

While the 2024 elections present uncertainty on the future of healthcare initiatives broadly, stakeholders can expect many policy-focused kidney efforts to continue, given historical bipartisan support. Beyond rulemaking and legislative priorities, it is likely that investments in data analytics, research, and treatment will continue to focus on earlier identification and slowed progression of disease.

Avalere is monitoring these developments and will continue to leverage its expertise across policy, market access, data analytics, and quality disciplines to assess how kidney care policy and markets evolve in the coming months. To learn more about the evolving kidney care space and how Avalere can help your business drive access and continuity of care in this dynamic time, connect with us.

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Figure 1. Recent Policy Developments in Kidney Transplantation

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On August 1, the Centers for Medicare & Medicaid Services (CMS) released the Fiscal Year (FY) 2024 Inpatient Prospective Payment System (IPPS) proposed rule. In this rule, CMS finalized updates to payments, quality metric thresholds, and broader payment policies for inpatient hospital care for fee-for-service Medicare beneficiaries.

In each IPPS rulemaking cycle, CMS assesses technologies that have been submitted for potential New Technology Add-on Payment (NTAP) status and reconsiders the eligibility for technologies already so designated. NTAPs are additional Medicare payment to hospitals that cover excess costs associated with a specific stay involving an NTAP-designated therapy (i.e., costs that exceed the bundled payment amount for the case). Over the past decade, an increasing number of manufacturers have sought NTAP status for their technologies, and CMS has created new pathways for technologies to qualify for this designation.

Figure 1. Number of NTAP Applications by Type and NTAP Approvals, FYs 2015–2024

FY 2024 NTAP Applicants

In the most recent NTAP application cycle, CMS received 27 NTAP applications for FY 2024 under the traditional NTAP pathway, although eight were withdrawn before the release of the proposed rule and an additional six were either withdrawn before the release of the final rule or did not receive Food and Drug Administration (FDA) approval by the deadline. To qualify for NTAP designation for FY 2024 (which starts October 1, 2023), these new technologies must meet the three eligibility criteria: newness, cost, and substantial clinical improvement. Further, these technologies were required to receive FDA approval or clearance by July 1, 2023. In the final rule, 10 applications were approved for NTAP in FY 2024.

CMS also received 27 NTAP applications for FY 2024 through alternative application pathways. However, 14 applicants withdrew their applications before the proposed or final rule and one additional applicant did not meet the July 1 deadline for FDA approval. These pathways streamline the NTAP application process for devices with FDA breakthrough designation, drugs designated as qualified infectious disease products, and technologies approved through the FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs. Technologies applying through an alternative pathway must only meet CMS’s cost criterion. In the final rule, 11 applications were awarded NTAP designation, and one technology was conditionally approved for NTAP in FY 2024.

Finalized Revisions to NTAP Eligibility Criteria

CMS finalized two revisions related to the NTAP eligibility criteria for products that have not yet received FDA marketing authorization by submission of the NTAP application. For such technologies, applicants must have:

1. A “complete and active FDA marketing authorization request” at the time of submission
2. FDA marketing authorization by May 1 (moved up from July 1)

These eligibility criteria are effective for the FY 2025 NTAP application cycle (i.e., those applications to be submitted in October 2023) and will require manufacturers to assess the feasibility for meeting these new requirements at time of submission by October 17, 2023.

Avalere Market-Leading Expertise

Avalere has supported more than 20 NTAP applications over the past decade and can provide market-leading expertise on the inpatient setting and the NTAP designation. To learn more about how Avalere can support you in understanding the opportunities and processes associated with NTAP, connect with us.

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Previous updates made significant changes to the institute’s methods and outputs, including the introduction of a modified societal perspective as a co-base case when societal cost or impact is large, conducting cost-effectiveness assessments using equal value of life-year gained (evLYG) measures in parallel with the quality-adjusted life year (QALY) cost-effectiveness analyses. They also launched an adapted assessment approach for high-impact single and short-term transformative therapies. On June 5, ICER released proposed changes to its VAF and invited public comment on the proposal.

ICER’s Proposed Updates

Compared to the breadth of updates included in the 2020 VAF update, ICER has proposed fewer major methods or process changes for the 2024 update. Key proposed changes include:

• Clinical trial diversity: ICER proposes to include a rating of clinical trial diversity and a description of demographic diversity in trial data in its evidence reports.
• Subpopulations: ICER proposes to include an a priori list of subpopulations of interest and a scientific rationale for evaluating these subpopulations in the scoping document and research protocol. The institute also proposes using a formal credibility assessment tool to evaluate the credibility of subgroup findings in the heterogeneity and subgroups section of its evidence reports.
• A dynamic pricing scenario for products targeting Medicare-eligible populations: To account for the impact of the Inflation Reduction Act (IRA) on long-term cost-effectiveness, ICER proposes to conduct a dynamic pricing scenario for small molecule and biological products that primarily target Medicare-eligible populations and, in ICER’s estimation, could be subject to the IRA’s price negotiations.
• An indirect approach to estimate productivity: To ensure that cost-effectiveness analyses using the modified societal perspective have “non-zero” inputs for impacts on productivity, ICER proposes to use an indirect approach to estimate potential impacts on patient and caregiver productivity when direct data are unavailable.
• Quantifying additional dimensions of value: ICER intends to keep several novel elements of value (e.g., the value of hope, reduction in uncertainty) qualitative. To address severity as a potential modifier of the value of health gains, ICER will regularly calculate QALY and evLYG shortfalls. ICER proposes to continue using the Health Improvement Distribution Index to measure health equity.

In addition to these proposed methods changes, ICER also proposed changes to its process for addressing the treatment of unmet needs and health equity:

• Topic selection: ICER proposes to incorporate health disparities in the topic selection process for future reviews by including health equity concerns in horizon scanning exercises and presenting relevant health disparities data during topic selection meetings.
• Patient engagement program: ICER proposes to simplify program processes, increase the diversity of patient perspectives, add new formal and informal engagement opportunities, and provide an honorarium to participants.

Several proposed changes to the VAF address stakeholder feedback on limitations of the current framework. For example, adopting an indirect approach to estimating productivity impacts would increase ICER’s ability to assess the value a treatment may provide in its modified societal perspective cost-effectiveness analyses when direct data is not available.

Notably, the proposed updates signal that ICER does not intend to make other changes that some stakeholders were anticipating, such as extending its application of the modified societal perspective, developing evidence standards for inclusion of real-world evidence in ICER assessments, or adapting its methodology for orphan drugs and accelerated approval therapies with short-term trial data.

Key Considerations and Implications

Despite several legislative and administrative efforts to introduce a formal role for HTA, the US does not have a formal HTA body or advisory group with the authority to review clinical or cost effectiveness of health products to formulate reimbursement decisions. Although the introduction of the Medicare drug price negotiation program under the IRA introduces a role for government in assessing drug prices, use of QALYs (a prevailing summary measure in cost-effectiveness analyses) in Medicare programs was barred in the Affordable Care Act and a bill (HR 485) to ban QALYs “and similar measures” across federal health agencies more broadly was recently introduced. The absence of a formal HTA body has given ICER an expanded role in the value assessment landscape, with many public and private payers explicitly and informally referencing ICER’s evidence reports in their coverage and pricing decisions.

As ICER’s importance in the value-assessment space has grown in recent years, stakeholders have been paying close attention to see how ICER would respond to critiques that its health utility estimates are discriminatory, concerns that the organization has failed to adhere to its principles for application of a modified societal perspective base case analysis, and lack of differentiation by disease state or progression. Some stakeholders were looking to ICER to incorporate additional elements of value (e.g., those described in ISPOR’s Value Flower) quantitatively in its methodologies or to reduce or remove the use of QALY/evLYG shortfalls as a proxy for disease state severity, but ICER did not propose these changes.

Some of ICER’s proposed methods and process changes reflect continued focus in the healthcare sector on addressing health inequities, and changes to the comparative clinical effectiveness section align with increasing industry-wide focus on diversity in clinical trials. If finalized, the grading system ICER uses to measure diversity in clinical trial data will further incentivize manufacturers to recruit diverse patient populations, in addition to the Food and Drug Administration’s draft guidance to increase clinical trial diversity.

Lastly, ICER’s single, short public comment period (June 5–30) for this year’s proposed framework updates is a departure from previous update cycles. In the past, ICER has solicited public comment on particular topics of interest before releasing draft VAF updates for additional public comment.  This year, it is employing an expedited update cycle with only one round of public comments. The resulting final VAF will be used for ICER reviews in 2024–2027. Manufacturers and other healthcare stakeholders have a limited time window to review ICER’s proposed changes and comment on those with more significant implications to treatment valuation results.

For More Information

Avalere’s expertise in value assessment supports clients throughout the healthcare industry in understanding how evolving methodologies may affect evaluation of a product’s value. To learn more about how Avalere can help your business respond to the draft VAF update and prepare for potential changes, connect with us.

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This paper provides an overview of the Medicare VBC market and estimated total addressable market for clinical care providers, describes opportunities for growth in this market, and outlines important considerations for investing in key market players.

VBC programs that have been most successful tend to be led by providers, have significant experience with VBC, and are large enough to meet market-specific demands while having sufficient data capabilities. Further, more systematic analysis is needed to identify drivers of profitability and growth.

Download the full white paper on VBC Investment Opportunities.

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Figure 1. Avalere Orthopedic VBC Model Orientation Sample

Figure 2. Impact of Site of Service Shifts on TJR Bundle Price, Surgery-Only Bundle

Figure 3. Timing for Orthopedic Practice Actions for VBC Success

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Figure 1. Three-Quarters of Community-Based Practices Achieved Savings by PP8

Figure 2. Average OCM Community Practice Spending and Tumor Mix, PP5–PP8

Figure 3. OCM Performance Zones (One-Sided vs. Alternative Two-Sided Risk)

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Like the OCM, the EOM maintains the Monthly Enhanced Oncology Services (MEOS) payments and potential for a performance-based payment (or recoupment), layered on top of fee-for-service payments. Under the EOM, participants will receive lower MEOS payments relative to the OCM MEOS and will be required to take on downside risk immediately, in an effort to generate net savings to Medicare. Additionally, the EOM includes fewer cancer types compared to the OCM, aligning with CMMI’s goal to streamline models and focus on the highest opportunities to realize savings and improve care. The 7 cancer types (far fewer than OCM’s 21 cancer types) included in the EOM are breast cancer, lung cancer, lymphoma, multiple myeloma, small intestine/colorectal cancer, prostate cancer, and chronic leukemia. The EOM is further limited to include only beneficiaries undergoing systemic chemotherapy.

The final OCM performance period ends June 30, 2022, and the EOM will not begin until July 1, 2023, creating a 1-year gap between the 2 models. While oncology providers will likely welcome the announcement of the new model due to the practice transformation focused on care delivery, the year-long gap may cause concern among current participants. Notably, the EOM may commence as the COVID-19 public health emergency (PHE) potentially subsides, but the delays and challenges in delivery of routine cancer care it caused has led to concerns that oncologists will be facing patients with more complex and advanced tumors. The EOM may offer a view on how alternative payment models (APMs) look in the “new normal” and shed light on possible hurdles in the post-PHE world.

Applications for participation in the EOM are due September 30. As stakeholders prepare for the model and continue to refine CMMI engagement priorities, they should evaluate 5 key considerations.

The EOM’s Focus on Health Equity Offers Opportunities to Close the Cancer Disparities Gap

The EOM’s focus on addressing social determinants of health (SDOH) offers new opportunities to close the cancer disparities gap.  As part of these efforts, the EOM includes 2 new practice redesign activities, in addition to the 6 from the OCM, focused on SDOH and providing patient-centric care. The new practice redesign activities include the gradual implementation of electronic patient-reported outcomes (ePROs) and screening beneficiary social needs using health-focused social needs screening tools. Stakeholders should consider how data that map cancer disparities to access and outcomes can inform targeted strategies for vulnerable or underserved patients. Additionally, CMS will pay higher MEOS payments for dual-eligible beneficiaries; this additional payment will not be included in model participants’ total cost of care responsibility. Increased MEOS payments may assist practices in better managing the health outcomes of dual-eligible beneficiaries, a small, but costly and complex subset of beneficiaries.

The EOM Payment Methodology Incorporates Cancer Type-Specific Adjustments to Construct Benchmarks

Some stakeholders criticized the OCM methodology, citing its inability to accurately predict the cost of cancer care given rapidly evolving treatment paradigms over 6-month episodes of care. Unlike the OCM, the EOM implements cancer type-specific methodology (e.g., trend factor, novel therapy adjustment) to establish benchmark/target prices. Employing cancer-type specific adjustments is intended to more accurately account for the heterogeneity in treatments and associated costs across different types of cancers. The EOM also includes clinical adjusters to account for metastatic status for some of the included cancer types and to adjust for HER2 status for breast cancer. As such, EOM stakeholders should understand the impact of these adjustments on benchmark prices, particularly in light of concerns that the PHE has increased the number of patients presenting with advanced disease due to factors such as delayed screening.

Increased Provider Risk and Reduced MEOS Payments to Shape Care Management

While OCM has been touted as a success among the models in CMMI’s portfolio, the Innovation Center did not realize the net Medicare savings it had anticipated through OCM. The lack of savings is due in part to the pandemic and the Center’s waiver of mandatory two-sided risk during the PHE. In an effort to reduce spending more quickly in the EOM, CMMI is shifting downside risk on providers more aggressively and reducing the MEOS payments.

EOM stakeholders should consider how increased provider risk and reduced MEOS payments may impact treatment selection and care delivery. Reduced MEOS payments may impact participants’ ability to make sufficient investments to realize efficiencies from enhanced care management services such as patient navigation and care planning. Provider risk arrangements will place added dependency on care management services and care coordination in addition to scrutiny on treatment plans and therapy selection.

The EOM Promotes a More Patient-Centered Approach that Will Impact Care Redesign Activities

The EOM aims to improve cancer care through a patient-centric approach via practice redesign activities, use of quality measures to adjust payments, and incorporating health equity. CMS has added the gradual implementation of ePROs and screening for patient social needs to the 6 redesign actives included in the OCM (e.g., patient navigation). Learnings from the OCM showed that investments in patient navigation and documenting care plans led to some improvement in patient experience of care and care at the end-of-life, but there is still opportunity for further improvement. Like the OCM, the EOM will include quality measures which are used to adjust performance-based payments via an aggregate quality score. The EOM plans to advance health equity by requiring participants to identify patient health disparities and submit health equity plans to CMS detailing evidence-based strategies to address them.

While the specific quality measures used for this program will not be released until Summer/Fall 2022, the overall quality program will focus on measures from 6 domains: patient experience, avoidable acute care utilization, management of symptoms and toxicity, management of psychosocial health, and management of end-of-life care. The OCM included 4 domains: communication and care coordination, person and caregiver experience and outcomes, clinical quality of care, and patient safety.  Ultimately the measures selected will be similar and will be continuously evaluated or new measures introduced.

The EOM’s Footprint Should Be Assessed Both Inside and Beyond Medicare

Looking ahead, stakeholders should evaluate the expected patient and provider footprint the EOM may have within Medicare and beyond. OCM participants committed to value-based oncology care are expected to participate in the EOM. Moreover, some EOM design elements such as the higher MEOS payments for dual-eligible beneficiaries may incentivize participation of practices that serve a disproportionate share of vulnerable populations. Although payer participation for the multi-payer model remains uncertain, the EOM may have implications for commercial APMs and shape the broader value-based care landscape even for payers that choose not to join the model.

Avalere has deep expertise with alternative payment model design and a proven history assisting a range of clients with analytics and research on the observed or anticipated impact of models, including the OCM, Radiation Oncology Model, and Accountable Care Organization models. To learn more about how Avalere can support you in understanding implications of the EOM design and payment methodology, connect with us.

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Model Design and Learnings from OCM

The EOM is a voluntary, 6-month, total cost-of-care episodic payment model that, like OCM, focuses on beneficiaries with cancer who receive chemotherapy. According to Milena Sullivan, Managing Director at Avalere, “The EOM builds on the structure and learnings of OCM, but does not incorporate the foray into prospective bundles floated under the Oncology Care First proposal. CMMI leadership is laudably prioritizing health equity, but participants will need to balance between new responsibilities and more aggressive financial risk.”

“Despite speculation that CMMI would move away from specialty models and focus on accountable care more broadly, the Innovation Center has rolled out a streamlined and more targeted cancer model focused only on a subset of cancers that offer the highest opportunity to drive savings for the Medicare program,” explained Maddi Davidson, Consultant II at Avalere.

“Overall, oncology stakeholders are likely to welcome the new model and its close resemblance to the OCM, but we will likely see continued calls for more nuanced methodology updates to keep pace with learnings from the past 6 years and innovation in oncology care,” added Sullivan.

Impact on Providers, Manufacturers, and Payers

The new model will have a variety of implications for industry stakeholders. According to Shalini Parekh, Principal at Avalere, “With participants assuming risk immediately while also receiving lower enhanced services payments per beneficiary, providers will likely face increased pressure to reduce total cost of care under the EOM. Manufacturers should determine how the EOM may impact access to higher-cost regimens and formulate tailored value messaging strategies for engagement with providers.”

“While the new EOM maintains fee-for-service payments and drug reimbursement based on Average Sales Price, it lowers the monthly enhanced oncology services payment and moves providers into 1 of 2 different downside-risk arrangements. In addition to looking at clinical efficacy and safety when evaluating drug regimens, providers will need to have good visibility into their drug spend and payer mix. Life sciences companies will have to understand these considerations, and how they vary by provider segment and site of care,” explained Omar Hafez, Managing Director at Avalere.

“With the EOM maintaining its anchor point to a 6-month episode, the ability for this model to assess how patients respond and the differential costs associated with care for patients who respond to innovative therapy and management remains unanswered,” said Lance Grady, Practice Director at Avalere. “Certainly, costs in the first 6 months of care do not always equate to costs in a subsequent 6-month period. As such, this brings the calculation of the value of a therapy or regimen into question.”

Regarding the payer impact, Grady said, “Oncologists continue to lead in advancing innovative value-based payment arrangements and in many instances often shape how risk-based commercial contracts with payers are established. CMMI attempting to extend an all-payer model in the market could perhaps be more easily accomplished via the EOM than other models.”

Focus on Patient Outcomes and Health Equity

Another difference between the EOM and OCM is the new model’s explicit focus on health equity, including the gradual implementation of electronically submitted patient-reported outcomes and screening for EOM beneficiaries’ social needs. Participants are also required, as part of their use of data for continuous improvement, to submit health equity plans to CMS detailing evidence-based strategies to reduce identified health disparities.

“Cancer does not discriminate, but inequity of health outcomes remains. I am excited to see the EOM focus on health disparities and their driving factors and know that Avalere can provide insights and a patient-centric approach to help us all better understand these complex challenges in oncology,” said Sarah Alwardt, Practice Director at Avalere. “Oceans of administrative healthcare data exist, but there are precious little data on how patients actually feel about their therapy, quality of life, or other pressures on their cancer journey. The EOM will not only help us answer some of these questions about participating beneficiaries but also improve data collection on these factors and other social determinants of health to allow us to better serve patients in the future.”

 To learn more about the EOM, connect with us.

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