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Are you ready for the Centers for Medicare & Medicaid Services’ (CMS’) new payment and delivery model, the Oncology Care Model (OCM)? Oncology Solutions is currently assisting clients with:

  • Conducting an OCM readiness assessment for the practice/program;
  • Assisting with “future state” practice/program planning in alignment with the OCM requirements;
  • Conducting physician and staff education sessions;
  • Developing an OCM implementation plan and budget;
  • Collaborating with practice/program(s) to complete the application response and submit by June 18, 2015.

It is our professional opinion that providers should strongly consider participating based on the risk profile of the model, potential upside performance-based payment, and alignment with value-based cancer care goals.  It is evident from industry-wide oncology meeting presentations and discussions that the OCM is the beginning of CMS’ future payment model for oncology. We also know many non-Medicare payers are participating throughout the country to align their payment models with Medicare during this five-year project.  Finally, as expressed by CMS, if you do not participate in this project now, you cannot opt into the model at any time during the next five years.

When considering participation in the model, one key question we continue to hear is, “What can providers expect financially from participating in the OCM?” To assist with a better understanding of the financial implications, this newsletter outlines the calculations necessary to arrive at a high level estimate of the OCM financial opportunity for a practice.


As described in the OCM Request for Application (RFA), there are two primary sources of reimbursement for practices in addition to the traditional fee-for-service (FFS) Medicare reimbursement. The first is a per-beneficiary per-month (PBPM) payment of $160 during a six-month episode of care, totaling up to $960. The second is a performance-based payment in which the practice receives shared savings if they demonstrate a lower cost of care relative to the practice’s historical costs. Figure 1 displays the total OCM formula for both reimbursement sources.

Figure 1: Total Reimbursement Formula

While the PBPM is easy to conceptualize and is intended to help the practice pay for enhanced services required under the OCM, the performance-based payment has many variables to consider when sizing a practice’s OCM financial opportunity. The following is a set of variables each practice should consider when estimating their potential reimbursement under the OCM.

1.    Benchmark Expenses During an Episode of Care

Sizing the potential shared savings achievable under the OCM starts with understanding the health care costs that occur within the defined episode of care. CMS has stated they will use the total historical payments (Parts A, B, and some portion of D) for a practice’s Medicare beneficiaries to create the episode of care benchmark. This cost figure will be further risk-adjusted for patient, episode, and disease-type characteristics.

The OCM participants will be able to review their actual claims data and benchmarks prior to executing an agreement to participate in the program, but, in the interim, it is appropriate to use an estimated health care spend per patient of $70,625. This figured is based on $66,569[i] and adjusted for an annual inflationary factor of 3%.

2.    A Practice’s Number of Episodes

To estimate the number of episodes of care in a given year, following are a few assumptions:

  • A medical oncologist sees approximately 300 new patients per year[ii]
  • Approximately 50% of those new patients are chemotherapy patients based on Oncology Solutions’ industry experience (This could be a higher mix, depending on a practice’s mix of hematology patients.)
  • On average, about 50% of new cancer patients are Medicare[iii] (although, based on geography, some practices may have a 60% or greater Medicare payer mix)
  • The model includes only FFS Medicare patients (70%[iv])

Based on these assumptions, a single physician can expect to treat approximately 50-60 patients with chemotherapy in a given year. This estimate was further confirmed during the Association for Value-Based Cancer Care May 5, 2015, presentation “Pitfalls and Challenges of New Payment Models” facilitated by Milliman Principal and Consulting Actuary Bruce Pyneson, FSA, MAAA. Considering 60 chemotherapy patients per year, Figure 2 illustrates the practice is expected to receive upside payments of $58,000 per oncologist in patient care fees.

Figure 2: Estimated Patient Care Fees


3. Estimated Total Savings

In order to estimate the total achievable savings through the OCM, we propose using a closely related, oncology-specific Center for Medicare & Medicaid Innovation (CMMI) grant, the COME HOME project. This CMMI grant includes seven oncology practices across the country working within an Oncology Medical Home construct. Through “the reduction of ED visits and hospitalizations,” the COME HOME project estimated a 6.28%[i] reduction in Medicare costs or $4,178 per patient. A more recent presentation from Dr. Barbara McAneny at the Association for Value-Based Cancer Care Conference on May 5th disclosed that the CMMI project has a trending cost savings of $4,700 per patient to date. However, to be conservative, we estimate an average of 5% total savings as an appropriate baseline shared savings percentage. It is important to note that from year-1 through year-3 of the model, the shared savings of 5% is split between the practice and Medicare, 1% and 4%, respectively. In Year-3, although not required, practices can opt-in to a two-sided risk arrangement where the practice must pay Medicare for costs exceeding historical expenses, but the practice benefits from a greater upside if costs are lowered below the 2.75% Medicare threshold. Figure 3 shows the OCM formula from Figure 1 with reimbursements based on the previous assumptions.

Figure 3: Total Practice Financial Opportunity

Figure 4: Sensitivity Analysis for Practice Reimbursements by Varied Episodes of Care and Estimated Savings

Note:  All calculations assume 100% of the OCM quality indicators are met and are only based on the one-sided risk arrangement.

4.    Reimbursement Considerations for Private Payers

In addition to the OCM reimbursement generated by Medicare FFS patients, CMS is encouraging commercial insurers to create their own models that “provide payments to practices for enhanced services and performance.” While each plan will be created by individual payers, payers must financially incentivize the same practice requirements as described in section IV of the RFA. For this reason, we expect the payment methodology to be comparable to the OCM, but the actual fee schedule and per beneficiary per month rate may be above the $160, especially if practices approach participating payers proactively to partner with the payer and negotiate the most favorable arrangement. These partnerships with local payers can allow a practice to generate incremental episodes of care and ultimately additional income to fund enhanced services. As of today, 48 separate payers have submitted an LOI to the CMS OCM. Click here to see the list of payers in your area.

Required Investment and Estimated Return on Investment

Practices must balance the costs associated with participating in the OCM against the financial benefit provided through PBPM and shared savings. The overall goal of the model is to align financial incentives with cancer care improvement and appropriateness. As such, there are six service-enhancement requirements that practices must meet in order to participate and meet those goals:

  • Provide and attest to 24 hours a day, 7 days a week patient access to an appropriate clinician who has real-time access to practice’s medical records
  • Attestation and use of ONC-certified EHRs
  • Utilize data for continuous quality improvement
  • Provide core functions of patient navigation
  • Document a care plan that contains the 13 components in the Institute of Medicine Care Management Plan
  • Treat patients with therapies consistent with nationally recognized clinical guidelines

While each practice is different, the majority of practices will incur additional operating expenses to provide these services. Understanding where your practice falls on the spectrum of enhanced services is vital when determining the financial impact of participation with the OCM.

When considering the COME HOME project estimates, incremental costs per patient were approximated at $2,500. Taking into consideration PBPM payments of ≈$1,000 per patient and cost savings of approximately $4,200 per patient (reminder: the COME HOME project is trending around $4,700 currently), the model’s benefit to the practice is estimated at $2,700 per patient or a potential upside within a practice of $150K+. This amount makes the upside potential of the project worthwhile toward paving the way to value-based cancer care.


As the industry continues to shift from a volume-based to a value-based health care system, practices must be prepared for changes in reimbursement and health care delivery models. Reimbursement through bundled payments and/or risk-based payment methodologies are more common, and practices taking the steps toward operating within this model are leaders in the industry. The OCM is not perfect, and it certainly is not a comprehensive solution; however, the opportunity to participate offers a path forward for practices with limited experience with risk-based contracting within the context of a no downside risk model. It also serves as a guideline to develop the practice infrastructure necessary to meet fast approaching payer requirements.

Are you ready for value-based payment models? Are you meeting patient and payer expectations? Are you aligned to compete effectively in your local oncology eco-system?

Please call us today at 404.836.2000 or email [email protected] to discuss how we may assist with preparing for the CMS Oncology Care Model. Please visit our website at www.oncologysolutions.com to learn more about our various oncology-specific consulting services.


[i] Sanghavi, Darshak, Kavita Patel, Kate Samuels, Meaghan George, Frank McStay, Andrea Thoumi, Rio Hart, and Mark McClellan. “Transforming Cancer Care and the Role of Payment Reform.” The Merkin Series on Innovation in Care Delivery (n.d.): n. pag. Brookings. Engelberg Center for Health Care Reform at Brookings, 2014. Web. 

[ii] Towle, Elaine L., Thomas R. Barr, and James L. Senese. The National Practice Benchmark for Oncology, 2014 Report on 2013 Data. Rep. American Society of Clinical Oncology, Nov. 2014. Web

[iii] Stockdale, Holly, and Kristi Guillory. “Lifeline: Why Cancer Patients Depend on Medicare for Critical Coverage.” American Cancer Society Cancer Action Network. Cancer Action Network, 2013. Web.

[iv] “Medicare Advantage Enrollees as a Percent of Total Medicare Population.” Medicare Advantage Enrollees as a Percent of Total Medicare Population. The Henry J. Kaiser Family Foundation, n.d. Web.

Author Chartis Oncology Solutions

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