Impact of including drug spending in oncology alternative payment models.

OBJECTIVES: To develop a method for determining the effect of including drug costs in alternative payment models (APMs).

STUDY DESIGN: Retrospective claims analysis.

METHODS: Using the Oncology Care Model as an example, we developed an oncology episode payment model for a commercial payer using historical claims data. We defined 6-month episodes of chemotherapy. Using claims data, we characterized episodes and developed a risk adjustment model. We used bootstrapping to estimate the variation in episode cost with drugs included and without.

RESULTS: Episode costs were approximately $100,000. Although absolute cost variation was higher when we included drugs, the percent of total cost represented by variation was lower. Under reasonable assumptions about potential savings from drug and nondrug spending, our results suggest that including drugs in APMs can improve the risk-benefit trade-off faced by provider groups. We introduce a risk-mitigated sharing rate that may enable inclusion of drugs in APMs without substantially increasing downside risk.

CONCLUSIONS: We have developed a method to assess whether the inclusion of drug spending in APMs is a good decision for provider groups. Including drug costs in episode payments for oncology patients may be preferable for many provider groups.