First posted on GoozNews 10/15/2012

Top health care experts meeting at the Institute of Medicine last week delivered a stern message to the nation’s 15,000 oncologists and their patients: Either learn to deliver care at lower costs or watch the government and insurance companies impose limits.

“If you think this is a tough reimbursement environment, just wait a year or two,” said Mark McClellan, who headed the Centers for Medicare and Medicaid Services during the George W. Bush administration. “Leadership is needed to show how to get to better care on a more sustainable fiscal path.”

The sentiment was echoed by Ezekiel Emanuel, an oncologist and top adviser to the Obama administration during the battle to enact the Affordable Care Act, which imposed a first round of payment restrictions on Medicare providers. “We can never get too much cost control,” he said. “There’s $700 to $800 billion of waste in the health care system. We have a long way to go.”

Oncology has become a focal point in the health care cost control debate because its claims are rising faster than other specialties. New drugs coming on the market, many of which only extend life for a month or two, now cost $100,000 a year or more. They have become a major driver of rising cancer care costs, especially when used in terminally-ill patients nearing the end of life.

A top official from UnitedHealthcare, the nation’s largest insurer, told the forum reimbursement for cancer care now accounts for 12 percent of all payments for patients not on Medicare and Medicaid. That’s up from 10 percent five years ago. Cancer care has now pulled even with cardiovascular care as the insurer’s biggest expense.

The company’s fastest growing expense within cancer care is drugs, which continue to rise at about 10 percent a year. While drug costs are about 10 percent of all health care costs, according to CMS, they account for about a quarter of all cancer care costs.

“There is no market. It is sellers dictating the price when a new drug comes out,” said Lee Newcomer, chief oncologist at UnitedHealthcare. “I don’t have a substitution effect I can enforce because just about every state in the nation requires that I pay for the latest drugs.”

With 80 to 85 percent of the 1.64 million Americans who get diagnosed with cancer every year receiving their treatment at community-based oncology practices, the IOM meeting focused on potential changes in those settings that might lower costs. Most practices pay the bills by selling chemotherapy treatments and charging Medicare and insurers a mark-up on the wholesale cost of the drugs – 6 percent in the case of Medicare and 20 to 40 percent for private insurers, according to one community oncologist at the meeting.

UnitedHealthcare has an experiment underway that would get rid of the cost-plus model because it provides a powerful incentive for oncologists to use not only more drugs, but the most expensive drugs. It has signed contracts with five community practices where the insurer now pays for drugs directly while the oncologists get paid extra for adhering to agreed-upon treatment strategies and drug regimens that clinical practice guidelines say will deliver the best outcomes. The approach not only eliminates the incentive to prescribe more drugs, it eliminates variations in care that provide no benefit or, in some cases, cause harm.

“We need standard approaches,” Newcomer said. “Where we can shift to the less expensive therapies that have no difference in outcomes, we should do that.”

Peter Bach, an oncologist at Memorial-Sloan Kettering Cancer Center in New York and former CMS official, offered an alternative model. He suggested Medicare and insurers could shift to a system where oncologists are paid for episodes of care – a bundled payment – rather than fees for the various services. Besides eliminating the incentive to order duplicative or unnecessary tests, imaging and office visits, it encourages physicians to use the most cost-effective chemotherapy regimens that deliver comparable results.

Bach cited the example of the initial chemotherapy regimen for patients diagnosed with lung cancer, which will account for 226,000 or 14 percent of all new cancer cases this year. Lung cancer, which is caused by smoking in about 80 percent of cases, is still America’s number one cancer killer.

There are seven approved chemotherapy regimens for the first round of treatment, which range in price from less than $1,500 to over $7,000. The guidelines produced by the National Comprehensive Cancer Network, which brings together experts from across the country to evaluate best practices, say there is no material difference in outcomes between the various regimens, although they do have different side effect profiles.

By having the bundled price for the episode include the average price of the different possible regimens, oncologists will be incentivized to use the lower-priced drugs. “Episode-based payment is all about shifting risk,” Bach said. “It puts the provider – the oncologist – at risk for performance. This is very different from fee-for-service, where the only risk is if someone doesn’t pay you.”

In his keynote address, McClellan lauded the growth of accountable care organizations (ACOs) and bundled payment pilot projects set up under the ACA. He expressed hope that they would be rapidly expanded after the election.

“We don’t have five years to see if these work,” he said. When asked what would happen if Obamacare is repealed because Republicans win the White House and both houses of Congress, he said “I don’t see that going away. There has been past Republican support for ACOs and bundled payments.”