With better drugs, many cancers are becoming chronic diseases necessitating costly maintenance, and insurers are scrambling for ways to control their expenditures. Early efforts to rein in costs are being met with stiff resistance from oncologists, however.
Abstract
In a classic managed care struggle between cost containment and physician autonomy, health plans’ efforts to rein in the expense of biotech cancer drugs are meeting stiff resistance from oncologists. They staunchly defend their practice of buying such drugs and marking up their prices to cover service costs as a critical component of cancer care. Here’s a look at the issues on both sides.
“Most people think of cancer as a death sentence,” says oncologist Jay Brooks, MD, “but it has become a chronic disease.” For some patients, that means years of extra life — for others, it’s a few months.
PHOTOGRAPH BY DAVID HUMPHREYS
Jay Brooks never asked to be Solomon. Society just seems to put him in that position. As a physician and chief of hematology and oncology at the Ochsner Clinic Foundation in Baton Rouge, La., Brooks is sometimes forced to make treatment decisions that call for Solomon’s wisdom, often having to choose between a regimen of costly biotech drugs that can extend a cancer patient’s life for a short time and the more cost-effective and sometimes justifiable alternative: denial of treatment.
Brooks comes down on the side of the patient every time — and that’s the issue. It’s not necessarily the side of the health plan. As new drugs transform many cancers into chronic diseases necessitating costly maintenance, insurers scramble for ways to control those expenses. Their early efforts to rein in costs, however, are running into stiff resistance from oncologists, who staunchly defend their practice of buying and administering cancer drugs — a practice that includes marking up the drugs’ prices to cover service costs — as a critical component of complex cancer therapy.
The conflict is an iteration of the skirmishes a decade ago between physicians, seeking to retain autonomy, and health plans, looking to hold the line on costs. It also represents a larger moral conflict for society, as biotech cancer treatments hit mainstream medicine.
“We’re reaching a crossroads very quickly in terms of doctors being stewards of dollars in cancer, and that’s scary,” says Dawn G. Holcombe, MBA, executive director of the Oncology Network of Connecticut, an alliance of nine independent oncology practices in the state. The system for medication administration in the oncologist’s office is not only effective and efficient, but egalitarian, she says, and the latter advantage could be threatened by new payment schemes.
“When you walk into a cancer clinic, you can’t tell who’s there as a result of private insurance or charity,” because oncologists have been able to accept all comers under the old payment system, says Holcombe. That’s significant because, nationally, cancer clinics lose about 5 percent of expected payment for clinical services to bad debt, and none of the new payment schemes account for bad debt for oncologists, she adds. Nor do they adequately compensate oncologists for all costs associated with administering the drugs.
“The returns have been built in, to cover the cost of producing and delivering the drug,” says Holcombe. She is especially resistant to the idea that bringing in specialty pharmacies to manage biotech and other cancer drugs would improve efficiency. The numbers don’t add up, she says, when you consider the purchase process.
Oncologists acquire drugs from essentially four distributors: Oncology Therapeutic Network (OTN), Oncology Supply, Cardinal, and Priority Healthcare. According to Holcombe, specialty pharmacies are seeking to replace those distributors, in effect saying doctors shouldn’t be trusted to purchase drugs. “If you’re looking at a dozen or more specialty pharmacies, it escapes me that they would somehow have more purchasing power than oncologists do purchasing directly from the distributors,” Holcombe says. “One in four can have greater influence in controlling prices than one in 12.”
A SYSTEM EVOLVED
By the nature of their practice patterns, oncologists and other specialists have become inextricably intertwined with the issue of escalating drug and technology costs. While it may be true that cost markups help alleviate the cost of medical services associated with specialty drugs, it’s also true that many oncologists have made windfall profits because of excessive markups that cover not only costs but profit.
Richard Deyo, MD, MPH, professor in the department of medicine at the University of Washington, Seattle, describes the problem from the economist’s perspective. There are two perverse incentives, he says: drug companies compete for physician sales by raising a drug’s average wholesale price so physicians can make even higher marked-up profit; and the healthcare industry’s often-criticized built-in “incentive to over-treat, never give up, and never stop, even when significant benefit to the patient is unlikely.
“You don’t want to create a system where oncologists can’t provide biotech drugs in their offices, but you do want to create a system in which the price of drugs is close to what physicians are paying for them while compensating them fairly for other costs of doing business,” says Deyo.
That’s exactly what Medicare is trying to do. In an effort to drive down the cost of providing therapy in doctors’ offices, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) modified the payment system to be based on the average sales price (ASP) of the drug, as opposed to average wholesale price, in the belief that ASP would provide a more transparent metric. If a drug manufacturer has cut a deal with a big health insurer or a large physician practice, for example, that price would now be considered in the equation.
Oncologists are comparatively more vulnerable to reduction in reimbursement than other specialists because they’ve built their business models around administration of drugs in the office.
Actual Medicare reimbursement will be the ASP plus 6 percent to cover basic handling. MMA also bumps up professional and administrative fees for any product that is administered in a doctor’s office, including provision of a $130 patient-assessment fee for oncologists. The latter fee also encourages gathering outcomes data, which oncology has long lacked, according to Tom Baker, San Francisco-based vice president for strategy and analytics at the Zitter Group, a healthcare consultancy focused on commercial payer coverage of biologics, pharmaceuticals, and other life sciences products.
Oncologists, however, are wary of any move to control specialty drug costs by government or private payers, because it upsets the infrastructure they say has evolved logically over the years to treat this complex and deadly disease.
Merely eliminating oncologists from the acquisition process does nothing to resolve the larger and more complex issue of monitoring and managing the drugs being administered. Oncologists not only have to pay the drug price plus sales tax, but hire a staff person responsible for ordering a typical regimen of, say, four drugs for delivery at the same time. The drugs then may sit on the shelf in an expensive refrigerator with timers, backup generators, and an alarm system — because if the electricity goes out, you can lose $20,000 in an instant. Oncologists must also hire highly skilled nurses, specially dressed, costing $25 or more an hour, to mix the drugs under special regulatory-compliant hoods, start the IV, and monitor the patient in a chair for six hours. All that must be paid for under an administration fee, which doesn’t account for keeping a nurse on call 24 hours a day.
Health plans perceive oncologists as having most control of reimbursement rates
Brown bars reflect percentage of respondents who believe specialists have some degree of influence to control declining reimbursement rates. Web-based survey of 100 managed care decision makers from large national and important regional and independent managed care plans, conducted May/June 2004.
SOURCE: THE ZITTER GROUP, SAN FRANCISCO
Says Brooks, “Yes, we do make a profit on the drug, but how else are we going to stay in business?”
Holcombe, too, is unapologetic. Prior to the MMA’s passage, she says, oncologists were underpaid for professional services and were paid more than the cost of the drug. “The infrastructure grew under the radar. Before MMA, oncologists were just breaking even under Medicare. Medicare patients were being subsidized by other activities.
“What’s happening in the private sector is still up in the air,” she continues. “We’re in this gray area and biotech drugs will exacerbate the situation. They will add to the cost — they are pricier, because they cost more to develop.”
LESSONS LEARNED
The overall growing economic burden of biotech products has galvanized payers’ attention in the past two years, Baker says, and that attention has focused largely on oncologists because 60 percent of all specialty drug costs are for cancer. Given the high stakes for payers, that focus is only going to grow.
MCOs’ efforts to control expenditures by taking drug acquisition and distribution out of oncologists’ hands have varied, from putting a toe in the water to diving right in. Some health plans that aggressively tried to wrest control of cancer drugs from physicians have reported intense pushback from oncology groups — with some larger groups threatening to drop out of the plans’ provider networks.
With the scars from previous turf wars with physicians still fresh, some health plans are trying to find a middle ground.
“We started looking at what we could do about the pricing of injectable drugs in 2002,” says Atheer Kaddis, PharmD, director of clinical pharmacy services at Blue Cross Blue Shield of Michigan. Since then, there has been an influx of specialty pharmacies into the market and fee changes by CMS. In this quickly changing landscape, the Michigan Blues opted to contract with three specialty pharmacies to offer a nonmandatory purchasing program for specialty drugs. Under the program, the health plan will pay 50 percent of the price of injectable oncology drugs administered in the physician’s office.
The beauty of the strategy, says Kaddis, is its flexibility. “If we mandated a specialty pharmacy, we’d get a lot of resistance,” says Kaddis. Instead, the three specialty pharmacy vendors with which the Michigan Blues contract are called “preferred” by the national Blue Cross Blue Shield Association to provide specialty drugs at discount prices. The plan notifies physicians that they can use these specialty pharmacies, which allows it to contract with distributors, but if doctors can get better prices elsewhere, they’re encouraged to do so.
The program also increases fees for administration of drugs and care of the patient in the office.
“We went into this very slowly, with modest fee reductions. If a doctor notified us that [the patient] couldn’t afford the fee, we’d ask the doctor for an invoice. As a result, we’ve had to increase our fees on a handful of drugs. But over a one-year period, we’ve been able to save $23 million on injectables,” he says.
“What’s good about the strategy is that we’re talking to oncologists, sharing with them what the fees are going to be,” says Kaddis, who meets at least quarterly with the state’s oncology society. So far, the program has allowed the plan to reduce fees for injectables and still provide high enough margins to oncologists.
The availability of insurance complicates matters and drives demand. “Patients don’t understand the choices well,” offers Deyo, who says that, when considering biotech therapies, they should consider, “‘What do I gain and how much does it cost?’”
“It’s more of a collaborative effort,” says Kaddis. “If you talk to oncologists, they’d be more than happy to get out of the drug business.”
But it’s a tender area. Consultant Baker says oncologists are comparatively more vulnerable to reductions in reimbursement than other specialists because they’ve built their business models around administration of drugs in the office. “Even urologists have a variety of other codes they can bill,” he says. Baker cites research done a year ago by the Zitter Group that found approximately two thirds of an oncologist’s income came from drugs and their administration.
“If that’s an average, then some of these practices are going to struggle or go out of business if reimbursement rates fall and there isn’t some other financing for services. These practices are very reliant on drug revenue,” he says. “The big question is whether patients get the best care in an environment where doctors have an incentive to put them on as many drugs as possible.”
SOCIETAL QUESTION
Often, when new oncology therapies come out, they don’t replace old drugs. “You’re adding a costly drug. These drugs usually bring value to a cancer patient as opposed to creating savings in the whole system,” says Holcombe, of Oncology Network of Connecticut.
That complicates the picture for payers struggling with expenditures and P&T committees debating the value of new oncology products.
“Most people think of cancer as a death sentence,” says Brooks, the oncologist, “but it has become a chronic disease.” For some patients, that means years of extra life, while for others, it’s a few months. Treating and managing cancer patients as chronic care patients will become more of an issue as the population ages and as the pool of biotech and other cancer therapies increases. “These are extremely important societal issues,” he adds. “Society has to ask, ‘What we are willing to pay to increase life span by a few months?’ How much is it worth to someone with an incurable disease?”
One of Brooks’s own patients is a case in point. He has treated an 80-year-old World War II veteran, a paratrooper who landed behind enemy lines in Normandy on D-Day, for myeloma over the past 10 years, using five different chemotherapy medications.
“He’s still functioning, but it has cost him a lot of money,” Brooks notes.
There will be many more patients like him — and an arsenal of biotech drugs already on the market to greet them.
Erlotinib (Tarceva), for example, a biologic for metastatic non-small cell lung cancer, costs $2,500 a month but does not cure the disease. Research shows that 25 percent of patients not treated with the drug lived at least one year, while the one-year survival rate for patients on the drug is 35 percent. “So, the question is,” says Brooks, “How much is that worth to someone with that disease?”
Bevacizumab (Avastin), a colorectal cancer drug injected in a physician’s office, is usually marked up by oncologists to $6,000 a month from a purchase price of $5,000. It allows patients to live about 20 months instead of the typical 15. Thoughtful debate on the value of such incremental gains is being elbowed out by the bigger news story, however. Bevacizumab, approved last year only for colorectal cancer, is making headlines as a promising treatment for both lung and breast cancer. Preliminary results in April showed that it could delay the worsening of tumors by four months when used with other therapies.
The availability of insurance tends to blind patients to the costs of such therapies. “The patient says: ‘Give me anything that gives hope, because I don’t have to pay for it,’” says Deyo, at the University of Washington.
“The big question is whether patients get the best care in an environment where doctors have an incentive to put them on as many drugs as possible,” says Thomas Baker, of the Zitter Group.
“If patients were sharing more of the cost, they might weigh various factors more critically, he suggests: “‘This particular drug may prolong my life by months, but I will be coughing blood, losing weight, be nauseated and progressively debilitated, and it will cost my family’s entire income. It might not be worth it.’”
Compounding the pressure is demand for access to promising biotech treatments from the cancer community, whose activism has been developing for two decades and began even before the AIDS crisis. Combined with aging baby boomers — who have demonstrated a willingness to go after what they want with determination — and the increasing number of cancer agents, such activism is a recipe for a showdown between medical costs and health plans.
“I just treated a 60-year-old with indolent lymphoma using rituximab [Rituxan], a chemotherapy maintenance drug that will prolong his life one to two years,” says Brooks. “I can’t tell him that I’m going to cure him. If taking a course of drugs that costs $80,000 will prolong his life two years, is it worth it? This is the question we as a society must ask ourselves.”
BROADER ISSUE
The issue of cost is wider than prescription drugs — it applies also to other medical technologies like new cardiac implants, says Deyo, author of Hope or Hype: The Obsession With Medical Advances and the High Cost of False Promises (Amacom Books, January 2005). Though he didn’t single out biotechnology in his book, Deyo says, some biotech drugs are a good example of new costly technology that may be of limited benefit. “Cumulatively,” he says, “all of these [factors] are why health insurance is becoming unaffordable for more people.”
Deyo acknowledges that biologics such as imatinib mesylate (Gleevec), a treatment for chronic myeloid leukemia and gastrointestinal stromal tumors, can dramatically increase survival rates for those patients. “Those are the things that everybody hopes for,” he says.
For Brooks and other oncologists, the stakes are more than economic — they’re a matter of going the extra mile for, say, a D-Day veteran — someone who put his life on the line to save the world from tyranny. And that’s both a social and moral issue.
While medical ethicists debate the issues, health plans can’t wait for society to sort them out. Payers want the patient outcomes physicians seek, though at a price that keeps the cost of health coverage manageable.
Let’s hope the lessons of the managed care backlash of the 1990s will encourage both sides to find common ground.