Lower Patient Costs Doesn’t Have to Mean Lower Profits

August 21, 2019 Andrew Schneider, MD

This article originally appeared in Managed Healthcare Executive

As the costs of new cancer drugs skyrocket—they averaged $150,000 in 2017, nearly double the average in 2013—health plans are increasingly looking to oncologists for help managing costs. Yet until more oncologists take direct responsibility for value-based prescribing decisions, and can keep up with the pace of innovation, we’ll just end up converting what used to be a death sentence into a financial life sentence.

Let’s be clear: As oncologists, we want to do what’s best for each individual patient—the most effective treatments with the fewest possible side effects. If a new drug is a game-changer, we want our patients to have it, and cost may be a secondary consideration.

Still, there are many cases in which the options for treating a patient’s cancer will have nearly identical clinical outcomes, but the costs are dramatically different.

Take, for instance, two medications that prevent bone fractures in patients with breast cancer, each with similar effectiveness and side effects: One costs Medicare about $2,300 a year, while the other costs about $550 a year.

In other cases, it’s an issue providing treatment over more appropriate timeframes: Many patients receive medications to regrow their white blood cells and prevent infections. Often, the best choice is a short-acting growth factor that lasts a few days and costs $100 to $200. But physicians frequently still order a longer-acting, brand name drug that costs $3,000—providing treatment that goes beyond what patients need.

Why don’t oncologists select these less expensive options? One reason is that it’s hard to keep up. When new treatments hit the market, they change the calculus for the most effective—and cost-effective—option. It’s nearly impossible for the individual oncologist to keep up, and sometimes, drugs that appeared groundbreaking when they hit the market turn out to be no better than older, less expensive drugs.

But in all honesty, value isn’t always top of mind. Oncologists understandably focus on helping their patients live as well as they can, for as long as they can. They aren’t always investigating which drugs are equally effective as well as more economically friendly.

The challenge goes beyond educating oncologists on their options and the importance of using value-based regimens. The problem is that the standard oncology practice business model doesn’t reward physicians for prioritizing value. In many cases, these practices see their profitability slip by going with equally effective but less-expensive medications.

Here’s why: A large chunk of profit margin and revenues doesn’t come from services and care, but from a markup on the drugs above what the practice pays for them. Reimbursement from provider-sourced medications is often called “buy and bill.” We buy the drugs and, after they’re administered, we bill the payer at a markup. For some practices, these markups can account for about a third of revenues.

It’s simple math—the more expensive a drug you order, the more your practice receives.

Look at treatment options for a type of breast cancer: If you’re not paying attention to value, you might select an evidence-based treatment regimen that costs more than $50,000. Of that, the practice’s drug margin would be about $3,000. But what happens when you select a value-based regimen—equally effective, similar side effects, but much less expensive? The overall costs would be under $10,000, but your practice’s drug margin would be about $600. In short, prioritizing value hurts your profits. Will you save the payer and patient $40,000 or get $2,400 less for your practice? Many doctors aren’t aware of these costs, but that’s the impact of those choices.

That’s the issue my practice faced when we started making the move to value. We were an early adopter of value-based pathways. But it didn’t take long to see that our profits would suffer.

To overcome these barriers, we took part in an alternative payment model (APM) that rewarded us for pursuing value. In this APM, instead of relying on the drug margin for revenue, we received a set rate per patient case that protects our margins. So, if we choose between two equally effective regimens and select the less expensive one, it won’t affect how much our practice receives.

In addition to this case rate, our practice also gets a share of the drug savings that the plan achieves. So in the end, our revenue is protected, the plan saves money, and patients are still getting top-of-the-line treatment.

By applying this capitated payment model and care pathways that guided our selection of treatments rooted in science and value—as opposed to drug volume discounts or pharma incentives—we reduced the average cost of cancer treatments by nearly 15% per member, and our practice received about $200,000 in shared savings over the first year.

Nearly half of oncologists surveyed in a 2018 report don’t use cancer treatment pathways. But as the pace of treatment innovation threatens the financial health of both patients and oncology practices, it’s up to oncologists and their practices to take more responsibility for redefining their reimbursement models to care for our patients’ financial outcomes, not just their physical ones.

Dr. Andrew Schneider is an oncologist with South Florida Oncology and Hematology Consultants.

 

Previous Article
Four Ways to Adapt to New Oncology Value-Based Models
Four Ways to Adapt to New Oncology Value-Based Models

Our CMO Dr. Andrew Hertler is quoted extensively in this Managed Healthcare Executive roundup of strategies...

Next Article
Five Ways Oncology Has Become More Personalized
Five Ways Oncology Has Become More Personalized

How do you deliver individualized cancer care from both a scientific and human perspective? Read Managed Ca...