Soaring Price of Cancer Drugs Leads Plans To New Approaches

Insurers are trying different methods, from pay for performance to promoting preventive care, to hold down cost of chemotherapy drugs
Martin Sipkoff

The cost of cancer drugs is skyrocketing, placing a significant burden on health plans. According to Morgan Stanley, cancer drugs accounted for 13 percent of drug expenditures in 2002. This year it will account for 22 percent. The average cost of a 30-day prescription for a cancer drug is more than $1,600, according to Express Scripts.

“There’s no doubt that cancer treatment is increasingly expensive,” says Burton F. VanderLaan, MD, an oncologist and regional medical director in Chicago for Aetna and a member of the National Quality Forum’s Cancer Care Measures Project Steering Committee. “This is a problem our society as a whole faces as [new] treatments become available and as our population ages. ”

Much of the financial burden of cancer treatment falls on Medicare and Medicare Advantage health plans.

“Medicare pays for a substantial portion of all cancer care,” says Peter B. Bach, MD, a researcher at Memorial Sloan-Kettering Cancer Center and CMS. “So its payment policies do influence other health care payers and affect the economics of oncology treatment.”

According to a study Bach published in the Jan. 10, 2007 issue of the Journal of Clinical Oncology, three characteristics of Medicare coverage are relevant to how the cancer care market currently functions:

  • Medicare finances all aspects of cancer care in independent payment units, paying separately for physician services, laboratory tests, procedures, imaging, radiation, drug administration, and drugs.
  • Medicare is currently managing and monitoring a very substantial overhaul in payment for cancer drugs, which aims to reduce or eliminate incentives that have favored aggressive and costly treatments in clinical situations where alternative therapeutic approaches might have been equivalent or preferable.
  • Medicare is trying to increase the focus on care quality and transparency, as improved efficiency and greater value is needed if costs of care are to be contained.

Private plans also pay for each element of cancer care — including drugs — and that methodology will probably not change soon in the private or public sector. Cancer treatment is complex, involving a wide range of services, so discreet payment units make sense.

Change in drug payment strategy

Two years ago Medicare changed the way oncologists are paid for infusion drugs they administer. Drug payments to oncologists fell to only 6 percent more than the average price of the drug. That change has had an effect on how cancer is treated and how much it costs.

In 2005, oncologists billed about $2.2 billion less for chemotherapy and related anemia medications than they had billed in 2004. Medicare covers 80 percent of inpatient chemotherapy costs, so the difference to the federal government was substantial: $1.76 billion.

Private health plans followed Medicare’s example and also reduced their drug payment levels. “We continually evaluate our reimbursement policies for all cancer treatments, including chemotherapy,” says Alan Spiro, MD, chief medical officer for national accounts at Anthem, a subsidiary of WellPoint. “But our primary concern is to ensure that patients are receiving the best possible care, and that means encouraging physicals and [cancer] screenings.”

Plans are holding overall cancer costs down by investing in preventive care, says Dick Salmon, MD, national quality medical director for Cigna HealthCare. More than 6 percent of Cigna HealthCare members in Florida who participated in a pilot screening program for colorectal cancer last year had test results that revealed abnormalities, signaling a need for follow-up tests with their doctors. This year the health plan expanded the program to 13 more states. So far, 6.7 percent of the members who returned the test kit had positive results and required follow-up testing from their physicians.

Pay for performance

Preventive care is a form of quality control. Quality standards, in fact, offer new payment opportunities for physicians.

With that goal, a CMS oncology demonstration project, as revised in 2006, began measuring quality of care in terms of how providers treated patients. Physicians’ pay is calculated based on their documentation of the diagnosis, the stage of disease, and whether the treatment regimen follows commonly accepted treatment.

The original 2005 CMS oncology demonstration project followed the change in chemotherapy payment by focusing on the “encounter,” which emphasized the patient’s experience of pain, nausea, and fatigue. It created a billing mechanism called the G code. The 2006 project uses it to focus on the services provided during an office visit, to compare the care rendered to national standards of care, and to create a useful cache of claims data.

All of this is a form of pay for performance, a new idea in oncology. The way P4P could affect costs is to encourage physicians to treat the disease and its symptoms as effectively as possible, using existing evidence-based guidelines.

One reason health plans have yet to offer P4P programs to oncologists is that the complex data collection requirements have not yet been developed, experts say.

“Pay for performance is a great idea, absolutely the right direction, and I think it is going to happen,” says Harvey D. Bichkoff, CEO of California Cancer Care in Greenbrae, Calif. “But treatment decisions in this discipline are often very complicated. Simply using claims, administrative, and pharmaceutical data won’t work for us.”

Better decisions

“Taking steps to reduce financial incentives tilted toward more expensive drugs, reducing variations in resource utilization, and increasing the visibility of care quality will all make care decisions more rational, and make the tradeoff between costs and value clearer,” said Bach in his study of Medicare cancer payment methodologies. “Whether these moves serve to slow the rate of growth in cancer costs themselves is hard to predict. Meanwhile, very high prices for individual drugs are creating a difficult situation for patients and physicians — both unprepared for these challenges.”

Cost of drug treatments in outpatient settings

Anticancer agents are among the most expensive of all drugs administered in clinics.

Top 15 clinic drug expenditures
Drug Total 2004 expenditures
($ in millions)
Epoetin alfa $3,901
Darbepoetin $1,214
Pegfilgrastim $1,160
Infliximab $1,269
Rituximab $951
Oxaliplatin $541
Docetaxel $636
Zoledronic acid $467
Trastuzumab $365
Gemcitabine $421
Paricalcitol $350
Pneumococcal vaccine, diphtheria conjugate $350
Irinotecan $327
Filgrastim $228
Carboplatin $316
Source: Hoffman JM, Shah ND, Vermeulen LC, et al: Projecting future drug expenditures: 2006. Am J Health Syst Pharm 63:123-138, 2006.

Contributing Editor Martin Sipkoff is a long-time health care journalist.


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