October 2011
"The appropriate use of evidence-based guidelines is on a collision course with the financial nonsustainability of the healthcare system." (NCCN Healthcare Conference, 2010)1
It is no surprise that spending on cancer drugs has risen faster than spending in many other areas of healthcare. Cancer care in the United States costs over $100 billion a year, and medical bills for the average patient on chemotherapy can top $100,000 a year. The cost of cancer care will continue to grow, expected to surpass $200 billion by 2020.2 We are now in a situation where the inadequacy of current treatments for cancer is no longer the main problem within oncology care. Equally challenging, is finding a means to pay for this costly care that threatens to bankrupt the healthcare system.
Medicare led the effort to control spending on outpatient drugs through the Medicare Modernization Act, enacted to alter the structure of reimbursement from an AWP model to an ASP based model. While the rate of drug spend slowed under the ASP based system, its ability to control spend has since peaked.3 Further, while Medicare has shown signs on pushing back on high drug prices (as was seen when Dendreon's Provenge was approved), ultimately federal laws restrict Medicare's ability to negotiate pricing or to freely manage the use of anticancer drugs.4
With the goal of providing better care under the constraint of finite resources, the healthcare system is poised for a transformation. In the near term payors are decreasing spending through reducing drug utilization, increasing cost-sharing and tightening drug margins and management. In the long term, payors and physician networks are transforming healthcare, moving towards a standardized system that incentivizes cost-efficiency based on clinical pathways and guidelines.
Immediate Payor Focus Is On Restricting Drug Utilization and Increasing Patient Cost-Sharing
In the near term, plans are focusing on pulling relatively "easy" triggers that restrict drug utilization. As such, prior authorization is among the first areas of focus. Currently 80% of plans already implement prior authorization, with another 6% of plans expected to implement prior authorization restrictions within the next 12 months.5 Molecular diagnostics are increasingly being used in this setting as gate keepers to control drug utilization. This trend is expected to increase over the next 12-24 months as payors use molecular diagnostics as a biomarker based prior authorization step.6
Payors are also relying on cost-sharing strategies to contain costs; however, their ability to push incremental cost onto patients is mostly limited by healthcare reform. According to survey data published in an EMD Serono Specialty report, the percent of plans that are limiting their member's cost share liability by applying a maximum OOP per prescription is declining, from 88% of plans in 2008 to 64% in 2010.7 However, the extent to which plans can push cost onto patients has likely reached its peak given that healthcare reform and pending state legislation are aimed at limiting the extent of patient out of pocket expense.8
Payors Are Moving Away From "Buy and Bill" To A More Regulated System
The original intent of the medical benefit was not to manage drug costs, thus, not surprisingly, drug utilization management is a challenge under the current benefit design. In order to control spend, plans have increased their efforts in tracking drug spend under the medical benefit, resulting in increasing use of cost sharing strategies.
On the commercial side, payors may be able to go so far as to mandate SPP distribution for injectables, reducing buy and bill, and implementing a system that more closely resembles the pharmacy benefit. The existing "buy and bill" reimbursement model for IV products based on ASP +6% reimbursement incentivizes physicians to use more expensive therapies, independent of outcomes. Since oncologists are dependent on drug-based profits for their practice income, there is financial incentive to use more expensive drugs. UHC has reported that drug based profits represent 65% of oncologist's income.9 As a first step, plans are narrowing the margin on ASP +6% reimbursement and in the longer term, they are working to restructure benefit design. Survey data already indicates some migration of office administered drugs into the pharmacy benefit and there have been case examples of consolidation of PBMs and specialty pharmacy services (e.g., Express Scripts).
Decreasing Reimbursement Is Driving Oncologist Consolidation
These payor driven cost containment strategies are driving consolidation in the traditionally fragmented oncology provider landscape. Oncology practices are facing significant economic pressures, with declining revenues and increasing costs. After the reimbursement switch from AWP to ASP, oncologists were able to sustain their revenues by increasing their utilization of high priced injectable chemotherapeutic drugs.10 However, with declining reimbursement, oncologists are now trapped in the middle, struggling to drive profit.
Medical oncologists in solo or small group practices are joining hospitals or larger oncology networks (e.g., US Oncology) to lower practice costs. The size of US Oncology has been growing at a 4% CAGR, growing to 1,400 medical oncologists in 2011.11 Larger, consolidated hospital / provider networks are able to use their size to better negotiate drug price with pharma through their GPOs and employ initiatives that lower overhead administrative cost. Further, salary based compensation reduces income volatility and reduces incentives to prescribe expensive chemotherapy regimens.
Long Term Transformation, Driven By Payors And Provider Networks, Will Move Towards A System Based On Clinical Pathways That Will Standardize Cost-Effective Treatment
Payors and provider networks are developing clinical pathway based reimbursement models which aim to tightly manage drug utilization in the form of bundled or episodic payments, driven by guidelines and cost-effectiveness. Payors and provider networks are able to leverage their EMR databases which allow them to perform longitudinal analyses of large patient data sets to derive standardized, cost efficient clinical pathways to treat patients.
Large commercial payors such as UHC (and soon CMS) are piloting novel reimbursement programs that reimburse providers for treatment based on adherence to clinical pathways. UHC is currently piloting an "episode of care" model, ultimately intending to build a reimbursement system that measures and rewards clinical performance, while allowing comparison of results across physician groups using uniform treatment protocols (clinical pathways).
Large provider networks, such as US Oncology, are developing their own programs in parallel. US Oncology was able to demonstrate that the use of their Level I Pathway program generated cost savings over treating off pathway.12 While there has been significant progress towards developing clinical pathways, given the number of pilot programs in development by both payors and provider networks, broad standardization is not likely to occur in the near term.
Thinking Ahead...
This transformation is likely to result in a significant reorganization of the current stakeholders involved in oncology care. The balance of influence is shifting away from the individual physician and towards the payor and larger provider networks. Consolidation of decision makers and influencers results in a more efficient targeting strategy for pharmaceutical companies, however, the existence of clinical pathways may exclude incorporation of certain drugs into guidelines. While it is unclear what the future oncology landscape will exactly look like, for the first time, pharmaceutical companies are at a disadvantage as they no longer are in control of clinical data and outcomes driving these changes.
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About the author: Ilina Sen is a Consultant at the Frankel Group. To contact her regarding this post, email blog@frankelgroup.com.
Works Cited
1NCCN Healthcare Conference, 2010
2New York Times (Insurers Test New Cancer Pay Systems) 10.2010
3DrugChannels (ASP Lessons for Pharmacy's AMP Future) 05.2010
4N Engl J Med 360(6):626-633 (2009)
5EMD Serono Specialty Digest, 7th Edition (Managed Care Strategies for Specialty Pharmaceuticals) 2011
6EMD Serono Specialty Digest, 7th Edition (Managed Care Strategies for Specialty Pharmaceuticals) 2011
7EMD Serono Specialty Digest, 7th Edition (Managed Care Strategies for Specialty Pharmaceuticals) 2011
8Wisconsin Cancer Council PR (Insurance Coverage of Oral Chemotherapy) 2011
9PharmacyTimes (Payer Management of Oncology Gets Serious) 05.2011, The Zitter Group (The Managed Care Oncology Index) 2011
10Health Affairs 29(7):1394-1402 (2010)
11US Oncology website
12"Journal of Oncology Practice 6(1)"12-18 (2010)