The Escalating Costs of Oncology Care in the US
The US healthcare system is expected to spend more than $150 billion treating cancer by 2020, Daniele Severi Bruni, Jacob J. Schutz, and Anthony Hewitt of ICON plc ask if we have we have hit a breaking point in the escalating cost of oncology care.
The increasing costs of cancer therapies are a growing concern, as witnessed by the recent trends of pricing of novel drugs entering the US market. The treatment of cancer has been growing steadily in the last decade and it is projected to cost the healthcare system more than $150 billion by 2020
The high cost of oncology drugs is explained and is justifiable by a number of clinical, economic and healthcare policy reasons. However, while novel oncology therapies may offer incremental clinical benefits, the escalating prices charged by manufacturers continue to add intense pressure on an already expensive healthcare system. With a heightened focus on US healthcare reform in recent years, these concerns bring forward a broader challenge for drug manufacturers of convincing stakeholders that the value for money continues to exist in oncology care.
The legal mandates for payers to cover oncology drugs, coupled with a fragmented healthcare system, have generated a situation where the demand for oncology treatments is quite inelastic and, unlike their European colleagues, US payers have been quite limited in their ability to contrast the rising cost of oncology drugs. We believe that this situation has incentivized innovation, with benefits are enjoyed far beyond the borders of this country. However, as commercial and public payers are trying to bring back under control the cost of healthcare, it is fair to ask if we have we yet hit a breaking point in the escalating cost of oncology care.
Current Strategies to Control Oncology Drug Costs in the US
For the last 10 years oncology care has been a large budget item for most payers and a priority for most pharmacy and medical directors in public and private payer organizations. Several attempts have been made to control drug spending in this area, but with limited results that have often made the problem worse.
Let’s examine, for example, the resulting effects of the added administrative burden for providers of care. By increasing the administrative hurdles for clinicians through burdensome pre-authorization processes for drugs and certain tests, payers have attempted to control the utilization of high-cost technologies.
As confirmed by a panel of 10 of the top oncologists in the country interviewed during ASCO’s Annual Meeting, frequent follow-up by phone required in addition to the requisite paper prior-authorization forms and burdensome matching of ICD-9 and J-codes generate much of the clinicians' frustration.
However burdensome the process is, ultimately very little reduction in the costs of oncology care has been achieved by this approach. In fact, one could argue that this potentially increases administrative costs, as many hospitals are forced to hire specialists to take on these administrative responsibilities, and often physicians are required to take time away from seeing patients to speak directly with an insurance provider to gain authorization.
In addition to this increase in administrative burden, there has also been a notable increase in the shifting of costs to patients and employers. The situation has changed significantly in the last five years for patients, who are today faced with higher out-of-pocket and deductible costs. This patient cost-sharing evolution is illustrated in a recent study conducted with US payers
The strategy of shifting costs to patients has however found a limit in the recent implementation of the Affordable Care Act (ACA). ACA has prohibited payers from imposing lifetime dollar limits on essential benefits and, for the plan year beginning in 2014 the annual maximums (caps) are $6,350 for an individual and $12,700 for a family. This amounts to a small fraction of a patient’s overall cancer treatment costs and thus has the potential to significantly mute the efforts of payers to shift more of the burden to patients.
A higher level of financial exposure could be expected by patients funded under Medicare Part B, who are responsible for 20% of their drug costs. However, the majority of these patients generally have some form of supplemental insurance or Medigap coverage, leaving in effect only a small portion of the population financially exposed. For these patients, oncologists have usually found alternative ways of ensuring access to drugs, including referral to hospitals, sourcing clinical trials, or through patient-assistance programs.
Future Trends in the Management of Oncology
Overall, it appears little has been accomplished by payers to date to control the costs of oncology care. However, there are some interesting trends that are beginning to emerge in the US market, which, in the long term, could cause a paradigm shift in the way oncology care is managed. These trends are somewhat interconnected and can be summarized as: the emergence of ACOs, the development of clinical pathways and payers’ rationalization of provider networks.
ACOs and Practice Economics
US physicians are still largely unaware of drug costs, not properly incentivized to reduce expenses, or simply not interested in the cost of care. Actually, the current system seems to incentivize clinicians to use more costly therapies. Even if the buy-and-bill practice is no longer as profitable as it once was (Medicare for example reimburses at ASP+4.3% vs. the ASP+6% granted before “the sequester”), clinicians, especially the ones practicing in large and efficient medical groups, still enjoy a financial incentive to prescribe more expensive agents.
One trend that could dramatically change the system of incentives for providers is the development of Accountable Care Organizations (ACOs). ACOs are attracting a lot of attention recently, and even if they were born as organizations geared to work with Medicare, increasing numbers of commercial payers are looking at this model as a way to control their escalating healthcare costs. Both the payers that we correspond with regularly and our panel of oncologists agree that, in the next 3 to 5 years, ACOs have the potential to trigger a dramatic shift in the way manufacturers have to think about the pricing of oncology drugs. Despite the fact that a dominant model of ACOs has yet to emerge, it is already clear that ACOs will push the financial risk of oncology care from the payers to the providers, making them far more sensitive to the cost of oncology agents.
The ACO model promoted by Medicare is intended to achieve the dual goal of reducing the cost of care and improving outcomes by increasing the coordination and sharing of information. ACOs are measured not only on their capacity of maintaining costs below a certain threshold, but also on their ability to achieve specific quality measures.
Oncologists who are part of (or partner with) an ACO will have to remain aware that their treatment decisions have an impact on the overall ACO costs. This may imply that PCP’s referral pattern will shift toward oncologists who share with the PCP (and the ACO) the vision of low-cost and high quality care. Oncologists and oncology clinics will be incentivized to collect and communicate data on their cost levels as well as on their outcomes. In this respect, ACOs may trigger two phenomena. Firstly ACOs may increase the adoption of externally validated oncology pathways of care, to ensure the most appropriate use of expensive oncology drugs. This will limit the use of products whose high price is not perceived to match a commensurate outcome benefit, especially where other similar and less costly alternative are available. Secondly, oncology practices may go through a process of consolidation, mergers and rationalization of their processes in order to reduce operational costs and increase efficiency.
According to our payers and panel of oncologists, ACOs hold the potential to provoke a landslide in the provision of healthcare in the US. However there is still a lot of uncertainty on how the entire model will evolve and its real impact on curbing the cost of oncology drugs. The ACO environment is still in its infancy, making it difficult to estimate the real pressure that these organizations will be able to place on manufacturers.
Another aspect to keep in mind is that, at the moment, ACOs seem to be focusing their efforts on increasing efficiency in large chronic disease areas and non-specialty care. Even when ACOs evolve towards a higher control of oncology, the areas that will be tightly monitored are more likely to be those cancers affecting large patient populations or where there are several therapeutic alternatives with defined and well-accepted pathways of care. It is safe to expect that orphan oncology drugs will not be affected by the ACOs and by providers’ attempts to rationalize the use of expensive treatments.
Pathways of Care
Pathways of care (or clinical pathways)are detailed, evidence-based processes for delivering cancer care for specific patient presentations, including the state and stage of disease. A regimen for treatment is specified, including the names of the drugs, dosing levels, and schedule for administration. They go beyond the the NCCN guidelines by providing a deeper level of specificity and, to a certain extent, by taking the cost of care into consideration.
There is an emerging role of external organizations that develop and implement clinical pathways and influence treatment protocols. The three major players in this field are VIA Oncology, US Oncology and P4 Healthcare, and their primary objective is to leverage evidence-based treatment protocols designed to promote the delivery of cost-effective and improved patient care.
To date, there are some examples of payers implementing pathways of care linked to an incentive plan for clinicians. This incentive commonly takes two forms: a bonus for pathway adherence or preferential reimbursement for pathway preferred drugs. Pathway adherence bonus would be structured in a way that allows for some physician freedom in prescribing, for instance a provider will get a bonus payment from the plan if 80% of plan members follow the pathway. Preferential reimbursement provides higher buy-and-bill rates for preferred cancer drugs (i.e ASP+12% vs ASP+4.3%).
Despite the financial motivation for providers to follow the pathways, their impact so far has been modest due to a number of reasons. As pointed out by our panel of oncologists, pathways of care are difficult to agree upon (standardize) due to each provider group seeking to set its own pathways. They can also be difficult to implement and enforce in a disease state where every patient is perceived as unique. This is particularly true in Centers of Excellence, where highly specialized oncologists deal with rare or more complicated disease states. Another issue is that, by definition, pathways of care require several therapeutic alternatives to choose from, and this produces inherent difficulty with rare tumor types, which have few therapeutic options and a standard of care that is still emerging.
Despite these difficulties, we believe that, due to slow structural changes in the system, pathways of care are destined to play a major role in the treatment of oncology patients in the near future. There is clear evidence that in disease areas where pathways of care are possible and have been aggressively implemented, the savings are substantial. As payers start to push the financial risk of the treatment choice toward the providers through mechanisms such as those described for ACOs, clinicians will be more and more willing to adopt externally validated pathways of care.
Ratonalization of provider networks
The final trend is a consequence of the trends discussed above. Despite the fact that ACOs are gaining momentum, it is expected that in five years’ time approximately 20% to 30% of the population will be covered by these organizations. The remaining patients will be likely be covered under the more traditional systems. However, some of the innovations that ACOs will trigger are likely to affect other providers and payers.
As noted, because of the dynamics inherent to the ACOs, oncology practices will have a direct incentive to adopt pathways of care and to monitor, record and communicate not only their outcomes, but also their cost levels. This will likely set new industry standards. Traditional payers not under contract with ACOs will still gain unprecedented visibility of oncology practices, their efficacy, and their level of adherence to pathways. This will allow payers to rationalize their network of providers based on objective and publicized metrics.
Have We Reached the Breaking Point?
We believe that the simple answer to that question is ‘no’. As discussed, while there are forces at play aiming to curb increasing treatment costs, the US market doesn’t appear to be at a place yet to see a material impact in the near term. Given payers’ unwillingness (or inability) to do anything more incisive, oncology care costs shall continue to rise for the foreseeable future.
However, there are signs that, even if we will not witness a revolutionary change, the environment is slowly but surely beginning to head in a new direction. As would be expected in the US, market forces will ultimately prevail and will soon begin to alter the environment as we know it. Thanks to healthcare reforms and other environmental dynamics, payers will slowly transfer more of the financial risk to providers. From the providers’ standpoint, they will be forced to make more rational and cost-conscious treatment decisions if they want to continue to compete in the business of treating cancer.
Unlike in many European countries, the burden of decision-making on how to spend healthcare dollars has been lifted from the shoulders of the regulators and it will be the prevailing market forces that soon will be reining back in a system whose costs are, according to some observers, out of control. However, due to the nature of the healthcare business, this is unlikely to happen in an expedited fashion and thus, in the short to medium term, the disproportionate cost of oncology care is destined to increase. From the perspective of those paying the bill, things will have to get worse before they get better.
About the Authors
Daniele Severi Bruni is Senior Director, Pricing & Market Access, Jacob J. Schutz is Director, Pricing & Market Access, and Anthony Hewitt is Consultant, Pricing & Market Access, all at ICON plc.