Secondary Logo

Journal Logo

Unintended Consequences: How Government Policies Have Increased the Cost of Cancer Care, Part III Emerging Payment Systems Fuel Cancer Care Consolidation

Butcher, Lola

doi: 10.1097/01.COT.0000456289.49614.2f


The Affordable Care Act (ACA), approved by Congress in 2010, is trying to reorganize the American health care system to deliver better care at a lower cost.

Under the fee-for-service payment system currently in place, physicians and hospitals are paid on volume—the more hospital admissions, the more surgeries, the more treatments, the better—and everyone gets paid the same rate, regardless of the quality of care provided.

By introducing new payment systems, the ACA seeks to reward physicians and hospitals that provide high-quality care at low cost so that they thrive while their inferior peers wither.

Private payers have been quick to join the “value” movement, and the vast array of payment experimentation currently under way—accountable care organization (ACO) contracts, bundled or episode-of-care payments, pay-for-performance programs that reward compliance with cancer care pathways, and others—is unprecedented. The result is that many oncology practices are or soon will be working in a mix of payment systems that have different rules and incentives.



“A practice could be working with a hospital in an ACO with Medicare but it has no ACO contract with private payers, so it is still working fee-for-service, except that maybe one payer wants pay-for-performance for pathways but not the same pathways that are being used in the ACO,” said Matthew Farber, Director of Provider economics and public policy for the Association of Community Cancer Centers. “You can see where the difficulties come in.”

While the payment reform experiments unfold, most oncology practices will derive most of their payments through the fee-for-service system for the next few years at least.

“Changing away from fee-for-service is going to be a very difficult and long process because we have lived with it for so long,” he said.

During that long process, most of the emerging payment models will require physicians and hospitals to accept financial risk for the care they provide to patients under the terms of a given contract. That is fueling consolidation at all levels of the health care industry as smaller organizations seek refuge in the deeper financial pockets of larger institutions.

“You can see this is driving cancer care into the hospitals where, as has been shown, care can be more expensive,” Farber said. “A lot of people have been asking, ‘What is Medicare thinking with all of this?’ I think they have the best of intentions but oftentimes these ideas are not 100 percent ready for prime time.”

Back to Top | Article Outline

Accountable Care in the Lead

The term “accountable care organization” was just an idea being discussed in policy journals in 2009 when the Knight Cancer Institute at Oregon Health & Science University (OHSU) bought Pacific Oncology, a nine-physician community-based practice in the Portland area.

Since then, OHSU entered into a joint operating agreement with Legacy Health, a six-hospital system, to create an integrated adult community cancer program that serves a five-county area.

In doing so, OHSU is positioning itself for a payment system in which providers agree to provide all health care services for a population of patients at a targeted price. In most accountable care arrangements, the hospitals and physicians can receive “shared savings” if they hit quality goals and spend less money than a pre-determined benchmark.

Succeeding in accountable care contracts requires coordination of care among all providers, technology that allows easy flow of information among providers, the ability to measure and report quality data, and the standardization of evidence-based care.

“Health care providers are going to need to collaborate to succeed with all these very patient-centric, value-based requirements,” said Ann Raish, Vice President of Oncology Services for OHSU. “But if we're successful in doing this, I really do think we will see reductions in cost and improved quality and outcomes.”

She has lots of company in that opinion. As of May, at least 626 ACOs across the country were under contract to provide care for more than 20 million individuals. More than 300 health care organizations are in ACO contracts for Medicare or Medicaid patients, and 210 health systems or physician groups have ACO contracts with commercial payers.

Bugs in the ACO model are still being worked out, but private insurers are almost giddy: Some ACOs are spending eight to 15 percent less than their competitors. Aetna, one of the largest national insurers, intends to have ACOs in two-thirds of its markets by 2017, and its competitors are equally aggressive.

The ACO model itself does not require that hospitals and physicians consolidate under common ownership. However, many hospitals are eligible for 340B price discounts—up to 50 percent in some cases—on cancer drugs, while physician practices must pay full freight. So ACO leaders will see the wisdom of merging a physician practice into a 340B hospital as a painless way of saving money on cancer care—and making the ACO more successful.

“Since drugs generally represent more than half the cost of treating a patient with cancer, one can see why owning the provider can be beneficial,” said Kjel Johnson, a vice president at IMS Health, which provides information to the health care industry.

The winners will be the hospital, the physicians, the patients, and the payers involved in the ACO contract—but that will be only a subset of the cancer patients treated by those oncologists. The rest of their patients will still be covered through fee-for-service contracts, where the costs of care increase because the oncology practice is hospital-owned.

That is why some health care watchers are suspicious of anything that encourages consolidation in the health care industry. The Pacific Business Group on Health, whose members include Wal-Mart Stores, Disney, Boeing Co., and other huge companies that buy health insurance for their workers, says consolidation is one of the big drivers of health care cost increases.

“While we understand the opportunity for some efficiency and some integration of care that consolidation can bring, we often don't see that,” said David Lansky, Pacific Business Groups President and CEO. “What we see instead are price increases through market power.”



Back to Top | Article Outline

Another Take on ACOs

In June, St. Elizabeth's Medical Center became the fourth satellite center of Dana-Farber Cancer Institute.

St. Elizabeth's, a 250-bed hospital, is the oncology hub for 10 other hospitals in the Steward Health Care System, one of the largest Medicare ACOs in the Northeast, so more than one million patients get access to DFCI through its contract with St. Elizabeth's.

“The medical oncology unit is fully under our license and our control, managed by our faculty and our pharmacists,” said Lawrence Shulman, MD, Dana-Farber's Chief of Staff, Senior Vice President for Medical Affairs, and Director of Regional Strategy Development. “They use our clinical IT infrastructure, which allows us to provide the same guideline-driven care, measurements of the quality of care, and so on that we do at the main campus and our other licensed sites.”

Dana-Farber Cancer Institute is one element of the Dana-Farber/Harvard Cancer Center, the largest National Cancer Institute-designated comprehensive cancer center (CCC) in the world. Like its cancer center colleagues, DFCI is trying to find a way to make its services part of the value movement. While Dana-Farber is not in any ACO, it is associated with a few.

“We at Dana-Farber are committed to provide what we think is the best care for our patients, but we are also completely committed to finding ways to be more thoughtful about the care that we deliver and to control costs,” Shulman said. “That includes keeping some of the care, when appropriate, in the community where it has a lower cost structure.”

Beyond the location of care, DFCI is looking for ways to control costs at the system level. Each of its disease-specific centers has developed cancer care pathways that prioritize treatments by efficacy, toxicity and cost, in that order. Additionally, Dana-Farber leaders are scrutinizing the use of imaging and high-cost drugs to avoid expensive overuse.

It may seem paradoxical that Comprehensive Cancer Centers, traditionally the most expensive site for cancer care, could be the solution to America's cancer cost crisis, but some observers think that is the case.

Indeed, any policies that force consolidation in cancer care may be a step in the right direction, says David Guy, Vice President of Oncology and specialty markets for Pinnacle Health Communications, a consulting firm.

“In all the other modern industrialized western countries except for part of Germany, cancer care is not in a community-based model,” he said. “Everywhere else, cancer care is consolidated in tertiary cancer centers.”

And, by the way, the overall cost of health care in those countries is significantly less than in the U.S.

“So at the macro level, you've got to think there are probably efficiencies from that approach to treating patients,” he said.

At Dana-Farber, Shulman thinks policies that force cost-consciousness in cancer care is a “good change in paradigm.” But he is not sure whether they will make cancer care financially sustainable.

“What I can say is I hope so,” he said. “I'm not sure I can say anything more definitive than that.”

Back to Top | Article Outline

Bundled Payments to the Rescue?

In 2005, New Mexico Cancer Center (NMCC), a private practice in Albuquerque, was approached by the hospital to which its oncologists had admitted their patients for years.

“The hospital that we thought loved us came to us and said, ‘You have two choices: You can either sell this to us and become an employee or we will pull a bunch of money out of reserves and build our own program and put you out of business,’” Barbara McAneny, MD, the practice's Chief Executive Officer, said in a MEDTalk presentation in July.

NMCC chose another option: Ask its major commercial payer to reward the practice for the value of care it delivered. For several years, NMCC had been working to streamline care in a way that would reduce the out-of-pocket costs for its patients. In doing so, the practice had reduced emergency department visits and hospitalizations.

“We had outcomes data so we said ‘Health plan—you should love us. Look at all the money that we are saving you,’” McAneny said. “The health plan said, ‘That's over $10 million that you did not give to our [affiliated] hospital as revenue.’ So they were not terribly interested in working with us.”



McAneny turned her attention to the Centers for Medicare & Medicaid Services. With funding from the ACA, CMS was funding demonstration projects through its Innovation Center. In 2012, NMCC received a $20 million grant to expand its model of care to six other practices around the country. The goal: Find out if this care model is replicable and will lead to a new way to pay for cancer care in America (OT, 4/25/14 issue).

NMCC calls its program COME HOME—for Community Oncology Medical Home—and it shares the key concepts of other oncology medical home initiatives around the country. In addition to the use of clinical pathways to standardize care when appropriate, the basic idea is to do whatever is necessary—extended office hours, nurse triage phone lines, patient education—to help patients manage symptoms without requiring hospitalization, including at the end of life.

The demonstration will not end until next year, but McAneny can see what's happening. The medical home care model improves patient satisfaction and physician satisfaction while lowering the total costs of patient care. But, after the financial support from the Innovation Center grant ends, there is no funding for the extra costs associated with the medical home model of care.

“If we see 10 patients in the after-hours clinic, that is not enough [billing codes] to pay the salaries of the people who are working then,” she said. “On the other hand, if those 10 patients go to the emergency department and spend a whole lot of money—and 60 percent of them are going to get admitted for unnecessary things—that saves [payers] a lot of money. But we don't get that money.”

She said she believes oncologists will have to accept financial risk through bundled payments, in which physicians receive a flat fee for a set of services. If they can provide care for less than that amount, they succeed financially; if they spend more, that amount comes out of their pocket.

“What we are learning is that this [medical home model] is actually not going to be a sustainable model unless we get rid of the fee-for-service system and come up with a bundled payment and share some of the savings that we are creating from keeping people out of the hospital,” she said.

Bundled payments, an approach that is gaining traction in cardiac and orthopedic care, can be narrowly defined—for example, chemotherapy administration only—or encompass all care from diagnosis to hospice services.

CMS's Innovation Center is expected to announce a demonstration of bundled payments for cancer care by the end of this year.

Back to Top | Article Outline

The Bottom Line

After Central Indiana Cancer Centers folded into a health system three years ago, Thomas Whittaker, MD, started a new career in health care revenue cycle management.

So he is removed from the struggle to keep his practice independent and reconciled to the fact that, after buying the practice, the health system closed the clinic where he had built his career.

From this vantage point, he believes the ongoing consolidation of cancer care is inevitable—in the foreseeable future, very few practices will remain independent—and this will pave the way for better value—lower costs with higher quality—in cancer care.

But it will take a while before society sees those benefits.

“In the short run, I think it will actually be more expensive,” he said.

Back to Top | Article Outline

#3 in a Series

This is the third in a series of articles that show how federal policies intended to reduce cancer care costs have actually increased them. The series is part of Lola Butcher's year-long Reporting Fellowship on Health Care Performance sponsored by the Association of Health Care Journalists and supported by The Commonwealth Fund.

The first article, in the Sept. 10 issue, examined how when Medicare changed the way it pays oncologists for cancer drugs, it triggered a migration of cancer care to hospital outpatient departments—where costs are higher. The biggest loser? The Medicare Trust Fund.

The second article, in the Sept. 25 issue, showed how hospitals that are eligible for 340B pricing—deep discounts on drugs because they serve a high percentage of low-income patients—have a financial incentive to hire oncologists. The result: More cancer care in hospital outpatient departments, where costs for payers and patients are higher.

Back to Top | Article Outline

iPad Extra!



PODCAST: Listen on the iPad edition of this issue to Jeffrey Vacirca, MD, Chief Executive Officer of North Shore Hematology Oncology Associates in Long Island, NY, explain why insurance companies are worried about the consolidation of cancer care.



If you are not yet receiving our iPad issues, download the free Oncology Times app from the App Store today! Visit, search in the App Store, or follow the link

Back to Top | Article Outline

iPad Extra!



VIDEO: Watch a video interview on the iPad edition of this issue with Thomas Whittaker, MD, on the iPad edition of this issue explain why after 35 years in business, Central Indiana Cancer Centers merged into a health system.



If you are not yet receiving our iPad issues, download the free Oncology Times app from the App Store today! Visit, search in the App Store, or follow the link

© 2014 by Lippincott Williams & Wilkins, Inc.
Home  Clinical Resource Center
Current Issue       Search OT
Archives Get OT Enews
Blogs Email us!