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Unintended Consequences: How Government Policies Have Increased the Cost of Cancer Care—Part IV Oncology Goes to the Hospital Good or Bad? The View from 4 Key Stakeholders

Butcher, Lola

doi: 10.1097/01.COT.0000457343.03677.9c


Advocates for physician-owned oncology practices are alarmed by the number of practices that have moved to hospital ownership, which unquestionably increases the cost of cancer care. But some oncologists who have made the move say it is working out well for them and their patients.

This article examines how four important stakeholders—oncologists, hospitals, patients, and payers—are affected by the trend.

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What It Means for Oncologists

Barry Brooks, MD, a partner in Texas Oncology, the nation's largest private oncology practice, is so worried about the migration of cancer care to hospital-owned clinics that he has testified about it to Congress.

His testimony pointed out the higher costs associated with the trend, but he also has personal reasons to fight for community oncology practices: “When you go to a hospital, you become a single employee, you lose your group identity, and you don't have any power anymore,” he said.

Thomas Whittaker, MD, a former president of the Association of Community Cancer Centers (ACCC), hears that. His 17-physician practice, Central Indiana Cancer Centers, was acquired by Indiana University (IU) Health in 2011; two years later, the health system closed his practice location because it did not fit IU Health's strategic plan. Today Whittaker works in IU Health's revenue cycle services, which he likes, and wonders whether he will treat patients in the future. Despite what he calls his “sad story,” he thinks the move was the right thing.

“The first year of it was pretty tough because you go from being the boss to basically being an employee,” he said.

The bigger picture, however, is that the practice's business had been shrinking, making it difficult to pay for supportive services that patients need, but that insurers do not pay for. “For the group, it was the right decision and we went with the right organization to sustain the practice and grow the practice,” he said. “All told, it was very, very good.”

Andrew Chapman, DO, whose 10-physician practice joined Thomas Jefferson University in 2009, also has no regrets: “You absolutely give up some autonomy, because you now have a whole hierarchical structure which you're working in, but I think that is a small price to pay,” he said. “I personally believe that joining Jefferson was the best thing that we could have done.”

For one thing, he and his partners gained access to an electronic medical record system, which had seemed too daunting to acquire on their own. For another, Jefferson's resources helped them restructure their practice to comply with forward-thinking standards. In March, Jefferson Medical Oncology Associates, including the academic physicians and community-based physicians, became one of the first oncology practices in the nation to be recognized by the National Center for Quality Assurance (NCQA) as a Patient-Centered Specialty Practice.

“Putting these standards in place is something I would never have been able to do,” Chapman said.

Conversely, the partners who own Compass Oncology, the only independent practice in Portland, want to stay independent specifically because they fear their services might be marginalized if they joined a system.

“Health systems do a lot of great and wonderful things, but they have to think about many different service lines, and cancer isn't always first and foremost in their mind,” said Brad Perrigo, Compass's Executive Director. “We would end up having to scale back the level of services that we're able to provide that are solely focused on cancer and hematology.”

Both Brooks and Perrigo are affiliated with US Oncology Network, which believes federal policies are pushing cancer care into the hospital.

“Even in Texas, where my Texas Oncology is really strong, our people are constantly being approached. They try to pick off our biggest drug users and lure them to the hospital with more money,” Brooks said. “If Congress or [the Centers for Medicare & Medicaid Services] doesn't do something, they'll wake up one day and community oncologists will be extinct.”

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What It Means for Hospitals

While roughly one-third of U.S. hospitals participate in the 340B pricing program that makes cancer care a profitable business, the majority of hospitals face a different situation. Many are expanding their chemotherapy business out of necessity rather than preference for two reasons, both of which are influenced by federal policy.

Reason 1: Physician practices send patients away. Private oncologists buy chemotherapy agents, administer them to patients and bill insurers after the fact. Because of the pay rates for some cancer drugs, physicians can actually lose money in that buy-and-bill system.

When oncology practices were more profitable—and chemotherapy treatments were less costly—they frequently did provide therapies to patients whose insurance would not pay the full cost. But as their margins have been squeezed, that has become prohibitive for many physicians.

Private physicians are not required to provide chemotherapy to patients who cannot pay, but nonprofit hospitals cannot turn patients away if they want to keep their tax-exempt status. “Independent physician practices are seeing far more patients who have poor insurance, and they are sending those less profitable patients to a hospital and keeping the more profitable patients for themselves whenever possible,” said Lindsay Conway, Practice Manager for the Oncology Roundtable at the Advisory Board Company.

Since April 2013, Medicare moved into the “poor insurance” category for some oncology practices. The government's sequestration policy generated a two percent reduction for physician services—but a 28 percent cut for chemotherapy administration. “For a lot of our members, that was the final straw for having to unfortunately shift some of these patients away,” said Matt Farber, Director of Provider Economics and Public Policy for the ACCC.

Indeed, a 2013 survey of American Society of Clinical Oncology members found that half of them were sending some patients elsewhere—primarily hospital outpatient departments—for chemotherapy because the practices could not afford to lose money on the treatments.

While hospitals that do not have 340B pricing may not make much money on outpatient chemotherapy infusion, they may still benefit by the influx of cancer patients. Patients generally pay a facility fee every time they receive a hospital outpatient service. Additionally, patients who have chemotherapy in a hospital infusion center are likely to have CT scans and other high-profit imaging done there as well.

“So they really control a bigger piece of the business,” Whittaker said. But that doesn't always translate into big profits, Conway noted. “Unless it has 340B pricing, running an infusion center is not a great business for a hospital. For most, it's a break-even proposition,”

Reason 2: Physicians want to be hired. Before the Medicare Modernization Act changed the way it paid for drugs, it was easy for oncology practices to be financially successful. Not so today. A high level of business acumen—with particular skill in negotiating with insurers and collecting money—has become essential, and a practice generally needs an executive-level administrator or a physician willing to take that responsibility.

For that reason, many oncologists see hospital employment as a refuge from the risk of running their own business. Additionally, hospitals that do not have 340B pricing may hire them as a defensive move. Knowing that cancer diagnoses will be steadily increasing as the population ages, they do not want to cede a large group of patients to a competing hospital.

“When there's an oncology practice that has decided it no longer wants to be independent, and it has the choice of being acquired by Hospital A or Hospital B, Hospital A says, ‘I don't want my competitor to own those docs. I'd be much more comfortable if they were within my organization,’” Conway pointed out.

That increases the migration of cancer care to hospitals, even when no one expects a financial windfall. “Honestly, it is very difficult for most hospitals to see any kind of return on their investment when acquiring an oncology practice,” she said, referring to hospitals that do not have 340B pricing.

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What It Means for Patients

The first few months after a private oncology practice is taken over by a hospital are the most difficult for patients because they recognize that their out-of-pocket costs are higher but they don't know why.

“Around the time of the transition, we heard patients say, ‘You guys used to charge this much for Herceptin and after January, it went up three times. What's the deal?’” said Patrick Cobb, MD, a Montana hematologist-oncologist who moved to the hospital in 2012, practicing at St. Vincent Frontier Cancer Center in Billings. “We had to say, ‘Well, the hospital can charge more.’”

Patients who start treatment later never know the difference. “Now that we've been in a physician services agreement for 18 months, there's not as much of that,” he said.

Of course, for cancer patients, the highest priority is the quality of care, and no study has identified any quality difference between private practice and hospital-owned facilities. “The high quality we had in our private practice is mirrored in the hospital outpatient department,” Whittaker said.

In many cases, when oncologists enter into physician services arrangements or become employed by a hospital, they continue to practice in the community clinic they have always used. But if the practice actually moves onto a hospital campus, the patient experience may deteriorate, he said.

“Any time you condense and consolidate, that also means there is a bigger waiting room with more people and a bigger clinic to get through, and the parking is further away and the billing part of it is less personal. All those pieces take the personal face off the practice.”

On the other hand, consolidation with a hospital can bring resources—such as nutritionists, social workers, and care navigators—that a private practice might not be able to offer, Chapman said. The NCQA recognition that the oncologists at Thomas Jefferson University Hospital earned attests to their achievements in coordinating patient care, communicating with their primary care colleagues, providing timely access to care, and showing a commitment to continuous quality improvement.

Long before seeking the NCQA designation, Chapman had seen his patients' initial apprehension of receiving care in the larger hospital system dissipate: “It's sort of like the difference between going to the hardware store that's down the street versus walking into Home Depot. They are just different places, and they both have their benefits.”

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What It Means for Payers

North Shore Hematology Oncology Associates, with 17 medical oncologists and two radiation oncologists, is in its 45th year as an independent practice, but many of its Long Island peers have joined one of the two major health systems in the market.

“We are seeing payers panic about the consolidation of cancer care into the hospital [outpatient] setting because it costs them two to three times more for no better quality,” said Jeffery Vacirca, MD, Chief Executive Officer of the North Shore practice.

Higher payments to hospitals apply to all specialties, not just cancer care, but the high cost of cancer treatment forces the spotlight on oncology. Although less than one percent of its members will be diagnosed with cancer this year, cancer therapy accounts for 11 percent of the health plan budget for UnitedHealthcare, the nation's largest commercial insurer.

Insurers generally acknowledge they need to pay hospitals more for intangibles—the availability of around-the-clock emergency care, as an example—but how much more is often under contention. There are technical differences in the way insurers negotiate rates for hospitals versus physicians, but a significant factor in the different pay rates is this: Insurers typically have more negotiating power than independent physicians, while health systems—particularly if they control a lot of physicians—have more leverage than insurers.

“If you supply insurance to huge numbers of employees, the last thing you want to do is get the two health care systems on Long Island mad at you,” Vacirca says. “They have become the 400-pound gorilla and payers are scared to death to do anything.”

One way that insurers have responded to increasing medical costs is to cut pay rates to physicians. In Montana, Cobb thought he could convince payers in his market that was not a good long-term strategy.

“I gave one of them an-hour-and-a-half, 53-PowerPoint slide presentation about medical oncology economics and told them that all they have done is decrease payments for what we do—and all that was going to do is push us to the hospital, where their costs would go up,” he said. “They kind of nodded, but nothing ever came of it.”

In 2012, Cobb's independent practice entered into a physician services arrangement with St. Vincent Healthcare, which bills insurers at the higher hospital outpatient rates.

One big insurer is balking at the higher costs of care delivered in hospital outpatient departments. As of April 1, Highmark, the largest insurer in western Pennsylvania, eliminated “markups to the cost of certain oncology-related services, including infusion chemotherapy drugs,” billed as a hospital outpatient service if the treatments were provided in a physician office.

“We estimate that this billing change will save our community more than an estimated $200 million annually, with no impact to the quality of cancer care,” William Winkenwerder Jr, MD, President and CEO of Highmark Health, the insurer's parent company, said in a news release.

UPMC, owner of the Hillman Cancer Center and the largest health system in the area, said Highmark would be in violation of its contract if it carried out its plan. Some observers saw the dust-up as simply the latest salvo of a long-running feud between Highmark and UPMC, but others think it may a signal of change.

Acknowledging that Highmark may be hard-pressed to defend its position while it has a contract with UPMC in force, Farber said, “I think this is the initial shot across the bow, if you will, of some of the payers fighting back and saying ‘We're not going to sit back and take this.’”

Their only course of action, however, will be during negotiations for future contracts with hospitals that control oncologists. “How successful payers will be is hard to know,” he said. “A lot depends on the size of the hospital and their power in the region and their ability to negotiate for what they want.”

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#4 in a Series

This is the fourth 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.

Earlier articles examined how Medicare pay policies, the federal 340B drug discount program, and the Affordable Care Act have prompted oncologists to sell their practices to hospitals, where cancer treatment is more expensive. The entire series can be accessed at:

© 2014 by Lippincott Williams & Wilkins, Inc.
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