“Patients care about high out-of-pocket costs, but they want high-quality and compassionate care—and they want it close to home.”
—Bruce Gould, MD
“Large out-of-pocket expenses mean that the likelihood of nonadherence to prescribed regimens increases by 42%. Does this affect survival? I don’t know, but the possibility warrants investigation.”
—S. Yousuf Zafar, MD
“A permanent 1% reduction in mortality from cancer has a value to current and future Americans of $500 billion, and improvement in quality of life can be even more valuable.”
—Alex Bastian, MBA
Cancer patients’ out-of-pocket costs are rising dramatically, and insurance premiums, cost sharing, and ancillary expenses can be devastating. Many people go bankrupt as a result of the high costs of health care. Drugs are among the most serious economic culprits. They grow more expensive every year, and every year, more patients cannot pay. This was the subject of a recent Institute of Medicine (IOM) National Cancer Policy Forum workshop, held in Washington, DC.
The Worst Problems
Shortages of some drugs, especially older ones that have gone off patent, have left many cancer patients out in the cold, mainly because the profit margin for some generics is too small to make continuing manufacture worthwhile.
The end is similar, but the means are different for specialty pharmaceuticals—drugs and biologicals that are the hope of the future. A. Mark Fendrick, MD, Professor, Departments of Internal Medicine and Health Management and Policy, and Director, Center for Value-Based Insurance Design, University of Michigan, Ann Arbor, said that these drugs will comprise about half of all pharmaceutical reimbursement for commercial health plans by 2018. To control spending, many payers have established requirements for high cost-sharing that result in some patients having to eschew beneficial but expensive drugs.
Dr. Fendrick noted three phenomena surrounding specialty medicines: For many patients and clinical indications, they represent money well spent, but indiscriminate high cost sharing can be harmful to patients and employers. However, a variety of tactics can ensure that the right patients have access to the right drugs.
Bruce Gould, MD, Vice President, Community Oncology Alliance, Washington, DC, said that both practice and drug costs are increasing, even as reimbursement for administrative services has decreased by a third in the past decade. “And sequestration hit us hard,” he said.
According to Dr. Gould, oncology practice is in crisis. As of 2013, he said, 131 practices have merged because they cannot go it alone, 288 have closed their doors, 407 are struggling financially, and 469 have aligned with hospitals, where the cost of care is 20% to 80% higher.
Dr. Gould noted that payers recognize that cancer treatment is managed care’s fastest growing driver. “They want standardized treatment at the lowest cost and are particularly concerned about the high cost of hospital-based care because patients require a ‘basket’ of services, especially expensive radiology,” he said. “Patients care about high out-of-pocket costs, but they want high-quality and compassionate care—and they want it close to home.”
S. Yousuf Zafar, MD, Associate Professor of Medicine, Duke University, Durham, North Carolina, used the phrase “financial toxicity” to refer to out-of-pocket costs: an average of $4,800 per year (even more for oral drugs) for cancer patients compared to $450 for others.
He related the story of a patient with pancreatic cancer who did well on a first course of chemotherapy but refused ongoing treatment. When Dr. Zafar asked him why, the patient said that he had already spent thousands of dollars and didn’t want to leave his wife and children saddled with huge debt after his death.
Cancer has effects beyond the disease itself. About 46% of patients have spent savings that were meant for other things, 46% had to cut down on basics such as groceries and clothing, and 68% cancelled a vacation. Further, the risk of bankruptcy is 2.65 times as high for cancer patients as for those without cancer.
“Large out-of-pocket expenses mean that the likelihood of nonadherence to prescribed regimens increases by 42%. Does this affect survival? I don’t know,” said Dr. Zafar, “but the possibility warrants investigation.”
Dr. Fendrick explained why out-of-pocket costs are unnecessarily high. First, cost-effectiveness varies. Many specialty medicines provide variable significant benefits depending on the circumstances in which they are used. Second, until 2002, most prescription drug plans had one or two tiers with corresponding methods of payment. The lower tier had a flat copayment, and the higher had a percentage co-insurance (usually 10%). Now plans have three or more tiers, some four or five. Specialty medicines sit at the highest tiers and require co-insurance of 30% to 50%.
The greater the cost-sharing, by whatever formula is used, the more likely it is that a patient will not begin or continue to take a particular medication. This is a serious, potentially life-threatening, problem.
Sometimes certain savings (reduced emergency room visits and hospitalizations) can offset the high cost of a drug, but there is no way to accurately predict this. Moreover, for many employers, the cost of medical care may be secondary to the cost of absenteeism. He quoted a 2009 study that showed that lost productivity due to poor health cost 2.3 times more than the cost of medical and pharmacy spending combined.
Kalipso Chalkidou, MD, PhD, Director of NICE (National Institute for Health and Care Excellence) International, London, noted that big pharma is the most profitable international industry, second only to tobacco. “In the United States, investors bet huge amounts of money on winning drugs. As a result of great profitability not necessarily linked to clinical results nor what payers are willing to pay, it is hard to control cancer drug prices internationally.”
The National Health Service has moved to value-based drug pricing. Patients in the United Kingdom have the right to drugs and treatments if, based on evidence of benefit, their physicians believe they are clinically appropriate. Decisions are made nationally, by NICE, but there is room for local discretion based on clinical opinion nationally.
“No evidence has been found,” said Dr. Chalkidou, “to prioritize cancer above other severe conditions or to prioritize drug treatments above any other interventions.” “Despite the fact there is little evidence to support this, England has set up a Cancer Drugs Fund to fund, on a case by case basis, drugs to which NICE has said no or which have not been reviewed by NICE yet.”
She described a survey of more than 4,000 people across Wales, England, and Scotland to determine if they value delivering health benefits to cancer patients more highly than to others. The majority (64%) did not. They wanted fair allocation, regardless of disease. “There was a consistent message that cancer is no more special than other diseases. However current policy does not reflect this.”
Keynote on Drug Pricing
Alex Bastian, MBA, Vice President, Market Access, Health, GfK Custom Research, LLC, San Francisco, described the oncology drug market. The effective lifespan of a drug is the time between approval and loss of exclusivity. “The more time it spends at peak [potential maximum usage], the more money it makes, and the faster it reaches peak, the better.”
This seems straightforward, but consider the following:
“Clinicians do not have to use new therapies,” added Mr. Bastian. “They can wait for clinical guidelines or choose alternatives. Also, a number of states have enacted laws (concerning oral drugs, step therapy, clinical trials, cost-sharing, and out-of-pocket maximums) that protect and define coverage boundaries or limit payers’ ability to manage oncology practice.”
Further, the number of oncology drugs that have companion biomarkers has doubled from 20% to 40% over the past 13 years, thus decreasing the size of the eligible patient population. Between 2001 and 2013, the average treatment population for oncology manufacturers has decreased by 242 patients per year. This adds up eventually.
“Conflicting incentives affect prescribing habits,” said Mr. Bastian. First, the site of care affects drug costs. For example, daunorubicin costs 975% more in a hospital than in the community, and mitoxantrone is 372% more expensive [in a hospital].
Second, academic physicians believe that cost should not be a factor in choice of drugs. In fact, 78% of them would prescribe effective therapy regardless of cost. Physicians in private practice, though, say that cost is a more important factor.
Oncology drugs are the most expensive in the pharmacopeia, but manufacturers keep looking for new, ever-pricier ones, and patients demand whatever they perceive as hope-affirming. The United States invests about $60 billion each year in medical research, only 40% of which is federally funded. Oncology is by far the largest slice of this pie.
“A permanent 1% reduction in mortality from cancer has a value to current and future Americans of $500 billion, and improvement in quality of life can be even more valuable,” said Mr. Bastian. “Is this worth it?” he asked.
Paradoxes of Cancer Drug Reimbursement
An afternoon panel discussed some of the ins and outs of access to and payment for cancer drugs.
Rena Conti, PhD, Assistant Professor of Health Policy and Economics, Departments of Pediatrics and Health Studies, The University of Chicago, described the Medicare 340B Drug Pricing Program, which allows certain underfinanced providers to purchase outpatient drugs at a discount. It does not depend on patients’ insurance. As of October 2013, 11,000 providers participate.
The 340b program is a drug discount program. It used to be a small program used by safety net clinics and selected hospitals taking care of uninsured and underinsured patients to acquire drugs at 50% off list prices. It has now ballooned into an enormous program; one third of all hospitals in the U.S. now participate and $7.5 billion in annual drug sales. Our research suggests the hospitals that qualify for the program based on the vulnerability of their patients treated in the inpatient setting alone, are likely pushing the envelope on the program’s intent by affiliating with outpatient clinics which largely serve well insured and affluent patient populations. This is a major policy concern for two reasons: first, the discounts available to hospitals and affiliated medical providers do not get passed onto patients or their insurers. Instead, hospitals can keep the revenue generated when they acquire the drug at deep discounts and are reimbursed by patients and insurers at full price. There is very little oversight on how much revenue is being generated by these providers through these activities or whether this revenue is actually being used to provide cancer care to vulnerable patients. Secondly, drug manufacturers know that hospitals and medical providers are pushing the envelope on the program’s intent in oncology and are baking in these discounts into the list prices of new and existing cancer drugs. This raises the amount of money we all pay for these drugs..
Lee N. Newcomer, MD, MHA, Senior Vice President, UnitedHealthcare, talked about oral vs intravenous drugs. “The most important decision should be which drug is best for the disease, but toxicity, dosing, compliance, reimbursement, and distribution channels all play a role,” he said.
Toxicity does not go away with oral drugs and in some cases is worse than with intravenous drugs. According to Dr. Newcomer, oral dosing is fraught with poor tolerability, as well as fixed and arbitrary adjustments due to pill size, and this constraint often causes unbalanced clinical trials. Compliance is poor with oral drugs—only 58% overall, he said.
In short, he commented, oral agents are neither superior nor inferior to intravenous drugs, both have clinical trade-offs, and cost remains an issue regardless of route of administration.
Private practice vs hospital-based care is fast becoming a major issue—with hospitals winning because physicians are moving there, and hospitals are making a concerted effort to increase their share of the market, said Eric Hammelman, MBA, Vice President, Avalere Health, LLC, Washington, DC. In theory, Medicare reimburses hospitals and physicians the same for the same drug, but utilization differences result in bottom-line payment differences, so hospitals make more money. (There is, however, evidence that hospitals are reimbursed at a higher rate for the same drugs.)
“These trends complicate efforts by payers to control spending and implement new payment methods for oncologic care,” Mr. Hammelman said.
Dr. Fendrick described value-based insurance design. “It reduces barriers to high-value clinical services and providers and discourages use of services and providers that are of lower value. Value-based insurance is driven by clinical nuance, which recognizes that medical services differ in the benefit provided. Benefit derived from a specific service depends on three factors: characteristics of the patient receiving it, the provider, and where the service is delivered. Plans incorporating value-based insurance establish lower cost-sharing on high-value services, drugs, providers, and settings as a means to increase utilization that represents worthwhile investment in health.”
Value-based insurance can be applied to drugs by ensuring that cost-sharing is related to clinical value, not simply acquisition cost. It works by imposing no more than modest cost-sharing in high-value medicines and abolishing four- and five-tier rankings to promote access to all medically necessary treatments. This approach limits clinical differentiation among treatments but provides access to all potentially important ones. Payers can be more selective by lowering high cost-sharing for drugs that consistently deliver outstanding value, which can then be moved from higher to lower tiers.
Moreover, value-based insurance reduces cost-sharing in accordance with patient- or disease-specific characteristics. Therapies are then readily available to those who will benefit from them, but not so easily accessible to those unlikely to benefit.
Value-based insurance also relieves patients of high cost-sharing after failure on a different medicine. If a patient does not respond well to first-line treatment, that “good soldier” can be “rewarded” with a second line of specialty medicine without high cost-sharing. Finally, this approach offers lower cost-sharing for patients who choose cost-effective, efficient providers. ■
Disclosure: Drs. Chalkidou and Conti reported no potential conflicts of interest.