Oncology Drug Price Transparency – Impact on Self-Insured Employers

Oncology Drug Price Transparency – Impact on Self-Insured Employers

Self-Funded Employer Health Plans

Implications of Drug Price Transparency

Strategies to Manage Medical Oncology Costs & Improve Care Quality

Wes Chapman

April 30, 2021

 

Introduction

I have had the privilege of working with several self-funded employers and community based medical oncology physician groups over the last 10 years. In every case I was focused on a single question; how can we lower cost and improve the quality of care for cancer patients? In short, how can we improve the value delivered to these vulnerable cancer patients. Thanks to the implementation of Medicare’s Price Transparency Rule on January of this year (here) and some excellent analytical work done by Ronny Gal and his team at AllianceBernstein (here), presented at the Community Oncology Alliance (COA) in April of this year (here), there is now sufficient non-confidential data in the public domain that we can take a hard look at delivering value to cancer patients, insured by their self-funded employers.

The data shows that at a national level, hospital based chemotherapy administration is one of the principal drivers of cost inflation of cancer care – currently growing more than 2-3x the rate of inflation (here). Changing the venue of care delivery from hospitals to community-based settings can be done through a cooperative program between employers and their cancer patient beneficiaries in a way that both improves care and lowers cost – which we will examine in detail in subsequent blogs.

The expansion of outpatient medical oncology programs by hospitals has been part of a well-documented and effective program to move patients out of low-cost community settings and into high-cost hospital environments. This has been further incented using 340B drug discounts by not-for-profit hospitals for drug purchases for their commercial patients.

Figure 1

Today, over 50% of outpatient infusions are in hospitals

 

In this article I quantify and describe the scope of the problem, providing detail regarding specific examples for individual drugs. In subsequent blogs I will address the specific programs and methods that successful employers have used to create value-based cancer care programs, and provide some insights regarding obvious next steps to improve care and lower cost.

Scope

According to the Kaiser Family Foundation (KFF), employer health plans cover about 154 million Americans, of which around 61%, or 94 million, are covered by self-funded plans. These plans are normally used by large commercial employers, states, and municipalities to directly manage costs and lower overall costs of care. According to presenters at the Community Oncology Alliance (COA) this month, cancer costs typically run 12-15% of total healthcare costs for these employers, with 30-50% of these costs being medical oncology costs – mainly drugs, both orals and infused/injected.

Figure 2

Large employers dominate the self-insured market

Figure 3

Biological drugs dominate price increases in oncology care

The American Cancer Society estimates that total cost of cancer care in the US is around $200 billion, covering around 1.8 million newly diagnosed cancer patients in the US and another 3-5 million chronic cancer patients in active treatment (NCI). Cancer is predominantly an age-related disease. About half of the cancer population in the US is Medicare eligible, despite being only 16.6% of the total population (census.gov).

Because of cost shifting by hospitals private payers pay a dramatically greater proportion of this cost (estimated to be 65-75% of total costs, versus 50% of patients), in large part because of differential drug pricing, and 10% + growth in absolute drug costs (here). Based on this analysis, spending for oncology drugs should reach around $ 55 billion in the US this year.

Impact of Price Disclosure

As of January 1st , of this year, Medicare (CMS) mandated the disclosure of “real world prices” charged for a variety of identifiable items and services that provide, and made available in a manner that it could be sorted and disaggregated to facilitate comparable analysis.

The analysts at AllianceBernstein, led by Ronny Gal Ph.D., dug into disclosures from 150 hospitals regarding drug pricing, which they presented at COA on April 8th. The “punch line” from their analysis is that the reporting hospitals charge patients insured by private insurance 2-5X on average what they charge Medicare. These charges varied tremendously by hospital, payer, and drug, but the truth is hospitals are charging markups which dwarf the cost of oncology drugs, clearly identifying hospital markups as the central cause of oncology drug (infused and injected) price inflation for self-funded employers.

Figure 4

Hospital drug markup versus ASP

Figure 5

Hospital prices versus ASP for select oncology drugs

Of the 150 hospitals reviewed by the Bernstein team, only 30 complied with all the requirements of the new CMS regulations and had data which was useful in this analysis. The drugs used in the analysis were chosen as a reasonable representation of high cost infused and injected therapeutics, including 4 of which had recently approved biosimilars. These are functional equivalent of “generics” for protein-based drugs which are produced in living systems and are functionally equivalent, but not chemically identical, as in the case of true generic drugs.

Dr. Gal’s analysis makes clear that all medicine is local – in fact hyper-local when considered from the perspective of drug pricing. As shown in Figure 6, there is extreme variability in what consumers pay for individual drugs at hospitals, with much of the variability based on extreme price variation paid for individual drugs by payer.

Figure 6

Variation of drug price by payer by hospital

Shown below in Figure 7 is an analysis of the 16 drugs included by the Bernstein team, with the oncology drugs shown in green, and other drugs (mainly for auto immune disorders) shown in yellow. The third column shows the ASP price per treatment, taken from the CMS tables for the first quarter of 2021, and calculated based on normal dosage (which can vary widely based on type of treatment). The markup multiple in column 4 is independent of any treatment type and is based only on the drug used. As a point of reference, Medicare pays ASP + 6% (leaving aside any impact sequestration, which is de minimis in any event).

The average estimated % markup over Medicare pricing is 252% for all drugs shown, versus a range of 105% to 145% based on my experience with community practices. It is important to note that these drugs are critical for cancer patients but are in fact commodities. There is no difference in the drugs provided in a community clinic versus a hospital, and fees for physician services and infusion are charged separately in all cases. The only difference is price – in the case of Keytruda, around $20,000 per treatment. It is extremely easy to see how hospital based medical oncology care can lead to extreme increases in absolute dollar spend for employers and cancer patients.

Figure 7

Figure 8

Hospital vs. Community Practice Pricing

Biosimilars (shown in yellow below) are roughly the equivalent to generics, but made by living systems, like the original drugs (shown in green below) to which they are similar. Biosimilars offer a terrific opportunity to reduce cost without impacting formulary. Unfortunately, these drugs have been aggressively marked up by hospitals. Additionally, the lower absolute margins on these drugs have created a barrier to their use, except in explicit value-based environments.

Figure 9

Biosimilar margins trail the original drugs

 

Market size and Potential Impact on Employers

Based on the references used in developing this blog, I estimate the total market for employer excess payments for medical oncology drugs in the US to be around $ 6 billion (see calculations in Figure 9 below. This is the estimated total amount that could be saved if employers moved all of their oncology infusions out of high-cost hospital venues and into lower cost community venues.

Figure 10

How does this translate into actionable savings for a mid-sized employer?

Figure 11

The model above examines the potential savings for a mid-sized employer, with 2,500 – 3,500 employees and around 10,000 total beneficiaries. Again, these are the savings from a simple site-of-care switch from hospitals to community clinics. First thing to note, is that we are talking about a small population of potential new cancer patients in a year (75 in this example) – and we will only focus here on net new patients. Moving existing patients from their current site of care is difficult and unnecessarily complicated for a new program. In the model we contemplate directing the site of infusion for only 42 patients, but with a resultant savings of $1.27 million, or around 2.5% – 3.5% of the total assumed healthcare costs for this employer (excluding prescription drugs). In this case we have directed the site of infusion for 0.4% of total plan beneficiaries, to save a total of 3% of costs.

In my next blog I will go into more detail ow to make it work, but the punch line here is managing the site of infusion for 42 people over the course of a year saves 3% of total costs. A robust program will also improve the quality of care and patient satisfaction. From the Employer/Payer’s perspective, these are extremely sick, vulnerable, and expensive patients. It is worth putting in the extra effort to get the best care at the lowest cost.

Negative Sum Games and 3 Card Monte

Figure 12

Go ahead, Friend, find the Pembrolizumab margin!

All medicine (like all politics) is local, and the actual potential savings for any employer depends on the facts and circumstances of their local market. It will depend on the market dominance (and resultant pricing) of the local hospital system(s), the availability of community oncology alternatives, the demographics of their workforce (older means more cancer), and their access to data.

But it is worth doing. You will dramatically cut costs, and, if done with care, improve quality.

The team at Trilliant Health has written a great series of blogs (here) about the impact of price disclosure on hospital systems, with the first, Winning a Losing Game, Healthcare Edition, examining the Medicare price disclosure requirements as a negative sum game. The message of the series is simple – all hospitals are going to lose in the game of price disclosure. Those who recognize the game that they are playing can ultimately lose the least.

It is my hope that for the self-insured employer, the converse is true. All employers can win from price disclosure of oncology drugs. Our objective is to help those employers (and their cancer patient beneficiaries) who act first, to win the most.

Reference Authors, date URL
2021 ASP Drug Pricing Files

 

CMS, 2021 https://www.cms.gov/medicare/medicare-part-b-drug-average-sales-price/2021-asp-drug-pricing-files
A multi-year look at the cost burden of cancer care

 

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Biosimilars (Mar update): So far, biosimilars are proving an effective cost control mechanism in the US; market update Gal et al, AllianceBernstein, 2021 NA
Cancer Care Costs in the United States Are Projected to Exceed $245 Billion by 2030 AACR, 2020 https://ascopost.com/news/june-2020/national-cost-of-cancer-care-in-the-united-states-expected-to-rise-to-over-246-billion-by-2030/
Cancer patients receiving chemotherapy: Opportunities for better management

 

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Global Oncology Trends 2017 QuintilesIMS, 2017 https://communityoncology.org/wp-content/uploads/2017/06/QIIHI_Oncology_Trend_Report_2017_Advances_Complexity_Cost.pdf
Low Compliance From Big Hospitals On CMS’s Hospital Price Transparency Rule Henderson, Mouslin, 2021 https://www.healthaffairs.org/do/10.1377/hblog20210311.899634/full/?utm_medium=email&utm_source=hat&utm_campaign=blog&utm_content=henderson&utm
Medical Care Costs Associated with Cancer Survivorship in the United States Mariotto et al, 2020 https://pubmed.ncbi.nlm.nih.gov/32522832/
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The Costs of Cancer, 2020 Edition American Cancer Society, 2020 https://www.fightcancer.org/sites/default/files/National%20Documents/Costs-of-Cancer-2020-10222020.pdf
The Drugs at the Heart of Our Pricing Crisis Bach, Trusheim, 2021 https://www.nytimes.com/2021/03/15/opinion/how-to-control-drug-prices.html
The oncology practice of the future: Six ways to prepare for success in value-based care CardinalHealth, 2020 https://www.cardinalhealth.com/en/services/specialty-physician-practice/resources/whitepapers-and-downloads/oncology-practice-of-the-future.html
Total U.S. Resident Population by Age, Sex, and Series:    April 1, 2020 (In thousands) Census Data, 2020 https://www.census.gov/data.html
US Healthcare: As hospitals are forced to release real prices, we learn their drug markups average 250%; will dynamics change? Gal et al, 2021, AllianceBernstein NA
Winning a Losing Game, Healthcare Edition Trilliant Health, 2021 https://blog.trillianthealth.com/winning-a-losing-game
FDA to scrutinize unproven cancer drugs after 10-year gap

 

AP News, 2021 https://apnews.com/article/us-news-health-science-business-government-and-politics-019790c439dfd39a11868ede5d55b6e6

 

Wes Chapman
Written by Wes Chapman

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