COA Study: Hospital Outpatient Care 60% Higher, Leads to More Emergency Visits

Oncology Business News®December 2017

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As CMS moves ahead with payment reforms designed to reduce the total cost of hospital care, the results from a new study show that cancer treatment remains much less expensive at community oncology clinics than at hospitals and that the spending gap between the 2 types of sites may be growing wider.

Lucio N. Gordan, MD

As CMS moves ahead with payment reforms designed to reduce the total cost of hospital care, the results from a new study show that cancer treatment remains much less expensive at community oncology clinics than at hospitals and that the spending gap between the 2 types of sites may be growing wider.

The total cost of care for patients receiving chemotherapy in hospital outpatient facilities is nearly 60% higher than the same treatment at independent practices, according to the study by Lucio Gordan, MD, medical director in the Division of Quality and Informatics at Florida Cancer Specialists & Research Institute, and Xcenda, a health economics consultancy. The average difference for patients with breast, lung, or colon cancer was $7512 per month, or $20,060 in the hospital setting versus $12,548 at community practices. Annually, the average difference amounted to $90,144 per patient.

The findings are consistent with 10 previous studies between 2011 and 2016 that found hospital outpatient costs were 38% higher on average, according to the Community Oncology Alliance (COA), which released the report. Gordan said the bigger difference in his study may reflect the increased costs of new biologic drugs, more expensive radiology, and higher hospital fees.

A major driver for the cost difference was chemotherapy, which ran 71%, or $3510, higher per month in hospital outpatient departments; the average spending was $8443, compared with $4933 at community practices. Physician visits cost 3 times as much per month—$3316 versus $765, a difference of $2551. The widest gap was seen in breast cancer, which cost 66% more in outpatient settings, followed by lung cancer at 54% higher and colorectal cancer at 46% higher.

Gordan’s analysis differs from some previous studies in that he adjusted for type of cancer, age, geographic region, presence of metastatic disease, comorbidities, and other factors, to ensure that he was comparing similar hospital-based and community patient populations, he said. He also made an effort to consider how patients fared and found that those in hospital settings had more emergency department (ED) visits and hospitalizations after receiving chemotherapy. For hospital patients, 9.8% had ED visits within 10 days, compared with 7.9% for community practice patients.

The study’s main goal is to strengthen COA’s ongoing campaign to fix payment systems that favor hospitals and have contributed to hundreds of acquisitions and closures of independent oncology practices in recent years, Gordan said. He presented the findings at the organization’s annual Payer Exchange Summit on Oncology Payment Reform in October. “This is going to be an evolving battle to get payers to understand,” he said. “This is how we plan to light the fire again. The purpose was to keep people reengaged in the subject because even though we have had 10 studies showing kind of the same idea, nothing really happened.”

Hospitals sometimes argue that their higher costs are justified because they offer services not available in other settings, such as 24-hour EDs, uncompensated care, disaster preparedness, and various specialized services. “These roles are not explicitly funded; instead they are built into a hospital’s overall cost structure and supported by revenues received from providing direct patient care,” the American Hospital Association (AHA) said in response to a set of CMS payment reform proposals. Meanwhile, COA argues that community practices have their own expensive obligations and provide equally good care at a much lower cost.

Nancy Keating, MD, MPH, a professor of healthcare policy and medicine at Harvard Medical School, said Gordan’s study would be better if it had more clarity about who the included patients and payers are and more detail on the patients’ conditions and their office visits. But she said the findings on the whole are consistent with other research supporting the benefits of community medicine. “We don’t have evidence that hospital outpatient department care is better, and certainly for patients who want to get care locally, which makes it more convenient, there doesn’t seem to be any problem with that,” she said. “It might actually have the advantage of saving our healthcare system money and maybe even leading to fewer emergency visits.”

COA Executive Director Ted Okon acknowledged that in specialized cases, patients with cancer do need to be treated at hospitals, but he rejected arguments that large institutions provide better outcomes generally. “The hospitals always throw around those remarks, but they never prove it with data. As we’ve accumulated more data here, the data actually say the contrary,” he said.

The AHA did not respond to requests for comment on the COA study. Numerous individual hospital centers also did not respond or provide comments.

Keating said a top reason for the cost differential is hospital systems’ negotiating power with health plans. By including big systems in their networks, health insurance companies make their plans more attractive to the workers and employers who are their customers. The larger the health system, the more power it has to demand higher payments, creating a strong incentive for further expansion and acquisitions.

While Gordan is focusing on persuading private payers to equalize payments to different types of treatment sites, the federal government is already acting to reduce its spending on hospital-based care. As required by a 2015 budget law, this year CMS put into effect a site-neutral payment policy that cut Medicare reimbursement rates in half for care at new hospital outpatient facilities. The rule, which aims to bring those payments in line with the fees paid to private physicians, applies to outpatient offices built or acquired since November 2015.

“One view of the concern that gave rise to this, as expressed by some members of Congress, the Medicare Payment Advisory Commission, and other groups, is the trend of hospitals buying physician practices and converting what had been a physician practice to an off-campus hospital department,” said Elizabeth Halpern, a partner at the law firm Hogan Lovells in Washington, DC. “Hospitals could buy physician practices, convert them to be part of the hospital, and then get paid for the services they provide there at the hospital rate instead of at the physician rate. For some services, the hospital rate is a lot higher than the physician office rate.”

Halpern said hospitals’ reactions to the new rule have varied. Some went ahead with new outpatient facilities anyway, perhaps with different service offerings than previously planned, while others put them on hold. “Anecdotally, what I’d heard is that some transactions or construction plans that were under way, but hadn’t yet been finalized, may have been stopped because the financial model and the reimbursement that was expected wasn’t going to be there,” she said. Halpern noted that CMS just announced it will slash the outpatient reimbursement rate even further in 2018, from the current 50% of the old hospital rate down to 25%.

Yet, as stated above, the site-neutral payment policy affects only sites acquired or built since November 2015, and the impact of Medicare fee differences “pales in comparison” with the competitive advantage hospitals gain from the 340B drug discount program, Okon said. Close to two-thirds of hospitals get deep discounts on oncology drugs, which are meant to subsidize the cost of treating low-income patients but have the effect of boosting cancer program revenues and motivating hospitals to take over community oncology practices, he said.

CMS is now targeting that program as well. The agency said it will cut Medicare payments for 340B drugs from the current average sales price (ASP) plus 6% down to ASP minus 22.5%. Okon said that because of the “inescapable” evidence of high spending on hospitals, Congress and the Trump administration are finally “turning their attention to that segment of the market that’s driving costs.” The AHA, meanwhile, has called the proposed rule “misguided” and called on CMS to focus instead on bringing down the high cost of pharmaceuticals.

The AHA argues not only that hospitals require high revenues to pay for uncompensated services but also that CMS’ cost-cutting proposals will make it harder for patients to afford or find the care they need. “The patients who benefit from the much-needed 340B program are the ones who will have their access to care threatened,” AHA Executive Vice President Tom Nickels said earlier this year. He likewise described the Medicare fee-cut plan as “yet another blow to access to care for patients, including many in vulnerable communities without other sources of healthcare.”

Whether payment reforms will harm access to cancer care for low-income patients or underserved populations is unclear. Community oncologists who treat Medicaid patients often send them to hospitals for chemotherapy; low Medicaid payment rates make such infusions money losers for community practices, whereas chemotherapy is generally profitable for 340B hospitals. Payment reforms would reduce hospital revenues, but whether such cuts would lead a hospital to stop offering chemotherapy would likely depend on numerous factors, including its overall financial health and the priority that hospital administrators place on improving revenue margins and expanding their organizations.

Different dynamics are at work with other groups of concern, like patients with lower-end exchange plans. Despite hospital systems’ bargaining power, payers are sufficiently concerned about their high costs that some steer their exchange-plan members to community practices instead, Keating said. As a result, government payment models that encourage hospitals to keep buying up small practices could reduce treatment options for these patients. “If a small practice in your neighborhood gets purchased by the large cancer center, and then a payer decides to just exclude the whole cancer center from your network, you might not be able to get care there anymore,” she said.

Gordan L; Community Oncology Alliance, Xcenda. The value of community oncology: site of care cost analysis. Published September 25, 2017. Accessed October 31, 2017.

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