Cost Versus Quality in Different Sites of Cancer Care

Oncology Business News®, June 2013, Volume 2, Issue 2

More oncology providers have shifted toward consolidation of practices to remain viable. In the last 4 years, 524 private practices have entered into agreements with or have been acquired by hospitals.

Debate in Favor of Oncology Practice Consolidation

Over the past decade, more oncology providers have shifted toward consolidation of practices to remain viable. In fact, in the last 4 years, 524 private practices have entered into agreements with or have been acquired by hospitals.1 As a result of private practices closing, an increasing amount of oncology patient care has migrated toward the outpatient hospital setting. But, is this phenomenon a positive or a negative for healthcare on the whole? Data from recently published white papers and surveys suggest that consolidation of practices may provide significant financial stability for providers, but it may also be contributing to the ever-rising costs to the cancer care industry without tangible gains in quality of care.An argument could be made that the changes in Medicare reimbursement due to implementation of the Medicare Modernization Act of 2003 that revised the reimbursement methodology to ASP +6% is the major driver of today’s practice consolidation. According to the 2012 National Benchmarking Survey, that reimbursement modification is seen as an increased difficulty for community practices in maintaining operational margins, a phenomenon colloquially referred to as “the squeeze.”2

Many community cancer care sites have also found this reimbursement model to be insufficient to stay in business. Further complicating matters, the Patient Protection and Affordable Care Act (ACA) fails to address the issues connected to the sustainable growth rate, which calculates Medicare’s formula for determining annual updates to physician reimbursements for services. The ACA’s Independent Payment Advisory Board has yet to be implemented, and there are still many unknown consequences providers will have to face.

Figure 1. Trends in Costs and Revenue from 2005-2011

Source: Barr TR, Towle EL. J Oncol Pract. 2012 ;8(5):292-297.

Arguments in favor of practice consolidation are many. For starters, a large hospital typically has access to a larger variety of resources than a private practice can afford to invest in, such as psychological and financial counseling not directly related to oncology care. By offering more services, a hospital setting has more opportunities to create cost-savings through efficiency than a community practice.

Although some may argue that these additional services drive up the cost of treatment, the practice of cost-shifting allows hospitals to ride out economic storms for short periods of time without major labor-force upheavals or service cuts. Cost-shifting towards higher prices for treatments therefore grants a measure of financial stability to the hospital. The negative is that cost-shifting can also become a necessity because hospitals, being nonprofit organizations, are required to maintain a certain amount of charity work to earn tax benefits. This practice does not improve quality, per se, but it can become an effective “rainy day” strategy for many hospitals.

Charity work itself points to another benefit of consolidation: wider access to healthcare for the poor. Private practices can either accept or refer patients at their discretion, leaving hospitals to absorb the high costs of treating uninsured and unhealthier patients requiring more extensive care. Approximately 24% of all cancer treatment occurs exclusively in the hospital outpatient setting, meaning hospitals are likely not handling a majority of the “ideal” patients for treatment.3 A higher rate of comorbidity in patients treated at hospitals may account for, and justify, higher treatment costs overall.

Michael Kolodziej, MD

Hospitals, being more centrally run as a business have more resources and wherewithal to figure out what works to improve efficiency, and then implement changes. An oncologist running a private practice may have neither the time nor the drive to do the same. It’s of paramount importance, though, that changes are made to labor structures, since this expenditure is among the fastest-growing in all of cancer care, and operating costs are climbing faster than revenues (Figure 1).2 A hospital is better-positioned to absorb these rising labor costs than a private practice.

Size confers another important benefit to hospitals: leverage. The lowering tide of reimbursement by payers like Medicare can be mitigated by hospitals because the threat of losing a large client base may allow payment negotiations to open up considerably. A hospital can use this leverage to earn a more favorable payment plan to cover rising costs.

Consolidation is also an important investment vehicle for hospitals. Initially, they may lose money by hiring more doctors while absorbing practices.4 However, hospitals may reap significant rewards and remain competitive as accountable care organizations (ACOs) are formed as per provisions outlined in the ACA. Although the future impact of ACOs is not yet fully understood, Michael Kolodziej, MD, National Medical Director for Oncology Strategies at Aetna, told us that the ACA was implemented with the intention of driving toward more integrated, seamless care. “ACOs,” he said, “are going to change the game of oncology care. It is just not yet known exactly how this will take place.”

Debate Against Oncology Practice Consolidation

Kolodziej remains optimistic. To him, consolidation is a transitory state that will force both community and hospital-based providers to improve infrastructure and efficiency. With consolidation, hospitals are better positioning themselves by bringing in new talent, and strengthening their internal referral base and servicing more patients.4 “The more forward-thinking hospitals are already considering how to change to decrease the cost and improve the quality of care.”Managing the cost of healthcare is important to payers and the economy at large, since healthcare spending is a large portion of our gross domestic product.5 In a recently published AmerisourceBergen white paper, it is suggested that one problem with the consolidation of practices is that while the quality of care is not significantly better,6 it is more expensive. Supporting this evidence is an Avalere Health report from a study it conducted, which found an average increase of 24% in costs associated with chemotherapeutic care in the outpatient hospital setting compared with community practices.7

Another analysis by Milliman, Inc. demonstrated that the average annual cost of chemotherapy covered by Medicare from 2006 through 2009 was $47,500 for privately owned practices, while similar services performed in the outpatient hospital setting incurred a cost of $54,000 on average.3

As discussed in the “Value of Community Oncology Site of Care Cost Analysis,” rising costs in the hospital outpatient setting have not translated to better patient outcome.6 A retrospective analysis as part of The Synthesis Project reported that hospital consolidation reduces quality of care at the same time that it increases costs.8 Even if both consolidated hospitals and community practices are meeting similar standards of care and improving outcomes for oncology patients, innovation in the form of clinical trials is carried out primarily by community practices.9 Consolidation may result in stunted development of new generations of cancer therapeutics.

Considering Perspective

Consolidation may also place undue burden on the supply of doctors. In years past, the end goal of an oncologist’s education was to open a business of his or her own. For many, the idea of working in a hospital and losing autonomy and career potential may be enough of a disincentive to prevent him or her from entering the oncology care field entirely. A generational shift of priorities may mitigate this problem, however, as many young doctors are willing to sacrifice some amount of career development in favor of the financial stability that is afforded by working for a hospital.4Despite the advantages conferred by hospitals absorbing private practices, continued consolidation is not likely to yield good returns for many reasons. Private practices have traditionally been important delivery vehicles of quality treatment and screening to regions that make little economic sense to service, such as rural areas. The closure of these practices makes getting access to treatments more difficult in this case, necessitating longer trips for diagnosis and treatment. This difficulty could lead to higher-risk populations allowing a malignant disease to progress beyond a stage where treatment is economical or effective. Community oncology also provides convenient, personalized care in large and small cities alike.

Private practices also present an important cost balance against rising of costs by creating competition. The greater power wielded by hospitals in terms of payer negotiation can present a double-edged sword. Reimbursements can reach out-of-control levels, resulting in a greater burden on payers that is transferred to the consumer in the forms of higher premiums and taxes. Cautionary tales of unchecked competitive positioning can be told about the California and Massachusetts markets.10,11 For example, in California consolidation has created some markets where a single “must-have” hospital can negotiate massively-inflated reimbursements. 8 “Must-have” hospitals, by definition, have market leverage over health plans that cannot plausibly threaten to exclude them. Importantly, “must-have” providers’ strong negotiating position is not necessarily derived from size, but rather by factors not typically part of antitrust analysis. That is, they are “must-have” for reasons other than large market share.

So the question remains: Is consolidation working? The answer most likely depends on perspective. Oncology practices consolidating may weather uncertain economic and legislative times, but they also lose their autonomy. The challenges of running a successful oncology practice are many, and may be better handled by MBAs than MDs. Improvements in efficiency can be more easily translated into big gains within a larger system such as a hospital. Unfortunately, those savings have not been realized, since it still costs markedly more to treat cancer in the hospital outpatient setting compared with the community practice. From the payer and consumer perspective, consolidation has yet to provide significant benefit. Access is decreased (especially in rural areas); costs are elevated; and patient outcome is not enhanced. These problems must be engaged in order to help control the burgeoning cost of healthcare in the United States, and the trend of consolidation does not appear to be slowing any time soon.


  1. Community Oncology Practice Impact Report, April 4, 2012.
  2. Barr TR, Towle EL. Oncology practice trends from the national practice benchmark. J Oncol Pract. 2012;8(5):292-7.
  3. Finch K, Pyenson B. Site of Service Cost Differences for Medicare Patients Receiving Chemotherapy. Prepared by Milliman, Inc. October 2011.
  4. Kocher R, Sahni NR. Hospitals’ race to employ physicians--the logic behind a money-losing proposition. N Engl J Med. 2011 12;364(19):1790-1793.
  5. Roehr B. US spent $2.7 trillion on healthcare in 2011, but growth remains steady. BMJ. 2013 10;346:f199.
  6. The Value of Community Oncology Site of Care Cost Analysis. Paper.pdf. Accessed May 22, 2013.
  7. Total Cost of Cancer Care by Site of Service: Physician Office vs Outpatient Hospital. March 2012. Prepared by Avalere Health, LLC.
  8. Vogt WB, Town R, Williams CH. How has hospital consolidation affected the price and quality of hospital care? Synth Proj Res Synth Rep. 2006 (9); pii: 15231.
  9. Blayney DW. Commentary: six years of trends in oncology practice data. J Oncol Pract. 2011 Sep;7(5):291-3.
  10. Berenson RA, Ginsburg PB, Kemper N. Unchecked provider clout in California foreshadows challenges to health reform. Health Aff (Millwood). 2010;29(4):699-705.
  11. Office of Attorney General Martha Coakley. Examination of Health Care Cost Trends and Cost Drivers. June 22, 2011.