The Big Squeeze: How to Handle Higher Costs, Shrinking Reimbursements, and Regulations That Endanger Your Practice

Oncology & Biotech NewsMarch 2012
Volume 6
Issue 3

Shrinking reimbursements and higher healthcare costs are making it difficult for community oncologists to stay in practice.

David B. Wilson, RPh

Every oncologist is being squeezed by economic pressures and government regulations. Shrinking reimbursements and higher healthcare costs are making it difficult for community oncologists to stay in practice.

“Every cancer center is looking for ways to keep from flushing money down the drain,” said David B. Wilson, RPh, oncology pharmacy manager and oncology pharmacy residency director at St. Luke’s Mountain States Tumor Institute in Boise, Idaho.

It is time for every practice to take a hard look at the entire operation to see how to deliver the best quality cancer care at the lowest cost. This will be a difficult process, Wilson said.

One of the biggest areas that community oncologists are feeling the squeeze is with shrinking reimbursements for oncology drugs. The problem started more than 20 years ago when the federal government instituted a reimbursement formula that provided generous reimbursements for delivering chemotherapy in the oncologist’s office. The reimbursement model may have been a good idea at the time because it incentivized oncology practices to provide chemotherapy infusions in the outpatient setting, thereby eliminating expensive hospital stays. The byproduct, however, created a flawed and misaligned incentive system for oncology reimbursement.

In 2004, the Medicare Modernization Act changed the reimbursement formula to provide little or no margin on many chemotherapy drugs. Taxol is a perfect example. When Taxol became available in the early 1990s, it cost $1500 to $2000 per dose; now it can cost less than $100. “We used to make hundreds on it. Now, with generic paclitaxel, we make $4 or $6 to cover the IV bag, $15 worth of tubing, other supplies, and preparation time. There is technician time and pharmacist time. They need to gown up and wear gloves. It is unsustainable to expect healthcare providers to provide a taxane treatment for $4,” noted Wilson.

Under the current system, oncologists are paid to administer drugs, but not to provide other important medical services that may help patients manage the side effects of chemotherapy either at home or in the clinic. The rising cost of oncology drugs has rendered the “buy-and-bill” payment model unsustainable for most practices. The government and private payers have reduced reimbursements for drugs, but have not increased or added reimbursement for other important patient support services. The current system doesn’t reimburse oncologists who provide services that actually reduce healthcare expenditures and avoid expensive emergency room (ER) visits. Instead, the incentives in the system are misaligned to actually encourage oncologists to refer patients to the ER to receive the exact same services the oncologist could have provided in the clinic for a fraction of the cost.

Several experts are looking at ways to change the reimbursement structure to make it more cost-effective and patient-centered. They are looking at ideas such as a case management fee for each patient, which would pay for active treatment and patient support services, regardless of the drug choice.

Everyone involved in healthcare has to recognize that resources are limited, which means making healthcare value judgments that Americans have been loath to make. Is it the best use of healthcare dollars to pay for repeated ER visits, rather than pay for the prescription that will control chemotherapy side effects and prevent that ER visit?

“We are finally coming to terms with the fact that benefits are as much about economics as costs,” said Wilson at a Philadelphia meeting that looked at payment models in community oncology, sponsored by the Association of Community Cancer Centers. “Consideration of cost is not unethical. We have to consider cost because we have limited resources.”

Just as most benefits plans do not consider patient costs like travel time, babysitters, and lost work hours, they do not consider management costs such as staffing in the cancer center either. But that doesn’t mean that practices can afford to ignore those costs, too.

“Community cancer centers are going to have to invest some money in order to be able to make some good decisions,” he said.

A person that Wilson finds invaluable is a patient financial navigator, but many small practices do not think they can afford to dedicate a full-time person to obtaining prior authorization, filing claims appeals, etc. Wilson said he was at a small cancer center that felt the same way.

“The administrators thought we could not afford to hire those people,” he said. “We could not afford NOT to hire those people! We had to demonstrate their need. We had to show how many rejected claims we had, how much off-label use we had, how much money we were losing.”

Wilson explained that in one case, the center was losing $700,000 annually in off-label prescribing of a single drug. If they had a person who obtained prior approval, the physicians would have known to choose another therapy.

Few physicians earn an MBA, and their focus is rightly on practicing medicine, rather than on scrutinizing the economics of medicine. However, Wilson said, if practices are going to be sustainable and profitable, they must learn to make good pricing decisions. With insurers squeezing reimbursements, practices must be mindful of how they price incidentals.

He gave this example: Administrators at a cancer center were purchasing IV bags for $3 a bag. They marked them up 300% and were billing insurers $9 a bag. Then they found a contractor that would sell the bags for $1 each, but they still used the same mark-up paradigm, so they charged 300%—or $3 a bag. “You sold them for $9, now you sell them for $3. You’re losing money.”

The first step is finding the right person or group of people to review the operation; this might require hiring additional staff. “Mid-level managers are very busy. They are doing budgets, performance reviews, figuring out staffing crises, counting the widgets. It can be hard for them to be strategic. They do not have the time to analyze the data. We don’t always have the right people in the right jobs.”

When asked what advice he would give to community oncology practices, Wilson offered these suggestions:

  • Look to business partners outside the organization, such as insurers, pharmaceutical companies, and other vendors for information because they have a wealth of data. That data might have to be filtered, but it is still useful. “They have information that they have spent money obtaining, so don’t discount that.”
  • Organizations like the Association of Community Cancer Centers offer many tools, webinars, and educational opportunities that can help. Wilson recommended The Practical Cancer Pharmacy Workbook ( as a great tool for understanding the concepts and economies of providing oncology medications.
  • Purchasing or developing a pathways program can help with costs. Getting everyone on the same page and using the same products for similar patients can increase a practice’s purchasing volume and potentially affect pricing.
  • Having a financial patient advocate to obtain prior authorizations can help prevent missed reimbursement opportunities.
  • Developing a formulary committee that includes not only doctors and pharmacists, but also billing and coding people can help control the drug spend.

Wilson also suggested thinking in broader terms and stressed the importance of planning for the future. “If you are making decisions based on the current state of things, you are not planning for the future. That is correction. We cannot abandon correction, but we need to plan for the future, too.”

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