Paying for Cancer Care: Economic Models Start to Emerge, Dovetailing Healthcare Reform

April/May 2009, Vol 2, No 3 - Industry Trends
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Thanks to biologics, cancer is becoming not only a more chronic disease but also a resoundingly expensive one. In this economic climate, the financial framework for cancer care is headed for change, but how? At a recent webinar sponsored by Oncology Business Review (, opinion leaders discussed the challenges and the options for meeting them.

“Collisions” Causing Change

The collision of the aging population, a faltering economy, and soaring drug costs will trigger dramatic changes to relieve the “tectonic stresses” on the healthcare system, said Thomas Barr, MBS, Chief Operating Officer of Oncology Metrics. In spite of skyrocketing spending, “we as a society are no healthier than societies that spend less,” he pointed out. “This leads us to suspect that there is too little value for the healthcare dollar.”

Oncologists are now seeing more patients and prescribing more complex and expensive drugs, while facing increasing demands for transparency—against a backdrop of new workforce and technology challenges, Mr Barr pointed out. But, the increased demand and soaring cost of drugs come at a time when revenue into the Medicare system is declining. Mr Barr likened this to an “explosion” that requires “shock absorbers.”

One shock absorber is the development of biomarkers to guide the use of targeted agents toward specificity of treatment. “This moves the field beyond evidence-based medicine to value-based medicine,” he noted. “We can expect that effective value-laden therapies will be demanded and will get rapidly deployed by policy makers and embraced by payers.”

“Buy and Bill” Must Go

The traditional “buy-and-bill” system is on the way out, but its replacement is still up for grabs, and there are “challenges for each potential framework on technical and ethical grounds,” according to Peter Bach, MD, Associate Attending Physician at Memorial Sloan- Kettering Cancer Center, and former Senior Policy Adviser on cancer policy at the Centers for Medicare & Medicaid Services (CMS).

Under a “market-based view,” high drug prices are addressed by creating better competition—the old supply and demand idea—which drives prices down. The notion is that through transparency on price and value, the consumer will discover that less expensive goods can deliver what they want, Dr Bach said.

“But the question is, ‘whose demand is of interest?’” In healthcare, the purchaser (of drugs) is rarely the consumer (or the patient).

Under the “strong government view,” the challenge is identifying the appropriate metric for pricing by regulatory authorities. Value-based pricing becomes relevant, that is, using a fixed dollar amount for each unit of health gained. For example, a potential survival gain of 2 months may be valued at $8000, based on the generally accepted metric of $50,000 per quality-adjusted life-year gained.

In the alternative “top-down” approach to this constraint pricing system, physicians would be allotted a certain number of dollars annually for cancer drugs and would determine how to use them based on relative value. “The notion is a fixed basket of dollars to be used the most effective way, based on ranking of value, until it is depleted,” Dr Bach said.

The “physician-autonomy model” gives oncologists more incentive to prescribe cost-effective treatments. Currently, the more expensive the drug, the greater the dollar margin (ie, profit) for the physician, because the physician receives a percentage on the drugs that are delivered. The patient is worse off, being responsible for copayments and a proportion of the total cost.

To ensure that physicians choose the best care and not the least expensive care, evidence-based medicine would dictate what is acceptable. The goal would be treatment that is above and beyond this threshold. “It is the excess spending that is of concern,” Dr Bach emphasized. If drugs were comparable in efficacy and physicians could profit equally from lower-priced drugs, there would be more incentive to practice valuebased care.

Change can also come from regulatory channels, Dr Bach added. Today, individual drugs are considered biologically unique, and therefore, for average sales price calculation they are “sole sources” and not subject to commodity pricing. “Many feel that this sole sourceness is a driver of high prices and is not clinically rational,” Dr Bach said. Instead, the use of clinical or therapeutic equivalency, rather than biologic equivalency, would support market-based lowering of prices, and would yield better spreads, for the physician, on the less expensive choices.

Even less realistic is the idea of “consumer-directed healthcare,” in which consumers would receive funds commensurate with the average cost of treating their illness. They would learn the “health returns” of the various treatments and make their own choices; however, in its extreme form, “healthcare providers and pharmaceutical companies would compete with cruise ships and Walmart for the consumers’ dollars,” he noted. Dr Bach concluded that although these models are intriguing, most are “narrowly applicable,” and there is still a lack of data to support most of these ideas.

What to Expect from Washington

One thing is sure: the new administration is genuinely interested in healthcare reform in 2009. According to Joseph Bailes, MD, past President and Chair of the Gov - ernment Relations Council of the American Society of Clinical Oncology, the Obama administration’s “cancer plan” includes doubling the funding for cancer research, with a focus on prevention and value, dovetailing with the goal of affordable healthcare coverage.

The 21st-Century Cancer ALERT (Access to Lifesaving Early Detection, Research and Treatment) Act is expected to be introduced soon by Senators Edward Kennedy and Kay Bailey Hutchison. This is a national cancer program that facilitates coordination between agencies and includes a centralized institutional review board, emphasis on prevention and early detection of cancer, mandated coverage of routine patient care costs for clinical trial enrollees, patient navigator programs, and a demonstration project on cancer treatment. “This is all well and good, but we know there may be other priorities during the economic crisis, which will make these goals more challenging,” Dr Bailes said.

The new administration is also interested in valuebased purchasing. Legislation will be introduced to “restructure” Medicare, according to Dr Bailes. Specifically, legislators will address the sustainable growth rate formula (which will expire at the end of 2009), evaluate cuts to Medicare Advantage, attempt to strengthen Medicare Part D, propose drug price negotiation between the government and manufacturers, and extend the therapy-cap exceptions. A major healthcare reform bill will probably be introduced by the Health, Education, Labor, and Pensions Committee, currently led by Senator Kennedy.

There is bipartisan support for a number of concepts: comparative effectiveness, US Food and Drug Administration oversight, and the advancement of health information technology, probably tied to value-based purchasing. “There is a bipartisan view that a lot of these things must be fixed relatively soon if we are to have any stability in the system,” Dr Bailes added. “Out of the chute there are already issues to be addressed that will make for a robust health agenda.”

The pharmaceutical industry will feel the impact, probably in terms of an examination of drug pricing structures (especially the “buy-and-bill” model), a reduction in reimbursements, greater interest in biosimilars (related to cost savings), and continued scrutiny of offlabel uses.


For Medicare reimbursement, off-label use of drugs must be supported by approved compendia—US Pharmacopeia and American Hospital Formulary Service Drug Information (AHFS DI). CMS recently recognized 3 other sources: NCCN Drugs and Biologics Compendium, Clinical Pharmacology, and Thomson Micromedex’s DrugDex (but not Thomson Micromedex’s DrugPoints).

Off-label uses that are not in the compendia are authorized based on peer-reviewed studies in journals specified by CMS, now totaling 26 journals that carriers can consider for uses not listed in the compendia.

Finally, a major challenge is to clearly define “healthcare reform,” Dr Bailes concluded. “This may sound sophomoric, but if you listen to policy proposals, you see there are many definitions,” he said. “The public expects healthcare reform to be accomplished rapidly. This probably won’t happen, in light of the government’s other priorities and the political obstacles.”

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