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Cancer Treatment Costs and Trends Beckon Risk-Sharing Future

December 2016 Vol 9, Special Issue: Payers’ Perspectives In Oncology: AVBCC 2016 Highlights

Washington, DC—Oncology care is facing rising costs that will demand a transformation from a fee-for-service reimbursement model to a value-based, shared-risk incentive plan for Medicare and commercial insurance plans. Bruce Pyenson, FSA, MAAA, Principal and Consulting Actuary, Milliman, New York, NY, provided an overview of the cost trends of cancer treatment costs at the Sixth Annual Conference of the Association for Value-Based Cancer Care.

Healthcare spending has dramatically increased in the past 10 years. Although other age-adjusted causes of death have declined, cancer has not. From a value perspective, cancer is a low-value area of spending, said Mr Pyenson.

“The prevalence of patients with cancer who are not getting active treatment has actually increased a lot,” he said. “We don’t have an explosion in actively treated disease. There is an increase in patients who are surviving and being monitored. That’s an interesting dynamic.”

The prevalence of actively and nonactively treated cancer in the commercially insured patient population increased from 0.7% in 2004 to 0.9% in 2014, and this increase was predominantly among patients who are not receiving active treatment.

The per-patient costs are increasing at similar rates among the total patient population, patients with cancer who are receiving active treatment, and those without cancer. For Medicare, the cost trends for these populations were 35.2% versus 36.2% and 34.8%, respectively (Figure 1). For commercial coverage, the cost trends for these patient populations were 62.9% versus 62.5% and 60.8%, respectively.


From 2004 to 2014, the portion of total spending for patients with cancer increased slightly for Medicare and for the commercial populations. Total spending increased by 6.7% in the Medicare fee-for-service patient population compared with a 13.8% increase in the commercial patient population. The prevalence of cancer increased at a higher rate than the increase in spending, with a 16% increase in Medicare and a 26% increase in the commercially insured patient population.

“The spending on chemotherapy, and especially biologic agents, has increased noticeably over that period of time, but a lot of that spending has been offset by decreases in other kinds of spending, like hospital inpatient,” said Mr Pyenson. The component costs of cancer care have changed at different rates (Figure 2).

Figure 2

The per-patient per-year (PPPY) cost trends varied considerably by service category from 2004 to 2014 for Medicare and commercial insurance. The increase in the PPPY for biologic chemotherapy considerably exceeded the total PPPY cost trend.

“The overall trends [in the total PPPY costs] were Medicare about 36% and commercial 62%, but biologics over this period of time have gone up 300% to 500%,” Mr Pyenson said.

The costs associated with radiation oncology increased by more than 200% for the Medicare population and by 66% for the commercially insured population. “Usually these go hand-in-hand,” said Mr Pyenson, noting that the PPPY cost trends from 2004 to 2014 also varied by cancer type, with the largest increase associated with prostate cancer, hematologic cancers, and breast cancer.

Regional Differences and Risk-Based, Shared Savings

There is a wide regional variation in use of chemotherapy per 1000 members.

“Although there doesn’t seem to be differences in outcomes, there are huge differences in spending, use of hospital care, and use of other types of care and surgeries by region,” he said.

In a 5% sample of Medicare chemotherapy utilization claims, there was a national average of 363 claims for chemotherapy utilizations per 1000 members, with 85% of claims from physician offices and 15% from outpatient facilities.

“What is really interesting though is in the best practicing regions, the lowest utilizing regions, there’s a lot more activity coming from the hospital outpatients,” said Mr Pyenson. “The regions with the lowest use of chemotherapy deliver more of their chemotherapy in a hospital outpatient setting,” he added.

Although the national outpatient facility average is 60 chemotherapy utilization claims per 1000 members, outpatient facilities in the 10th percentile regions submit 86 claims per 1000 members compared with 36 claims per 1000 members for outpatient facilities in the 90th percentile regions.

“As payers move to site-neutral reimbursement, it doesn’t matter if the person gets care in a hospital outpatient setting or a physician office setting, they should be paid the same,” said Mr Pyenson.

Some regions had more radiation oncology use than others, and free-standing radiation oncology centers dominated. Overall, oncology utilization was independent of the type of healthcare system.

Risk Contracts Expected to Increase

Payers will evaluate regional variation and trend analysis among other claims data, and will recognize that low-utilizing areas are attainable goals that can be achieved via the Oncology Care Model or through other risk-based, shared-savings programs.

“This is an invitation to carve out oncology care and hand it off to someone who is going to manage it on a capitated basis or some sort of risk basis,” said Mr Pyenson. “There are folks who can deliver the care at a much lower price than average. It’s staggering how fast Medicare, Medicaid, and commercial payers have moved in that direction,” he added.

“I suspect that as the Oncology Care Model gets going, commercial payers will follow suit and use a similar mechanism,” Mr Pyenson concluded.

Last modified: August 30, 2021