Established just nine years ago via the merger of three specialty practices and 14 physicians, Dayton Physicians Network, an independent, Ohio-based oncology group practice, has experienced rapid growth, fueled in part by increased Medicaid enrollment and profits from their oral drug dispensing program.

“Medicaid is now the fastest-growing segment of our business. Basically, Medicaid volume has doubled in the past few years,” said Robert Baird, CEO.

“Physician dispensing of oral oncolytics has been a significant revenue generator for us, as well,” added Charles M. Bane, MD.

As competition for the pharmacy and Medicare/Medicaid dollar intensifies and major regional players expand their operations, only time will tell if the Dayton physicians will be able to maintain their performance. Dayton, whose three original specialty practices were medical oncology, radiation oncology, and imaging and urology, now encompasses 36 physicians, seven midlevel providers, and 350 employees at 18 practice locations (six of which are cancer centers), serving roughly 43,000 patients in several counties—a population of urban, suburban, and rural patients, many of them older adults. Baird estimates that roughly half of their patients are covered by Medicare.

Key rivals include larger hospital and health systems, such as Kettering Health Network—a conglomeration of eight hospitals, nine emergency departments, and 120 outpatient facilities staffed by 2,100 physicians and almost 11,000 employees throughout southwest Ohio&mdash;which is currently building a $49-million, five-story, 120,000-square-foot cancer center slated to open late next year in Kettering, Ohio, right in the heart of the Dayton group’s practice area. Also competing with Dayton is Premier Health Specialists, a group of 40 specialty practices with a roster of more than 20 oncologists.

Although Dayton’s current oncology landscape is now highly competitive, some of the factors that have enabled the organization to more than double its size in less than a decade include timing and geography. There are no large, prestigious teaching institutions in the immediate area on the level of the Cleveland Clinic, for example, which is located more than three hours away.

		Figure 1. Projected Growth by Payer: 2015

		Source: CMS, Office of the Actuary, National Health Statistics Group, July 28, 2015.

Statewide, Medicaid enrollment is up sharply due to the fact that Ohio is one of 25 states that opted to expand Medicaid coverage eligibility (to encompass all those with an income at or below 138% of the federal poverty level) under the Affordable Care Act (ACA).

 Passage of the ACA has driven a simultaneous increase in the size of the Dayton practice’s Medicare patient population. Post-ACA, Ohio has the 13th best uninsured rate in the nation.

		Figure 2. Average Annual Growth for Major Payers: 2016-2018

In addition, Dayton has benefitted from federal and state government efforts (in accordance with ACA-related objectives and supported by many large private payers) to incentivize a move away from traditional fee-for-service reimbursement toward more value-based forms of compensation and care.

 The network is currently in contention for, and in the past has been awarded, sizeable grants from the Centers for Medicare & Medicaid Services to facilitate various test programs designed to enhance care delivery efficiency. Favorable conditions, of course, do not guarantee favorable results. Moreover, ACA-fueled growth, although welcome, is not without its own set of hurdles, most of them financial in nature 

. “The tough part about Medicare,” said Baird, “is reimbursement cuts and a rise of patients on exchange products that have very high out-of-pocket expenses and very high deductibles.”

Dayton officials said there is one trend in particular that has been very good to them. The increasing prominence of oral oncolytics is transforming the manner and setting in which cancer care is delivered, and, in doing so, creating a host of uncertainties for clinicians. As the site of chemotherapeutic care moves from the physician’s office to the patient’s home, many practitioners have expressed fears of losing fiscal and clinical control, as well as concerns regarding patient compliance and safety.4 Dayton viewed the expanding oral oncolytic market as an opportunity, Baird said. Because the cost of a single specialty oncolytic therapy medication can easily exceed $10,000 on a monthly basis, even at relatively narrow standard margins (which tend to range from 5%-6%), in-house dispensing of oral oncolytics can potentially yield significant fiscal benefits.

“We started a physician dispensing model about four years ago focused on the management of oral oncology medications,” Baird said. “At this time, it is profitable and we are seeing it become a larger and larger percentage of our revenue. In the first year, during the set-up phase, we lost money. By the second year, we had more than broken even, and in the third and fourth years, we have continued to see positive growth, averaging roughly 25% per year. Currently, the physician dispensing program represents about 10% of total revenue.”

Bane emphasized the advantages that the program provides patients, stating, “We’ve found that we are able to provide cost-effective, excellent service with rapid turn-around time and ability to access patient assistance programs for those who need co-pay or other funding. Doing so allows us to efficiently manage the distribution of the oral oncolytics to patients so that we can track how they are doing with the medications and monitor them for any adverse effects. It’s worked well as a patient service. Patients are very pleased that we are able to provide them with a one-stop shop, under one roof, to meet all of their needs.”

In-house pharmacy, a growing trend among physician practices,

 has not been without controversy. Among other misgivings, critics and pharmacy/ specialty pharmacy competitors assert that an inherent conflict of interest exists when physicians profit from the drugs they prescribe and warn that a lack of checks and balances and professional pharmacy oversight may result in an increase in prescribing errors and adverse drug events, especially in the high-risk oral-oncolytic class.

Baird asserted that the real conflict of interest lies with larger, vertically-integrated health system competitors. “They control it all throughout the entire process so much more than what we do. We’re just providing a valuable service to our patients. We can control and manage patients better than a specialty pharmacy could that is not even in our state and doesn’t know our patients.”

	Rethinking Reimbursement: Aligning Incentives, Targeting Waste

Regarding the safety issue, Bane—citing strict 30-day limits on prescription duration and an intensive review process overseen by an on-site PharmD&mdash;stated, “We follow the same sorts of safety protocols as we do for infusional agents.”

Another key strategy employed by Dayton has been a collaborative approach with payers. Bane said this entails “working continually and proactively with payers to convince them of the value of our services and volunteering to work with them on novel payment models that promote lower-cost, higher- value care.” Examples include joint ventures with UnitedHealthcare, Anthem, and Aetna.

In the UnitedHealthcare pilot program, Dayton oncologists, along with oncologists from four other participating medical groups, received a single, per-patient fee instead of fee-for-service reimbursement.

 Between October 2009 and December 2012, 810 patients with breast, colon, and lung cancer were treated using the experimental payment model. A study of the initiative found that although fee-for-service costs (calculated utilizing a large national payer registry of fee-for-service cancer patients) were projected to reach $98.1 million, the actual cost was $64.8 million, a 34% reduction in predicted total medical cost. Based upon multiple quality metrics, no quality differences between the two cohorts were observed.

The Community Oncology Medical Home (COME HOME) project

 (funded by a Medicare grant won by Dayton and six other practices but similar in nature to programs undertaken in conjunction with Aetna and other major payers), implemented on a rolling basis between September 14, 2012, and April 1, 2013, was designed in accordance with the oncology patient-centered medical home concept, a care delivery philosophy that combines intensive patient support and outreach (ie, telephone triage, extended hours) with performance measurement, information technology, continuous quality improvement, and evidence-based treatment guidelines.

“By having enhanced access, so that patients who have issues can call in and be seen on the same day that they contact our office, we can minimize the unnecessary use of high cost services like the emergency department and unnecessary hospitalization,” Bane said.

		Cardwell A, Sheedy K. Map: where states stand on Medicaid expansion decisions. State Reforum website. https://goo.gl/46Q7YS. Updated November 13, 2015. Accessed November 15, 2015.

		Staff report. Ohio has the 13th best uninsured rate since Obamacare. Dayton Business Journal website. http://goo.gl/18wuUK. Published November 12, 2015; Accessed November 15, 2015.

		Ritchie A, Marbury D, Verdon DR, Mazzolini C, Boyles S. Shifting reimbursement models: the risks and rewards for primary care. Medical Economics website. http://goo.gl/sTJ5Mo. Published April 8, 2014. Accessed November 15, 2015.

		Hagen T. Drug revenues may migrate to specialty pharma. OncLive website. https://www.onclive.com/publications/oncology-business-news/2015/june-2015/drug-revenues-may-migrate-to-specialty-pharma/ 1. Published May 14, 2015. Accessed November 15, 2015.

		Good intention, uncertain outcome...our take on physician dispensing in offices and clinics. Institute for Safe Medication Practices website. http://www.ismp.org/newsletters/acutecare/showarticle.aspx- ?id=17. Published March 8, 2012. Accessed November 15, 2015.

		Newcomer LN, Gould B, Page RD, Donelan SA, Perkins M. Changing physician incentives for affordable, quality cancer care: results of an episode payment model. 

		Waters TM, Webster JA, Stevens LA, et al. Community oncology medical homes: physician-driven change to improve patient care and reduce costs. 

Articles

Established just nine years ago via the merger of three
specialty practices and 14 physicians, Dayton Physicians
Network, an independent, Ohio-based oncology
group practice, has experienced rapid growth, fueled in
part by increased Medicaid enrollment and profits from their oral
drug dispensing program.

As Practice Grows, Competitors Loom

The signing of the Budget Act of 2015 may have brought to a screeching halt much of the hospital merger activity that has characterized the community oncology practice sphere in recent years. Section 603 of the act removes a strong incentive for acquisitions—the right to bill at hospital rates for services rendered at outpatient, off-campus locations. The site-neutrality provision of the law&mdash;intended to eliminate wide payment disparities between hospital and private practice locations&mdash;is nowhere near the complete solution that critics of unequal payments had sought.

The provision applies only to practices acquired on or after November 2, 2015, and owing to a 14-month grace period, the payment adjustments do not kick in until January 1, 2017.

However, given the pace of acquisitions in recent years, it is fairly certain that the repercussions in the oncology setting alone will be widespread, said Teri Guidi, president and CEO of Oncology Management Consulting Group of Pipersville, Pennsylvania.

“For the [deals] that are in progress, I’m sure people are scrambling, trying to figure out what to do. ‘Do we back out of it now?’ ‘Do we try to take the year while it’s still under the outpatient prospective payment system (OPPS) and then just go to the physician fee schedule in 2017?’”

Merger and acquisition activity has been robust, largely on the strength of the OPPS Medicare income that hospitals can reap by absorbing the infusion elements of oncology practices, Guidi said. According to a survey of its oncology practice membership in 2014, the Community Oncology Alliance (COA) indicated that 544 practices had been acquired by hospitals since 2008 and 149 had merged with or been acquired by corporate entities other than hospitals.

		Table 1. Unadjusted Chemotherapy Episode Costs, Offices Versus Hospital Outpatient Departments (HOPDs)

Costs include all care received by patients during chemotherapy episode, including some care unrelated to the provision of chemotherapy

		Source: Avalere Health analysis of National Association of Managed Care Physicians (NAMCP) member data.

COA has embraced the move toward site-neutrality. “We‘re providing the same or better care in many instances. Why should we be paid less?” asked Jeffrey Vacirca, vice president of the COA and an oncologist with North Shore Hematology Oncology Associates of Long Island 

That said, more needs to change before community practices feel they are receiving fair payment, Vacirca added. “This is not the parity that we were looking for.” He and others are hoping that pending legislation will address the broader issues. “If we’re going to recognize that moving forward we’re not going to pay augmented rates for these practices that are going to be acquired by hospitals, why should we be paying them now?”

Site-neutrality was a central topic of discussion at an October COA summit on payment reform, Vacirca said. He said it was a surprise to participants that the Budget Act got as much legislative support as it did. The Senate approved it 64-35 and it passed in the House by a vote of 266-167. Section 603 of the act is relatively short, and because of its narrow scope, there are unanswered questions that leave it unclear how the law will be implemented, said Guidi and others. It cannot be predicted with accuracy at this time how the Centers for Medicare & Medicaid Services (CMS) and the Health Resources and Services Administration (HRSA) will interpret the new law, how cost reporting compliance will be done, and whether 340B drug discount access will be affected, Guidi said. “I’m sure they delayed it one year to give everybody time to figure it out.”

Although 340B—another significant driver of merger and acquisition activity&mdash; is not specifically mentioned in the act, “It’s entirely possible that HRSA will step in and say something about off-campus provider—based centers not being eligible to purchase under 340B,” Guidi said. “That could make a mess.”

Others agree. “If CMS implements the statutory change in a manner that changes the way new off-campus outpatient locations are reported on the Medicare cost report or if HRSA otherwise opts to consider such locations not part of the 340B-eligible hospital entity, outpatient drugs prescribed or dispensed at such locations could be ineligible for 340B discounts,” Chicago law firm McDermott, Will & Emery said in an overview of the law.

Other questions that remain are what hospitals may do to expand their operations now that a source of additional revenue has been closed off and what practices that may have wanted to merge will do as an alternative. One stipulation of Section 603 is that practices within 250 yards of an established hospital center may be considered “on campus” for purposes of Medicare billing, which means that hospitals may simply create oncology facilities closer to home and move independent oncology practices out of their existing locations, Guidi said. “If there are still a lot of centers and practices that want to do this, it could spur a little flurry of on-campus hospital construction— bringing infusion into the system but keeping it within the hospital space,” she said.

Many practices under pressure to find solutions to their business difficulties may opt to merge with other independent physician groups, Guidi said. “Other than that, you’re looking at [hospital] employment or whatever contracts can be arranged, but very likely having to move into a hospital space that would qualify for the outpatient payment rates,” Guidi said.

		Table 2. Average Adjusted Episode Costs for Eight Most Common Cancers

Cost estimates adjusted for age, sex, and prior history of cancer. Costs includes all care received by patients during chemotherapy episode, including some care unrelated to the provision of chemotherapy.

		Source: Avalere Health analysis of NAMCP member data

Healthcare legal and financial consulting firm Foley & Lardner of Milwaukee has predicted that Section 603 is going to “kill off many off-campus projects that are in the pipeline.” They note that hospitals and others may have invested significant time and resources in preparing for these expansions. They also said that the cutoff date of November 2 creates an arbitrary division that will lead to “haves and have-nots” in the hospital field: those that were able to establish desired remote locations, by virtue of the fact that they are grandfathered in, and those that were left out and may end up being at a competitive disadvantage because of it.

“Some of the ‘have-nots’ may be the lower-cost hospital providers that did not have the leverage to access capital to construct outpatient facilities as quickly as their better funded competitors,” Foley & Lardner wrote in a fact sheet distributed as supplemental material to a webinar on the subject they presented November 13.

Rural and underserved communities may therefore be disserved by Section 603. Further, “this may undermine hospital efforts to integrate and coordinate care between ambulatory, acute, and post-acute care sites at the very moment that public policy is trying to promote accountable care; the Triple Aim [improving the experience of care, improving the health of populations, and reducing per capita costs of health care]; and population health management,” the statement said.

Section 603 is relatively short and much is left open to interpretation by CMS, noted Lawrence Vernaglia, partner with Foley & Lardner, who spoke during the webinar. He’s expecting there to be a lot of discussion over what it means to be an off-campus based department of a provider. He added that the new law places tight restrictions on appeals of determinations regarding which facilities are grandfathered under the law and which are determined to be off-campus. He noted that cost savings estimated by the Congressional Budget Office are $9.3 billion over 10 years. “It’s a cost-containment exercise, for sure,” he said.

The American Hospital Association (AHA) is a staunch opponent of the legislation and was blindsided by the addition of Section 603 “at the last minute,” said Erik Rasmussen, vice president of legislative affairs for the AHA, which has predicted that access to care services could be reduced, particularly in underserved areas, as a result of the law. Hospitals could possibly react by opening more oncology facilities on campus, he said. “Our membership is mission driven, they’re care driven. That part of it I don’t think changes. It just makes it more difficult from the Medicare financing side.”

ASCO, which represents both community oncologists and hospital-based oncologists, has called site-neutrality an insufficient response to the problem of disparities in payments. The organization is pushing for a broader change that would provide payments for hospital services that are not adequately compensated to begin with. This would obviate the need for add-on payments that hospitals can apply toward underfunded services, ASCO said. For years, many policymakers, watchdogs, and the Medicare Payment Advisory Commission have expressed concerns that the inequalities caused by OPPS payments are not justified and incentivize hospitals to acquire physician practices and ambulatory surgical centers (ASC) to reap the OPPS payments, thereby raising overall healthcare costs and Medicare expenditures, McDermott, Will & Emery said. The insurance industry backed the Section 603 portion of the act through the Alliance for Site-Neutral Payment Reform. The group contended that unequal payment policies increase healthcare costs through higher premiums and co-payments and also “encourage market consolidations that limit patient access.”

“Payment policies that support higher reimbursement in the HOPD [hospital outpatient department] setting encourage the acquisition of office-based physician practices, which results in higher costs and the closure of community- based care settings, further restricting patient access to care in the lower- cost setting,” the group stated in a release just prior to President Obama’s signing of the law. “Site-neutral payment policies ensure that healthcare payments are based on the needs of the patient and not the site of service,” the Alliance added.

Whereas hospitals have long argued that they require additional funds to pay for certain services that are not adequately compensated by Medicare, those services should be paid for directly rather than through higher fees paid for unrelated services, Vacirca said. “For me to hear that hospitals need to have emergency rooms, I get it, but they also should be paid appropriately for that care. It shouldn’t be augmented [from] reimbursement in other areas.”

The signing of the Budget Act of 2015 may have
brought to a screeching halt much of the hospital
merger activity that has characterized the
community oncology practice sphere in recent
years.

Section 603 Slams the Brakes on Merger Activity

Pricing a drug based on its efficacy, although a reality in Europe, is still a long way from happening in the United States. Those in the oncology business say that it’s high time for value-based pricing to be introduced here.

“We would benefit from a system in the United States that seeks to fix what is broken in the pricing market, and that involves finding a way to pay for the value of drugs based on transparent parameters,” said Peter B. Bach, MD, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center and also a developer of the DrugAbacus tool for estimating true drug value.

		Table 1. Example of Indication-Specific Pricing Based on Gain in Survival

Non—small cell lung cancer. Source: Bach PB. Indication-specific pricing for cancer drugs. 

. 2014;312(16):1629-1630. doi: 10.1001/jama.2014.13235.

Cancer drugs in the United States have increased 5- to 10-fold since 2000,

 but several analyses indicate that this increase in cost does not match improvements in health and overall survival. The results of one 2015 analysis recently published in Health Affairs show that the cost of established first-line therapies for multiple myeloma increased without a corresponding gain in benefits.

 In addition, the results of another cost-benefit analysis show no correlation between cancer drug price and objective patient benefits, such as survival or improved quality of life.

To make prices better reflect drug performance, insurers and prescription benefit managers would like to set prices based on more concrete indicators of a drug’s success, such as survival, drug toxicity, and novelty. Most oncology drugs are approved for more than one type of cancer, and the cost is the same for each indication regardless of variations in efficacy. For example, even though erlotinib (Tarceva) yields a median survival gain of about 3 months for metastatic non—small cell lung cancer (NSCLC) and about 2 weeks for pancreatic cancer,

 the per-unit cost is the same for both indications.

Calculating a price that accurately reflects the value of a given drug requires consideration of multiple factors, including overall survival, drug novelty, safety, disease rarity, development cost, and population burden of the disease (assessed by the number of life years lost due to that cancer). Furthermore, how to translate the relative weight of each component into an overall price still remains to be determined. How much is a year of life worth? How much higher should the price be if the drug treats a rare disease? Should the price be lower if the drug has serious side effects?

Recently developed pricing models in European countries factor treatment benefits into the costs of drugs. Beginning in 2005, the UK National Institute for Health Care and Excellence (NICE) mandated that the National Health Service fund drugs and other treatments according to the NICE technology appraisals. These appraisals compare the clinical and cost-effectiveness of new drugs with existing treatments to determine whether a drug qualifies for inclusion in the formulary, with the goal of focusing healthcare spending on treatments that improve quality and/or length of a patient’s life without substantial side effects.

 In Germany, The Act for the Restructuring of the Pharmaceutical Market took effect in 2011 and allows drug companies to set their own price for a new drug during its first 12 months on the market. During this time, the company needs to prove the drug has an added clinical benefit—which may include reduced disease duration, increased survival, reduced side effects, or improved quality of life&mdash;over comparable reference drugs.

 If the drug has no added clinical benefit, it is assigned to a particular drug class and priced accordingly. Drug companies may negotiate with health insurers over pricing (or an arbitration board if they are unable to agree on a price). Whether this new legislation will better coordinate a drug’s patient-centered value with its price remains to be determined. An early benefit assessment in Germany shows that pharmaceutical companies, the Institute for Quality and Efficiency in Health Care, and the Federal Joint Committee differ greatly on whether individual drugs have additional benefits that may warrant higher prices.

 Furthermore, some experts state that the new legislation could lead to pharmaceutical companies inflating their prices during the initial year.

Whereas efficacy-based pricing is not yet a reality in the United States, physicians and cancer societies have made an effort to provide cost guidance to physicians and patients. In 2014, the ASCO launched an initiative to evaluate the relative value of oncology treatments by closely examining drug trial outcomes and assigning values based on clinical benefit, toxicity, and financial cost. According to ASCO, the initiative, which requires much more data and fine tuning, may provide a framework for a future indication-specific pricing model.

In October 2015, the National Comprehensive Cancer Network (NCCN) released a series of “Evidence Blocks” that include measures of drug efficacy and safety, quality and consistency of evidence, and affordability of the treatment, all presented in a simple visual block for easy comparison.

According to the NCCN, the Evidence Blocks help to clarify the clinical and scientific rationale for treatment choices and provide an estimate of the economic impact. Taken together, the ASCO and NCCN initiatives underscore the growing national interest in implementing a more logical basis for establishing drug prices than currently exists. However, industry observers state that market and institutional practices stand in the way of efficacy-based drug pricing. According to Lee N. Newcomer, MD, MHA, senior vice president of UnitedHealth Group (with strategic responsibility for oncology, genetics, and women’s health), regulation on how cancer drug prices are established in the United States must be addressed before any implementation of an indication- specific pricing model.

State and federal policies have driven drug costs upward—namely the Medicare Reform Act of 2003 that prohibits Medicare from negotiating drug prices with pharmaceutical companies.

Newcomer noted that most states require an insurance company to pay for a drug regardless of its benefit or cost, which restricts the insurance company’s leverage with drug companies.

		Table 2. Example of Indication-Specific Pricing Accounting for Novelty and Rarity Factors

		Source: Memorial Sloan Kettering Cancer Center DrugAbacus (drugabacus.org).

Drug manufacturers “could price the drug at $75; $7500; or $75,000,” and the insurance company would have to pay that amount, said Newcomer. “Insurers can’t choose which drug they are willing to pay for, and pricing does not follow any rational market rules.” He added that the prices of specialty drugs for cancer increased 10% per year on average from 2012 to 2014 even though those drugs may not have been undergoing more scientific research or incurring additional marketing costs.

Development of indication-based drug pricing would require standardized methods for calculating a drug’s value. Bach and his colleagues developed the “DrugAbacus,” which suggests prices for several cancer drugs based on user-determined weight of efficacy, tolerability, novelty, development cost, rarity, and population burden.

, Bach provided a crude, hypothetical example for drug price based on the survival gain it yields compared with conventional treatment.13 If an additional year of life is valued at $150,000, erlotinib would cost $5183 per month for metastatic NSCLC and $1282 per month for pancreatic cancer. Both of those DrugAbacus prices are lower than the actual 2014 monthly prices of $6292 and $5563 (due to the lower dose used for pancreatic cancer), respectively.

	Overcoming Barriers to Indication-Specific Drug Pricing

The tool also adjusts the price upward if the drug treats a rare condition, has a novel mechanism of action, has high development costs, or addresses a significant population burden. For example, because blinatumomab (Blincyto) is a unique immunotherapy used to treat a rare form of acute lymphoblastic leukemia (Philadelphia chromosome—negative precursor B-cell acute lymphoblastic leukemia),14 it could warrant a higher cost. Without novelty or rarity multipliers included in the algorithm, the price of blinatumomab would be $12,612 per month (assuming a life-year valued at $120,000 and a 15% toxicity discount), according to the DrugAbacus.12 If both the novelty and rarity multipliers are included at their maximum potential value (3- fold), the monthly price would be $113,509 versus the current monthly price of $64,260.

To implement a system of indication-specific pricing in the United States, experts agree that several modifications are needed to standardize drug costs, insurance reimbursement, and prescription processes. Newcomer said that whereas the United States is not ready to assign monetary values to factors such as improved survival, creating a more open marketplace for drug pricing would help prices to better reflect their value to patients. He commented that because insurers are unable to choose which drug they are willing to pay for, they have little leverage for substituting an equally effective, less expensive drug.

“I don’t know what the true value of a drug is,” said Newcomer. “But I think if we had a more open marketplace with competition required [among drug companies], we would see prices go down.”

Express Scripts Holding Co, a large manager of prescription drug benefits for US employers and insurers, is currently attempting to arrange deals with pharmaceutical companies to implement indication-specific pricing under a pilot program. The pilot will select oral and self-injectable cancer drugs for its National Preferred Formulary for plan year 2016.15 According to a spokesman for Roche’s Genentech, the company would welcome an indication-specific pricing model, but the current fragmented market and different data systems and reimbursement structures among Medicare, Medicaid, and private insurers are currently an obstacle to implementation. “Reimbursement structures would need to be modified, and data systems need to continue to evolve to ensure that outcomes data can be reliably captured in order to track which indications and which outcomes are achieved on a patient-level basis,” said the spokesman, Andrew Villani.

Bach said that an indication-specific pricing model would also require modifications to the prescription processes, which may include adding indications to prescriptions and categories for ordering, prescribing, price tracking, and reimbursement, as well as upgrading the distribution process. Improving patient access to drugs by reducing barriers such as price tiering would also be important to make indication-specific pricing successful, Bach said. However, he indicated that the benefits of indication-based pricing could extend beyond the central goal of reducing cost to improve patient access. As he stated in his JAMA Viewpoint, routine identification of drug utilization and indications, along with the shift toward more electronic documentation and intricate data on patient encounters, could create a framework for real-world outcome analyses of indication and patient outcome 

Ultimately, this may help increase transparency of oncology care and improve the ability of future patients and clinicians to make informed decisions about treatment, he said.

			Light DW, Kantarjian H: Market spiral pricing of cancer drugs. 

			Lakdawalla D, Shafrin J, Lucarelli C, Nicholson S, Khan ZM, Philipson TJ. Quality-adjusted cost of care: a meaningful way to measure growth in innovation cost versus the value of health gains. 

. 2015;34(4):555-561. doi: 10.1377/hlthaff.2014.0639.

			Hillner BE, Smith TJ. Efficacy does not necessarily translate to cost effectiveness. A case study in the challenges associated with 21st-century cancer drug pricing. 

			Drugs@FDA: FDA approved drug products. FDA website. http://accessdata.fda.gov/scripts/ cder /drugsatfda/index.cfm. Accessed November 14, 2015.

			Measuring effectiveness and cost effectiveness: the QALY. National Institute for Health and Care Excellence website. www.nice.org.uk/proxy/?sourceUrl=http%3a%2f%2fwww.nice.org.uk%2fnewsroom% 2ffeatures%2fmeasuringeffectivenessandcosteffectivenesstheqaly.jsp. Updated April 20, 2010. Accessed November 14, 2015.

			Federal Joint Committee—Gemeinsamer Bundesausschuss (G-BA). The benefit assessment of pharmaceuticals in accordance with the German Social Code, book five (SGB V), section 35a. G-BA website. http://www.english.g-ba.de/benefitassessment/information/. Published November 11, 2010. Accessed November 18, 2015.

			Ruof J, Schwartz FW, Schulenburg JM, Dintsios CM. Early benefit assessment (EBA) in Germany: analysing decisions 18 months after introducing the new AMNOG legislation.

. 2014;15(6):577-589. doi: 10.1007/s10198-013-0495-y.

			Kupferschmidt K. Germany moves to lower drug prices.

			American Society of Clinical Oncology. ASCO in action brief: value in cancer care. http://goo. gl/G3WJ8w. Accessed November 14, 2015.

			NCCN clinical practice guidelines in oncology (NCCN Guidelines) with NCCN Evidence Blocks. National Comprehensive Cancer Network website. http://www.nccn.org/evidenceblocks/default. aspx. Accessed November 14, 2015.

			HR 2469 - Medicare Reform Act of 2003. 108th Congress (2003-2004). https://www.congress. gov/bill/108th-congress/house-bill/2469. Accessed November 14, 2015.

			DrugAbacus. Memorial Sloan Kettering Cancer Center/DrugAbacus website. www.drugabacus.org. Accessed November 14, 2015.

Cancer drugs in the United States have increased 5- to 10-fold since 2000, but several analyses indicate that this increase in cost does not match improvements in health and overall survival. 

Indication-Specific Pricing Still a Long Way Off

When it comes to laboratory developed tests (LDTs), the FDA has generally taken what it calls a “discretionary” stance: it elected not to exercise its enforcement powers under the Federal Food, Drug, and Cosmetic Act and FDA regulations. However, according to a new report from the FDA, it turns out this type of discretion was not the wisest of paths. The FDA has indicated there are many problems associated with LDTs that clearly warrant a much greater level of oversight to protect the public.

, we bring you a panel debate on exactly what role the FDA should take on this issue. The panel, held at the American Journal of Managed Care 4th Annual Patient-Centered Oncology Care conference in Baltimore in late November, included Scott Gottlieb, MD, a former FDA commissioner for medical and scientific affairs. There was clear agreement that greater FDA oversight is necessary. What form that oversight should take was one of the question marks left hovering over the discussion. As far as the FDA is concerned, LDTs are neither drugs nor food. Currently, laboratories that offer LDTs follow the regulatory requirements of Clinical Laboratory Improvement Amendments (CLIAs). However, CLIA guidelines were followed in all 20 examples of problematic tests examined by the FDA for its report, which illustrates that there are shortcomings to the current standards for marketing of these tests.

Below are two examples of the failures of these tests.

In June 2008, OvaSure, a test designed to screen for ovarian cancer in high-risk women, was brought to market. However, the stated positive predictive value of the test was incorrectly derived, and it would have dropped from 99.3% to 6.5% if the true population prevalence of disease had been used. This meant that only 1 in 15 patients who tested positive actually had the disease. Under intense pressure from physicians and the FDA, the manufacturer of the test pulled it from market in October 2008, nearly half a year later. The cost to women in terms of unnecessary surgery? The FDA estimated a minimum of $12,578 per ovary removal after a false-positive test.

The cost to women patients was far greater, however, with the Oncotype Dx HER2 RT-PCR breast cancer test. This test incorrectly correlated high or low amounts of RNA with high or low amounts of human epidermal growth factor receptor 2 (HER2), which, the FDA said, is overexpressed in 20% to 25% of breast cancer cases. In one study, it was determined in 2014 that the LDT had overlooked HER2-positive patients, diagnosing 2 as negative and 1 as equivocal. Each of those women would potentially have received trastuzumab and, consequently, 3 additional quality years of life, valued at $775,278, or over $2.3 million for all three patients. “Tests that are inaccurate, unreliable, or have unproven or disproven claims expose patients to a range of harms. These include patients told incorrectly that they have life-threatening diseases and others whose life-threatening diseases have gone undetected,” the FDA wrote in its conclusion, making the case for greater FDA oversight of LDTs.

We hope you find the debate on this issue illuminating, along with all of the other fascinating stories this month in 

The FDA has indicated
there are many problems associated with LDTs that clearly warrant a much greater level of
oversight to protect the public.

LDT Discretion Was Not the Better Part of Valor

With the rapid pace of change in precision medicine, insurance companies and federal policymakers are going to have to adjust for far more variance in the ways patients are treated, even though insurance plans and federal policy by nature require a measure of standardization, an expert panel said last month at the 4th Annual Patient-Centered Oncology Care conference, sponsored by the 

The panelists were not fully convinced that payment and federal policies can make the evolutionary leap with the gracefulness of a ballerina, given that government measurement tools are outdated in many cases, and many elements and entities in oncologic care lack true coordination and transparency.

“The challenge for us is how to deal with this infrastructure that’s very outdated as we’re using it today, yet we need to build the moonshot vehicle with these technologies, with these policies; and that’s where I see a lot of room for creativity,” said Kavita Patel, MD, a primary care internist at Johns Hopkins Medicine and a former director of policy for the Obama administration.

The session entitled “Navigating the Conflict of Personalized Medicine vs. Population Management” covered a wealth of unresolved issues that pose challenges today for physicians, policymakers, and payers as medical science races forward and creates a knowledge vacuum that requires all parties to act with greater nimbleness while shedding institutionalized methodology that impairs the effective delivery of personalized care.

“When we think about personalized medicine, we become so fixated on molecular diagnostic studies that we forget that we’re thinking about a person, and to the extent that we connect all of this technology and honor the humanity of the person, the closer we get to doing the right thing,” said Joseph Alvarnas, MD, director of value-based analytics at City of Hope National Medical Center in Duarte, California.

Finding the right marriage between delivering on value and paying the correct amount of attention to technology is still in the realm of a Holy Grail quest, he said. “For us, it’s finding the right valuation tools to glean for our patients whether we’re adequately serving their needs, and that’s tough. I haven’t seen a perfect tool yet.”

Population health and precision medicine couldn’t be more at odds with each other than cats and dogs, said Burton F. VanderLaan, MD, medical director at Priority Health, a nonprofit insurer in western Michigan.

Population health looks at the whole cost of care, with a focus on chronic conditions and social determinants of health. The desire is to standardize treatment and to reduce variation through the use of guidelines, partly through coverage policy, VanderLaan said.

On the other hand, precision medicine in oncology puts the emphasis on allowing for broader variations in care because of the focus on highly individualized therapy, he said. There is no general goal to improve the health of the overall population.

“This is the interesting paradigm that the health clinics are operating under,” VanderLaan said. Payers, he said, are going to be challenged to “reinvestigate the evidentiary basis that they use to determine coverage policy.” Science is outpacing the slow and steady progress of clinical trials, to the point that “we just don’t have the luxury of waiting for them in order to craft appropriate coverage policy,” he said.

He said that the solution being imposed upon payers is that they base their coverage decisions on varying levels of evidence, among them adaptive trials, phase II trials, and basket trials. “Plans will have to become a lot more comfortable with the notion of variation, because when you’re individualizing therapy, that’s going to become a given,” he said.

The tools needed for measuring the effectiveness of care in this new environment just don’t measure up, said Alvarnas. He said that part of his job at City of Hope is “creating a language that’s transparent enough to transcend the limitations of ICD-9 and ICD-10, so that you can spot good care when you see it and mismatches when they occur.”

In an ideal world, a shift to value based payments would be much more patient-centered that what exists right now, said Patel. “I don’t think patients care so much if it’s a fee-for-service setting, or a capitated setting, or an episodic/bundled setting. They just want to see those outcomes that they desire.” Part of the problem is that physicians have to think in terms of population management, whereas patients may simply want more time in the examination room with their doctors. “That can create a tension,” Patel said.

When the discussion shifted to financial health literacy, Patel argued that there isn’t enough transparency in health costs to guide patient financial decisions. “When I worked in the administration, I wanted to inject more of a forced conversation about copayments, deductibles, premiums, and out-of-pocket costs,” she said. “The rules and regulations tried to cover those issues. I don’t think they have. Most physicians that I work with are not equipped to talk about the financing of health care with most patients, and most patients when they come to access the health system for the first time are actually kind of shocked by how little they know about their own payments and deductibles." She cited an example of how “coverage” under a plan may actually mean an 80% out-of-pocket cost for a particular drug. “In the United States, it matters where you get care, and you can’t even use experiences from one market to another to make assumptions,” she said.

There’s truth in that, but you may end up shortchanging the patient if you try to commoditize healthcare down the penny the way other products and services are sold in the United States, Alvarnas said. “I would argue that then we lose the integrity of healthcare—delivery that allows us to take a very sick patient and hopefully have one who’s restored to health at the end of it,” he said.

VanderLaan said an “unstructured and siloed” healthcare system is partly to blame for the existence of information bulkheads that allow information to flow freely in some sectors and poorly in others. “In different communities there are very different levels of integration.” Resolving this problem is a long way off, he said.

With the rapid pace of change in precision medicine, insurance companies and federal policymakers are going to have to adjust for far more variance in the ways patients are treated, even though insurance plans and federal policy by nature require a measure of standardization.

December 2015 | Oncology Business News®

As Practice Grows, Competitors Loom

Section 603 Slams the Brakes on Merger Activity

Indication-Specific Pricing Still a Long Way Off

LDT Discretion Was Not the Better Part of Valor

Outdated Metrics in the Age of Precision