What Does Increased Payer Cost Management Mean for Oncology Practices?

Lee Goldberg

The high cost of cancer treatments means that commercial payers will be increasing their management in the category. As this occurs, oncology practices, especially smaller community-based operations, may find it harder to stay viable. How well individual practices handle payers’ increased cost management will be a major concern going forward.

The Zitter Group, a specialized business intelligence firm headquartered in Millburn, New Jersey, conducts a semiannual survey of oncologists, practice managers, and insurance companies. Their Summer 2012 Managed Care Oncology Index showed some areas of agreement between the players. It also reveals some disconnect in perception.

All agree that the intensity of management will be ramping up over the next 2 years. Oncologists, however, expect this increase to be much greater than what payers are projecting. Just over two out of every three cancer physicians (68%) expect more aggressive management of costs by payers, while only 39% of insurance companies think they will have highly aggressive policies in place within the next 2 years.

“Much of this is related to different viewpoints of those being managed and those doing the managing,” said Lee Goldberg, director of Syndicated Research at The Zitter Group. “As payers have been increasing the intensity of their management through application of financial controls and prior authorizations, oncologists perceive that things are going from easy to difficult. This may cause them to overestimate how bad things are.”

On the other side, he noted that payers think their actions are starting from a very low baseline of aggressiveness. Because of this outlook, those footing the bill think there is a much longer way to go.

Practicing oncologists see the current payer management intensity as being greater than those who are doing the management. Only 13% of insurance company respondents consider their oncology management policies to be highly aggressive. In contrast, 25% of oncologists feel oncology management is aggressive.

“Although probably less than in years past, oncologists may still be surprised at how much more difficult the private insurance companies can make it for them,” Goldberg noted. “I think there is still a tendency to underestimate how aggressive the payers can be.”

There is also a divide, albeit smaller, between payers and practices concerning the estimated percentage of current cancer treatment costs that could be eliminated without having a negative impact on outcomes. Zitter’s Summer 2012 Index showed that on average, payers think that 20% of current costs could be removed (Figure). Results from the Winter 2011 edition of the Index found that oncologists and practice managers estimated that lower rates of 18% and 16%, respectfully, could be taken out of the system without quality repercussions.

Figure. Payer estimates of costs that could be eliminated from cancer treatment without negatively impacting health outcomes.

The Zitter Group. The Managed Care Oncology Index. Summer 2012.

©2012. All Rights Reserved.

Goldberg thinks some of the sense among payers that waste is higher in the system is related to their desire to restrain costs. Another factor might be related to perspective. Payers have a broader experience with the cost of care than any individual practice.

“What is more interesting from my standpoint is the disconnect we see between what payers do to hold down costs and what practice managers see as the major drivers of costs,” Goldberg said. “Insurers are using reimbursement controls and utilization management techniques such as prior authorizations. Managers contend that prior authorization is the single biggest contributor to excess costs in oncology care.”

He sees a slow and stepwise restructuring of the relationship between those who pay for the services and those who provide them. This is reflected not only in reductions in buy-and-bill reimbursement, but also in other forms of reimbursement such as episode-of-care or bundled payments currently being seen in trials. Practices can look forward to an expansion of these efforts going forward.

“I can’t yet say these alternative reimbursement structures are a good thing or a bad thing,” said Goldberg. “The carrot is that the doctors are going to share in the savings. The stick being that those who come in over costs are going to lose money. I think that is essentially what the future will look like.”

How this will impact practices, especially the smaller community-based ones, is still open for discussion. Much of the ability of these practices to remain viable is most likely going to be related to regional economics.

The smaller practices that have a position of leverage because they are the only one in the area will do better. If the practice is one of two and the insurers need them in their network to keep their policyholders happy, there is obviously more negotiating leverage.

Owen J. Dahl, MBA, FACHE, LSSMBB

“Size of the practice will also affect what they have available to help themselves survive,” said Owen J. Dahl, MBA, FACHE, LSSMBB, an independent oncology practice consultant with the Medical Group Management Association. “Those with only one or two physicians practicing in smaller communities can’t get pricing breaks that bigger practices are offered. What I am seeing in most of those cases is the doctors just throwing up their hands and turning to community hospitals to buy the practice, or working out a deal to send all their infusion patients to the hospital.”

One possible way to address some of the cost issues is the evolution of the group purchasing organization (GPO). GPOs are developing what Dahl said are some interesting technology and tools to help with reporting, compliance, and other issues.

“If perchance a small or mid-size practice gets involved with a GPO, there might be a large enough network to influence payers through the organization,” said Dahl. “They may be able to offer tools to some practices, allowing them to show good adherence to guidelines and outcome measures. This may help survival of the community-based model in the long run.”

Sources:

The Zitter Group. Managed Care Oncology Index. Summer 2012.

The Zitter Group. Managed Care Oncology Index. Winter 2011.