Site-of-Service Cost Differential Debate
and 340B Update
John Hennessy, MBA, Vice President, Operations,
Sarah Cannon Cancer Services
Bruce S. Pyenson, FSA, MAAA, Principal and
Consulting Actuary, Milliman
Erich Mounce, MHA, Chief Executive Officer, The
West Clinic
Paul O’Dea, Vice President Hospital Business,
McKesson Specialty Health
Dan Todd, Former Health Policy Advisor,
Senate Finance Committee
Elizabeth S. Elson, Of Counsel, Foley & Lardner
LLP
Site-of-Service Cost Differential
Debate and 340B Update
Bruce S. Pyenson, FSA, MAAA,
Principal and Consulting
Actuary, Milliman
Chemotherapy Site of Service and
Payer Cost: Where is Payment
Reform?
Bruce Pyenson, FSA, MAAA
Principal & Consulting Actuary
November , 2014
Disclosure
Pyenson is employed by Milliman, Inc.
 Some of the material presented here was funded by Genentech
(2013), Inc. and US Oncology, Inc. (2011)
 Recent work for many insurers, pharmaceutical companies,
device makers, advocacy groups, ACOs
 Reports with full details available from me:
bruce.pyenson@Milliman.com or 646-473-3201
 My opinions and results of my analysis, not necessarily
Milliman’s
Bruce Pyenson
Milliman, NY. November 2014
5
Chemotherapy Cost and Site of Service
 Significant cost on a population basis
– Episode of chemotherapy for commercial payers are approaching
$100,000
– Under 0.25% of population, but accounts for about ~5% of total cost
 Chemotherapy delivered in Hospital OP costs are much higher
than Physician office
– 28% higher for adjuvant colorectal cancer
– 53% higher for metastatic breast cancer
– Similar situation for NSCLC and breast cancer
 Hospitals are buying oncology practices because they are
profitable for the hospital
– Several considerations including 340B pricing
Bruce Pyenson
Milliman, NY. November 2014
6
Chemo Patients are More Expensive!
4.5%
4.0%
1% of Patients
Avg $47,000
Percent of Each Population
3.5%
3.0%
2.5%
Avg $138,000
in Year of Chemo
Episode
7% of Patients
Avg $15,000
Population
2.0%
Cancer Patients
Diabetes Patients
1.5%
1.0%
100% of Patients
Avg ~3,000/yr
0.5%
0.0%
Annual Cost Distribution for Each Population
Milliman analysis of 2008 Medstat MarketScan with about 30 million commercially insured lives
Bruce Pyenson
Milliman, NY. November 2014
7
Questions About the Future?
 How will payers respond to higher cost of hospital outpatient
chemotherapy?
– Limited networks?
– Limited reimbursement?
 How will ACOs deal with chemotherapy?
– ACOs are mostly dominated by hospitals
– The higher prices of oncology practices become a liability to ACOs
under shared savings, capitation or bundled payments
 Is chemo in physician offices a winner for bundled payments?
– Shared savings relative to benchmark Medicare spending
– Does benchmark include more expensive hospital outpatient
services?
Bruce Pyenson
Milliman, NY. November 2014
8
Healthcare Reform is Changing Everything
In most countries around the world…
• A period of experimentation as favored policy theories are
adopted by governments
• Focus on reversing decades
of automatic spending
increases
• Change is certain and
Fast.
Bruce Pyenson
Milliman, NY. November 2014
9
Comparing Oncology Cost in Community
(Physician Office) and Hospital Outpatient
Settings
 Huge payer databases are ideal for the HOP / PO comparison.
 Earlier studies found that payer oncology costs were higher in
Hospital outpatient than physician office settings. But
consideration of severity differences were not examined.
 Milliman did attempt to address severity differences by
separating metastatic and adjuvant patients based on the
therapies they received
Bruce Pyenson
Milliman, NY. November 2014
10
Accounting for Differences in Severity
 Truven MarketScan™ claims data…over 40 million commercial
insured liveslarge sample size
 Patients whose chemotherapy began in 2009-2010.
 3 cancers which account for ~54% of chemotherapy patients
Bruce Pyenson
Milliman, NY. November 2014
11
Cost Higher in Hospital OP Setting
Bruce Pyenson
Milliman, NY. November 2014
12
Higher Costs for Chemotherapy Agents
Bruce Pyenson
Milliman, NY. November 2014
13
Details of Higher Cost for mCRC in HOP
 Biologic, cytotoxic, radiation therapy, and other
Bruce Pyenson
Milliman, NY. November 2014
14
What About the Future? Payer Perspective
Possible effects
 More bargaining power from larger organizations—upward
pressure on prices
 Pathways being enforced by ACO instead of payer as risk shifts
to ACO
 Participation—or exclusion—from limited networks
 Referral management—ACO will control which providers get
patients
Bruce Pyenson
Milliman, NY. November 2014
15
340B Drug Pricing
Program Update
Elizabeth Elson
Of Counsel
Foley & Lardner LLP
340B Drug Pricing Program Overview
• Federal drug pricing program
• Operated by the Office of Pharmacy Affairs (“OPA”) in the
Health Resources and Services Administration (“HRSA”)
• Drug manufacturers are required to provide
significant discounts to participating covered entities
on covered outpatient drugs
• Covered entities include health care providers such as
FQHCs, specialized clinics, and DSH hospitals (with DSH >
11.75%)
• Intended to provide financial relief to facilities that
provide care to the medically underserved
ACA’s Impact on 340B Drug Pricing Program
• Affordable Care Act expanded participation to new
covered entities:
•
•
•
•
•
Children's hospitals with Medicare DSH > 11.75%
Freestanding cancer hospitals with Medicare DSH > 11.75%
Critical access hospitals (CAHs)
Rural referral centers with a Medicare DSH > 8%
Sole community hospitals with a Medicare DSH > 8%
• It also created increased program integrity efforts
(e.g., annual recertification, increased auditing) and
new sanction authority for compliance violations
Means of Obtaining 340B Discounts
• Hospital Provider-Based Clinics
• Clinics listed as reimbursable cost centers on a 340B Hospital’s most
recently filed Medicare cost report may access 340B Drugs
• Clinics must be licensed and operated as part of 340B Hospital; must
also be registered with HRSA as child sites of 340B Hospital
• Referral Arrangements
• Documented referral arrangements by 340B covered entity to nonprovider-based clinics consistent with Apexus guidance
• MD Office not eligible for 340B purchasing
Provider-Based Clinics
• Clinics must meet certain requirements such as:
–
–
–
–
–
–
Licensure as part of 340B Hospital
Financial integration with Hospital
Clinical integration with Hospital
Oversight and supervision by Hospital
Location (35 mile rule unless exempted)
Public awareness of clinic as part of Hospital
• Certain hospital within hospital or joint venture type
arrangements may provide access to 340B if provider-based
rules met
Future of 340B Program
• Increased government and manufacturer scrutiny
• HRSA’s anticipated “Mega Regs”
• Ongoing orphan drug litigation related to ACA provision’s
expansion of covered entities; potential impact on “Mega
Regs”
• Questions about how the current political environment
will impact future of 340B Program
Contact Information:
Elizabeth Elson
Foley & Lardner LLP
(213) 972-4665
eelson@foley.com