Kantar Health Blog

Sequestration: A Practice Catastrophe or a Reduction in Profits?

by User Not Found | May 15, 2013

Co-authored by Meadow Green, Associate Consultant 

There has been a fair amount of talk lately about the impact of payment reductions for cancer care services by 2%, and a reduction in reimbursement for buy-and-bill cancer drugs from ASP +6% to ASP +4.3. Although such predictions may seem pretty dire, it is important to remember that “predictions must be taken with a grain of salt since it is in each industry’s interest to sound the alarm” (The Economist, March 2, 2013). So what is the impact of sequestration on oncology – is it a practice catastrophe, or just a reduction in profits?

To start, I want to provide a more holistic view of Medicare reimbursement and practice economics. Medicare patients represent the majority of the overall cancer population and practices’ patient pools. Practices have already survived a round of reimbursement reductions. According to The Journal of Oncology Practice, the Medicare Modernization Act (MMA) of 2003 “caused a temporary decrease in the per-oncologist revenue curve,” but this was soon offset by greater practice efficiencies (J Oncol Pract. 2011 September; 7(5): 291–293). Industry groups caution that this cannot be easily replicated for this round of cuts, but it is important to note that MMA brought other notable changes that insulate practices from overdependency on per-patient profit margins. These include practice consolidation in the form of practice mergers or hospital alignment  (which increased the patient pools) and the addition of new service lines such as radiology (which diversified revenues). A third notable change was in the collection of patient co-pays; according to pervasive anecdotal evidence, pre-MMA profit margins allowed for practices to be casual in their approach to collection of the patient cost share.

Patient cost sharing is an important factor in practice economics. In Kantar Health’s 2012 survey of practice managers, patient inability to afford his or her cost share was the most frequently selected reason for patient referrals. This dynamic is clearly seen in referral patterns: Medicare FFS patients made up just 11% of a standard community practice’s patient pool but comprised 21% of their referrals. In contrast, Medicare FFS plus supplementary/secondary insurance, Medicare Advantage and Commercial patients made up 19%, 9% and 21% of the average practice’s overall patient pool, but only 10%, 6% and 14% of their referrals, respectively. Since Medicare FFS and Medicare plus secondary insurance have the same oncologist reimbursement levels but different patient out-of-pocket costs, it becomes clear that patient affordability, in addition to payer reimbursement, is compounding challenges in maintaining a thriving oncology practice.

Given the dynamics discussed above, what impact does the reduction in reimbursement associated with sequestration have on patient access to community cancer practices? Kantar Health’s 2012 survey of community oncologists (n=150) asked this question (see chart below). Oncologists most often stated that they would continue practicing as they do today, followed by the adaptations of practice consolidation and patient referral described above. A recent study by the Community Oncology Alliance (COA) asked a similar question but offered very different treatment choices, producing differing results (link). Nonetheless, both surveys showed that practices will make no changes or will pursue the adaptive strategies many have already implemented. 

 

Although all practices will continue “tightening their belts,” practice size may dictate the form adaptation comes in. Large practices (10+ oncologists) in Kantar Health’s survey were statistically significantly more likely to say they would continue practicing as they did today than small (two or three oncologists) and medium practices (four to nine oncologists). With large patient volumes and other sources of revenue, large practices are better able to weather a reduction in buy-and-bill revenues. In contrast, small and medium-sized practices may choose to align with a hospital or another practice to find efficiencies in contracting and administration.

Regardless of practice size, there are a few options to help protect profitability. Oncologists are likely to be increasingly selective about which regimens to administer based on chair times and product acquisition costs, driving more practices to use protocol analyzers and other tools to ensure profitability. Another option, not infrequently selected in our survey, is to increase the use of specialty pharmacy for acquisition of physician-administered drugs. Using this option lessens practice burden in terms of carrying costs, administration and reimbursement risk to the practice. Finally, since coordination of financial assistance and collection of patient co-pays present a significant burden, practices of all sizes are likely to continue to refer Medicare patients without secondary insurance out for infusions. However, since many of these techniques are already commonplace, we expect these trends to be intensified, but not drastically.

Of course, doing nothing new or different is the easiest option for practices – it is hard to imagine that a practice would suddenly cut off a large portion of their patient pool, even if they do become less profitable. 

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