Taking on the Hospital/Community Practice Cost Differential

Targeted Therapies in OncologyJanuary 2018
Volume 7
Issue 1

In Partnership With

Florida Cancer Specialists

Just as CMS moves ahead with payment reforms designed to reduce the total cost of hospital care, results from a new study show that cancer treatment costs remain significantly lower at community oncology clinics compared with hospitals.

Just as CMS moves ahead with payment reforms designed to reduce the total cost of hospital care, results from a new study show that cancer treatment costs remain significantly lower at community oncology clinics compared with hospitals. The cost for patients receiving chemotherapy in hospital outpatient facilities is nearly 60% higher than the same treatment at independent practices, according to the study by Lucio Gordan, MD, medical director, Division of Quality and Informatics, Florida Cancer Specialists & Research Institute, and Xcenda, a health economics consultancy. The average difference for patients with breast, lung, or colon cancer was $7512 per month, or $20,060 in the hospital setting versus $12,548 at community practices. Annually, the average difference amounted to $90,144 per patient.

The findings are consistent with 10 previous studies between 2011 and 2016 that found hospital outpatient costs were 38% higher on average, according to a report released by the Community Oncology Alliance (COA). Gordan said that the difference in his study may reflect increased costs of new biologic drugs, more expensive radiology, and higher hospital fees.

A major driver for the difference was chemotherapy, which ran 71%, or $3510, higher per month in hospital outpatient departments; the average spending was $8443 compared with $4933 at community practices. Physician visits cost 3 times as much per month: $3316 versus $765. The widest gap was seen in breast cancer (TABLE), which cost 66% more in outpatient settings, followed by lung cancer at 54% higher and colorectal cancer at 46% higher.

Gordan’s analysis adjusted for cancer type, age, geographic region, presence of metastatic disease, comorbidities, and other factors to ensure the comparison of similar hospital-based and community patient populations, he said. He also found that those in hospital settings were likely to have more emergency department (ED) visits and hospitalizations after receiving chemotherapy. For hospital patients, 9.8% had ED visits within 10 days compared with 7.9% for community practice patients.

The study supports COA’s campaign to fix payment systems that favor hospitals and lead to acquisitions and closures of independent practices, Gordan said. He presented the findings at COA’s annual Payer Exchange Summit on Oncology Payment Reform in October. “This is going to be an evolving battle to get payers to understand,” he said.

Some hospitals argue that their higher costs are justified because they offer services not available elsewhere, such as 24-hour EDs, uncompensated care, and disaster preparedness. “These roles are not explicitly funded; instead they are built into a hospital’s overall cost structure and supported by revenues received from providing direct patient care,” the American Hospital Association (AHA) said this year. Meanwhile, COA argues that community practices have their own expensive obligations and provide equally good care at much lower costs.

The AHA did not respond to requests for comment on the COA study. Numerous individual hospital centers also did not respond or provide comments.

Nancy Keating, MD, MPH, a professor of healthcare policy and medicine at Harvard Medical School, said that a top reason for the cost differential is hospital systems’ negotiating power with health plans. By including big systems in their networks, payers make their plans more attractive to their customers. The larger the health system, the more power it has to demand higher payments, adding to the incentive for further expansion.

Although Gordan is focusing on changing private payer policies, the federal government is acting to reduce its spending on hospital-based care. As required by a 2015 budget law, in 2017 CMS put into effect a site-neutral payment policy that cut Medicare reimbursement rates in half for care at new hospital outpatient facilities. The rule, which aims to bring those payments in line with the fees paid to private physicians, applies to outpatient offices built or acquired since November 2015.

“One concern that gave rise to this, as expressed by some members of Congress, the Medicare Payment Advisory Commission, and other groups, is the trend of hospitals buying physician practices and converting what had been a physician practice to an off-campus hospital department,” said Elizabeth Halpern, a partner at the law firm Hogan Lovells in Washington, DC. “Hospitals could buy physician practices, convert them to be part of the hospital, and then get paid for the services they provide there at the hospital rate instead of at the physician rate.”

Halpern said that some hospitals went ahead with new outpatient facilities with different service offerings than previously planned, while others put them on hold. “Anecdotally, what I’d heard is that some transactions or construction plans that were under way…may have been stopped because the financial model and the reimbursement that was expected wasn’t going to be there,” she said. Halpern noted that CMS recently announced it is slashing the outpatient reimbursement rate even further in 2018, from the current 50% of the old hospital rate down to 25%.

However, COA executive director Ted Okon said that the site-neutral payment policy affects only sites acquired or built since November 2015, and that the impact of Medicare fee differences “pales in comparison” with the competitive advantage that hospitals gain from the 340B Drug Discount Program. Close to two-thirds of hospitals get deep discounts on oncology drugs, which are meant to subsidize the cost of treating low-income patients, but instead boost cancer program revenues and motivate hospitals to take over community practices, he said. The Centers for Medicare and Medicaid Services (CMS) now targets that program as well, cutting Medicare payments for 340B drugs from the current average sales price (ASP) plus 6% down to ASP minus 22.5%.

The AHA called the change “misguided” and said it will sue to block it; the association argued that CMS’ proposals will make it more difficult for patients to afford or find the care they need. “The patients who benefit from the much-needed 340B program are the ones who will have their access to care threatened,” AHA executive vice president Tom Nickels said.

Whether payment reforms will be harmful for low-income patients is unclear. Low Medicaid payment rates make chemotherapy infusions money losers for community practices, whereas chemotherapy is generally profitable for 340B hospitals. Payment reforms would reduce hospital revenues, but whether such cuts would lead a hospital to stop offering chemotherapy would likely depend on numerous factors.

Different dynamics are at work for patients with lower-end exchange plans. Some payers already steer them to community practices to control costs, Keating said. Thus, government payment models that encourage practice acquisitions could reduce treatment options for these patients.


Gordan L; Community Oncology Alliance; Xcenda. The value of community oncology: site of care cost analysis. Community Oncology Alliance website. communityoncology.org/wp-content/uploads/2017/09/Site-of-Care-Cost-Analysis-White-Paper_9.25.17.pdf. Published September 25, 2017. Accessed December 20, 2017.

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