site-of-service cost differential debate and 340b update john hennessy, mba, vice president,...

Site-of-Service Cost Differential Debate and 340B Update

John Hennessy, MBA, Vice President, Operations,Sarah Cannon Cancer ServicesBruce S. Pyenson, FSA, MAAA, Principal and Consulting Actuary, MillimanErich Mounce, MHA, Chief Executive Officer, The West ClinicPaul O’Dea, Vice President Hospital Business, McKesson Specialty Health Dan Todd, Former Health Policy Advisor,Senate Finance CommitteeElizabeth 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, MAAAPrincipal & Consulting Actuary

November , 2014

5Bruce Pyenson Milliman, NY. 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: [email protected] or 646-473-3201

My opinions and results of my analysis, not necessarily Milliman’s

mailto:[email protected]


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


Chemo Patients are More Expensive!

Milliman analysis of 2008 Medstat MarketScan with about 30 million commercially insured lives


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?


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.


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


Accounting for Differences in Severity Truven MarketScan™ claims data…over 40 million commercial

insured liveslarge sample size

Patients whose chemotherapy began in 2009-2010.

3 cancers which account for ~54% of chemotherapy patients


Cost Higher in Hospital OP Setting


Higher Costs for Chemotherapy Agents


Details of Higher Cost for mCRC in HOP Biologic, cytotoxic, radiation therapy, and other


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

340B Drug Pricing Program Update

Elizabeth ElsonOf 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 non-

provider-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

[email protected]

mailto:[email protected]

site-of-service cost differential debate and 340b update john hennessy, mba, vice president,...

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