1. Cost Drivers in Oncology

2. Bundled Payments Fee for Service Episodes of Care Pathways Oncology Medical Home ACO’s

3. The Problem  What we hear and read:  Oncology is expensive  Cost increases are unsustainable  We have to bend the cost curve  All true, but:  What is the cost curve?  What parts can be bent?  What are the premises behind any specific payment reform model? Does it solve the right problem?

4. The Cost Curve  Typically (almost always) oncology costs are discussed one to two components at a time  Drug pricing – 25% of oncology costs  True costs can only be understood when all are considered together  Main issue for this session  Biases  Payer experts in the audience  Much is unknown  But that itself is informative  We have to understand the limits of our knowledge to be truly informed

5. What are we spending?  Oncology Care  $89 billion in 2007  5% of total healthcare spending  0.8% of GDP

6. Causes of the Rising Cost Curve  Demographics  Likely most powerful factor  More intense treatment  More lines of appropriate therapy  Increased amount of time on active therapy  More labs and imaging to monitor therapy  Rising cost of therapeutics  Change in site of care

7. Top Ten Causes of Death Jones et. al. N Engl J Med 2012 366;25

8. Top Ten Causes of Death Jones et. al. N Engl J Med 2012 366;25

9. Demographics  Tangka 2010: Cancer Treatment Costs in the United States  Compared data from the Medical Expenditure Panel Survey (2001-2005) with it predecessor, the National Medical Expenditure Survey (1987)  Increase in cost driven mainly by increase in number of cases rather than the cost per treated case  Cancer costs doubled over the study period but so did other health costs  Cancer costs 4.8% of overall medical expenditures in 1987; 4.90% between 2001-2005 Tangka et al. Cancer Treatment Costs in US. Cancer 2010.

10. Demographics  Mariotto 2010: Projections of the Cost of Cancer 2010- 2020  Dynamic projection of cost of cancer care  27% increase in costs expected due to US population changes only - independent of incidence, survival, and cost of care per case  Model:  2% annual cost increases per case – 39% increase in costs  5% annual cost increases per case – 66% increase in costs Mariotto et al. Projections of the cost of cancer care in the United States: 2010-2020. J Natl Cancer Inst 2011; 103:117-128

11. Demographics  Key cost driver in oncology is non-modifiable  Cannot bend this part of the curve  Good data is hard to find  Either old or based on modeling and projections  Payers have the newest data

12. More Intense Treatment  Metastatic Colon Cancer  Survival  Increased from 8 months to 2 years over past two decades  Drug cost of Mayo regimen of 5-FU/leucovorin for eight weeks- $63  Newer drugs  Irinotecan, oxaliplatin, capecitabine, bevacizimab, cetuximab, panitumimab, regorafenib, aflibercept

13. Lines of Therapy

14. What is Treatment Intensity?  Not just drug  Multiple lines of therapy: what else do we do along the way?  Labs, imaging, clinic visits, supportive care, possibility of hospitalization for each line of therapy  Maintain quality of life  Is it working?  Complications of therapy  Surgical resection of primary site/liver disease  Stereotactic body radiation  Chemoembolization  Radioembolization  Clinical Trials

15. Payer Spending

16. What About Drugs?

18. Source: The US Oncology Network

19. 2012 FDA Approvals  11 of 34 drugs approved by the FDA were oncology drugs  Axitinib  Vismodegib  Pertuzumab  Carfilzomib  Aflibercept  Enzalutamide  Regorafenib  Bositinib  Omacetaxine  Cabozantinib

20. Drug Development Cost  Costs have to be modelled (with all the inherent shortcomings of this approach)  “Expected value terms”  Have to include cost of failing drugs with drugs ultimately approved  Basic research and three phases of clinical development DiMasi et al. The Price of Innovation: New Estimates of Drug Development Costs. Journal of Health Economics. 2003; 22:151-185

21. Drug Development Cost  Out-of-pocket cost allocated over a timeline  Expenditures capitalized at a discount rate to account for capital invested over time  $403 million out-of –pocket cost per approved drug in the US in 2003  $802 million fully capitalized cost (discount rate of 11%)  Cancer drugs likely more expensive than other drugs DiMasi et al. The Price of Innovation: New Estimates of Drug Development Costs. Journal of Health Economics. 2003; 22:151-185

22. Drug Development Cost  No restriction on the initial price of a drug  “Whatever the market will bear”  Afterwards, price subject to mandated 340b and Medicaid discounts  Price movement influenced by ASP  “just price” for drugs  OK, but what about everything else?  Your high prices are a problem, mine are OK

23. Site of Care Shifts

25. Cost of Consolidation: Milliman 2011 & Avalere 2012 Studies  Milliman 2011 study on Medicare costs by site-of-service  $6,500 annualized higher chemo treatment costs in outpatient hospitals versus MD community cancer clinics  $650 annualized higher out-of-pocket costs for Medicare beneficiaries  Avalere 2012 on private payer costs by site-of-service  Up to 76% higher chemo treatment costs in outpatient hospitals versus clinics  24% higher on average in outpatient hospitals Sources: Site of Service Cost Differences for Medicare Patients Receiving Chemotherapy, Milliman, October 2011 Total Cost of Cancer Care by Site of Service: Physician Office vs Outpatient Hospital, Avalere, March 2012

26. Site of Care  UNH costs for commercially insured patients  Chemotherapy 24%  Inpatient and outpatient facility services54%  Physician services22%  Payments for amounts for chemotherapy  Private practice oncologists Medicare + 22%  Hospital employed oncologistsMedicare + 146%

27. Site of Care Paying a Premium for Cancer Drugs. Charlotte Observer 2012.

28. Site of Care Bevacizumab  Examined treatment patterns and cost differences for patients receiving bevacizumab by site of administration for metastatic colorectal and lung cancer  Claims database from 2005-2012 for commercial and Medicare Advantage health plan members  Episode of care longer in physician office setting (OFF) vs hospital outpatient (HOP) for colorectal cancer patients but not lung patients  Number of bevacizumab infusions per EOC were greater in physician office setting for both lung and colorectal patients Engel-Litz et al. The American Journal of Managed Care. 2014;20(11):e515-522.

29. Site of Care Bevacizumab  Cost per month (all cause, patient adjusted) higher in HOP vs OFF  mCRC38% higher  LC31% higher  Cost for entire episode of care (all cause, patient adjusted) higher in HOP vs OFF  mCRC:  HOP$161k  OFF$134k  LC  HOP$176k  OFF$118K

30. Site of Care Bevacizumab Weekly dose of bevacizumab lower in the HOP setting

31. Is Fee-for-Service a Cost Driver?

32. United Health Care Episode of Care Pilot  Study predicated on theory that fee-for-service provides theoretical incentives for overuse and the selection o f expensive branded drugs  Episode of care payment removed any reimbursement related to drug selection or treatment vs non-treatment decision  Primary metric: total medical cost per episode of care

33. United Health Care Episode of Care Pilot  Total cost per episode  Predicted fee-for-service$98 million  Actual$64 million  Chemotherapy drug cost  Predicted$7.5 million  Actual$21 million  Paradoxical outcome based on rationale for study

34. Fee-For- Service  Examined effect of the Medicare Modernization Act on chemotherapy usage from 2003-2006 in the FFS setting vs integrated health networks (IHNs)  Lung and colon cancer  Hypothesis:  Decline in use of drugs with lowered reimbursement rates after MMA were greater in FFS setting than in IHNs  Change in reimbursement did not have a clear impact on prescribing patterns in FFS  Introduction of new drugs and clinical evidence appeared to play a role Hornbrook M et al. Did Changes in Drug Reimbursement After the Medicare Modernization Act Affect Chemotherapy Prescribing? J Clin Oncol 2014;32:1-13.

35. ASP + 0?  OK, but why would I take the risk and manage the capital outlay to purchase drug inventory?  Remembered CAP, the Competitive Acquisition Program  Lone vendor at ASP + 4%  Private offices make it work for ASP + 4.3% under sequester  Where are the savings?  IV chemotherapy in the office is more reliable than specialty pharmacy drug dispensing  Physician offices can compound and infuse complex drugs more reliably than specialty pharmacy can but pills in a bottle and print a Fed Ex label

36. Conclusions  Oncology costs are high and we do need to find solutions  We need to distinguish between what is not modifiable (demographics, population aging) and what is  If we are trying to find savings, then paying more for the same thing (site of care shift) is nonsensical (and unethical if we also limit patient choices to save money)  If you think drug prices are too high, then don’t double them

37. Conclusions  Questionable if we have accomplished any net cost savings since MMA  Patients have been shifted into structurally higher cost settings  Drug pricing, which it was hoped MMA would indirectly address, has not been impacted  To approve a new drug, rigorous scientific proof must be rendered  Payment system can be changed and new policies implemented based on weak evidence, bias, and conjecture

38. OK Fire Away…