Costs to Medicare Nearly Twice as High for Hospital Outpatient versus Community-Based Oncology Services

Neil Canavan

October 2013, Vol 4, No 8 - Economics of Cancer Care

A new analysis of Medicare claims between 2009 and 2011 has revealed that patients with cancer receiving chemotherapy in hospital outpatient settings are billed at rates that are 25% to 47% higher than for equivalent oncology services rendered at community-based physicians’ offices.

The results of this analysis, contained in a report sponsored by the US Oncology Network and the Community Oncology Alliance and performed by the Moran Company, suggest that Medicare patients with cancer routinely receive more lines of chemotherapy treatments, often with more expensive chemotherapy drugs, compared with patients treated in a community-based setting. Such treatment practices account for the higher costs overall, even though recent changes to Medicaid’s Hospital Outpatient Prospective Payment System (OPPS) lowered unit payment rates during the study period.

Other key findings from this report for the years 2009 to 2011 include:

  • The number of chemotherapy treatment days per Medicare beneficiary ranged from 9% to 14% greater in hospital outpatient settings compared with community-based settings
  • Hospital chemotherapy expenses ranged from 25% to 47% higher on a per-beneficiary basis than costs observed in a physician office setting; rates were 25.4% higher in 2009, 46.8% higher in 2010, and 33.3% higher in 2011
  • On a per–chemotherapy day basis, hospital outpatient compared with physician office spending was 24.3% higher in 2009, 40.1% higher in 2010, and 29.4% higher in 2011
  • On a per-beneficiary basis, spending on hospital outpatient chemotherapy administration was 42% higher in 2009, 67.8% higher in 2010, and 51.1% higher in 2011 than the same procedures in a community setting.

Although the specific reasons for these disparities were not investigated, the analysts suggest that subtle differences in the payment mechanisms of OPPS and the community-based Medicare Physician Fee Schedule are to blame. These differences include variations in coding, in the type of data and related methods used to calculate payments under each system, differences in how beneficiary cost-sharing is determined, and differing rates at which payments are updated.

Although these variations between payment methodologies may appear minor, the cumulative effect is overpayment to hospital outpatient programs to the tune of millions of dollars annually. Furthermore, the authors predict that should current reimbursement practices remain in place, this disparity will only worsen over time.

“Medicare data again confirm that outpatient cancer care in hospital outpatient departments costs significantly more than the same care in community cancer clinics,” said Barry D. Brooks, MD, Vice Chairman of the Pharmacy and Therapeutics Committee, in a statement issued by The US Oncology Network. “Medicare policies create perverse incentives for hospitals to acquire community practices and bill Medicare at a higher rate. Unfortunately, for patients fighting cancer and for taxpayers, cancer care will cost more than it should until current government policies favoring hospital-based care are ended.”

A previous Moran analysis (published in the spring of 2013) showed that between 2003 and 2011, community-based cancer care declined by 20%. As a result, Medicare beneficiaries now receive nearly 33% of their outpatient chemotherapy services in the hospital outpatient setting.

Cancer Care Costs: Hospital versus Community Setting
For this analysis, 2 data sets based on Medicare claims were created. The 2 cohorts were exclusive to patients treated only in hospital outpatient settings or only in physician office settings (4.2% of patients received treatment in both settings in 2009-2011).

Because this study is based on an essentially noncontrolled, retrospective review, the investigators are quick to point out that the reasons posited for the different treatment practices observed are merely speculative, and the analysis does not account for patient characteristics or practice styles in a given beneficiary cohort or treatment setting.

That said, sampling assumptions of a relative uniformity of practices and patients, especially in consideration of such a large data set—more than 1.5 million Medicare beneficiaries—seem entirely reasonable.

Table 1
Table 1: Differences in Drug Costs by Care Setting, 2009-2011.
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Table 1 lists some of the differences in drug costs when used in the hospital setting versus the community setting.

Table 2
Table 2: MPFS Payments versus OPPS Payments for Select Chemotherapy Services, 2009-2011.
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To further illustrate the cost differences, as well as the waste, under the current pricing policies, the investigators “repriced” certain services and overall costs by calculating the costs related to the volume of services rendered only in the physician office setting by using the OPPS (ie, hospital) rates. Table 2 shows a sampling of procedures and their overall differences.

Overall, repricing office cases to the scale of OPPS payments creates a volume-weighted payment differential of 19% to 38%—an ongoing economic trend that is unsustainable. The full report is available at