Ending “Buy-And-Bill” in Oncology: The Question is How, Not If

The public policy debate over affordability of cancer care is approaching consensus on the need to end the “buy-and-bill” model for chemotherapy. How, and how fast, are the key remaining questions. For biopharma manufacturers, there are good reasons to embrace the change.

“We are at a moment where the cancer community is ready to change,” University of Pennsylvania’s Ezekiel Emanuel declared at the end of a two day National Cancer Policy Forum workshop on “Delivering Affordable Cancer Care.”

“We need to tell them how to change and lead that change,” Emanuel said October 9. “Otherwise I think…we are going to regret not having been much more proactive. Now is the time to take a risk.”

Emanuel, a former advisor to the Obama Administration health care reform team, couldn’t have been clearer in his message: “Something big is going to happen,” and oncologists need to lead the change or expect to be harmed by it.

Emanuel was equally blunt in his diagnosis, delivered at the beginning of the workshop October 8. Speaking as an oncologist to oncologists, he declared: “we are the problem.”

Emanuel is a well-known and very public advocate for change in oncology, and always a provocative speaker. But, based on the discussion over the course of two days, it sure sounds like he is right about the auspices for change.

During the workshop, there were plenty of ideas for ways to change the practice of oncology to encourage more cost effective care of patients.

But the fundamental change is this: oncologists appear to be ready to let go of the “buy and bill” model under Medicare Part B that has defined the market dynamics in chemotherapy for more than a generation.

For biopharma companies, the end of “buy-and-bill” is bound to be an unsettling notion. After all, the model for chemotherapy has been very comfortable and lucrative for cancer drug companies.

But there are some good reasons for industry to prepare for the change – and even to embrace it.

• First, “buy-and-bill” is already starting to slip away in the commercial market, thanks to innovative payment programs like the “cancer pathways” adopted by [UnitedHealthCare] and other payors. (Also see "United Healthcare: A New Approach to Managing Oncology" - Pink Sheet, 1 Mar, 2008.)
• Second, the industry has delivered an increasing number of oral chemotherapy agents that are already usually not part of that model—and may at times be at a competitive disadvantage when oncologists have an economic incentive to choose a physician-administered alternative.
• Most importantly, the pharmaceutical industry should—as Emanuel advised oncologists—“think what the alternatives are.” For oncologists, the alternatives are draconian payment cuts. For manufacturers, the alternatives would likely include direct regulation of pricing.

Manufacturers should be aware that—at least when the policy topic is defined as “affordabilty”—the incredible enthusiasm for targeted therapies and enhanced regulatory systems to encourage breakthrough development goes by the wayside. (Also see "Targeted Cancer Therapies in Context: FDA’s Pazdur on Companion Diagnostics" - Pink Sheet, 26 Sep, 2012.)

Instead, new drugs are defined as part of the problem, with seemingly ever-higher price points driving costs across the system.

But no one is talking about price controls right now—and biopharma sponsors should do everything they can to keep it that way. The opportunity is there to keep the conversation focused on changing physician incentives, rather than changing pricing practices.

Ready for Change

The need to end buy-and-bill featured almost as a given during the National Cancer Policy Forum event. As UPenn’s Emanuel put it, “If we don’t change how we pay docs, it is just hot air.”

Of course, the “end of buy-and-bill” is hardly a new idea: the Medicare Modernization Act of 2003 attempted to realign the incentives in oncology by changing the reimbursement model for Part B: instead of reimbursement tied to an artificially inflated “average wholesale price,” the formula relies on a market-based “average sales price.”

But the formula still includes a mark-up for physicians: ASP+6%. And in an era where $10,000 per month drugs are increasingly common, that “+6%” is still a healthy income stream – so much so that the American Society for Clinical Oncology estimates that chemotherapy charges are as much as 75%-80% of revenues for a typical oncology practice.

But it sure sounds like there is something close to consensus that now is in fact the time to change those incentives.

That message came through over the course of the two day meeting, from the opening keynote by Institute of Medicine President Harvey Fineberg to the closing remarks by American Society of Clinical Oncology CEO Allen Lichter.

“The existing payment system in oncology is even more distorted than the usual fee for service system,” Fineberg noted, “because in so much of oncology today, so much of the resources that come into practices is also dependent on what exact treatments you undertake.”

“It is a problem that we are going to have to face up to.”

ASCO’s Lichter did not disagree.

“We all agree that one of the fundamental things we have to transition to is that we have to take the so-called buy-and-bill payments for chemotherapy away. It is just not going to last,” he said.

Time for Specifics

The broad agreement on the need to end buy-and-bill does not mean that oncologists are all on the same page about how and when to reform the payment system.

In fact, the meeting ended with a testy exchange between Emanuel, the outsider/insider advocate for urgent and sweeping action, and Lichter, the head of the key specialty organization whose members have the most at risk from change.

“We can’t follow the usual timeline,” and do small pilot changes before implementing broader reforms, Emanuel asserted. “Something is going to be done. Either they are going to whack payments again, or we can do something more creative.”

ASCO’s Lichter bristled at the assertion that the need for speed trumps any time to test different approaches. “We can’t ‘just do it,’” he declared. “We have never tried it and don’t understand the ramifications of it.”

“It is easy to stand back and say, ‘Just do it,’” Lichter said. But “we need to pilot it.”

Emanuel didn’t back down—but also indicated that there isn’t actually that much disagreement in the two positions. “I agree with you that we are not going to flip the switch” and fundamentally transform payment overnight, he said. “We want a schedule over the next five or six years—pick the timeline.”

Rather than declare frustration at the difficulties of testing different models with the Centers for Medicare & Medicaid Services, Emanuel urged ASCO “to say in a declarative sentence: ‘We are going to do this. We want the government to come and agree.’” ASCO could list a series of areas where payment bundles would be appropriate. Emanuel noted that United has already created almost two dozen different bundles; ASCO may not like all of them but “we have plenty of guidelines and pathways that we could use for a bundle and a global payment.”

A concrete proposal by ASCO “would send huge shock waves in the government, I assure you,” Emanuel said. “The White House would call [CMS] and say get on it. You have a professional society that is willing to get off this train and you are not moving? Get on it. I think you could also get insurers in it.”

“Washington doesn’t think of these things. We need to offer creative solutions.”

ASCO sounds almost ready to take that step. “We are ready to do it,” Lichter said. But “we need a partner who is ready to do it” at CMS.

At Least Three Options on the Table

When it comes to ending “buy and bill” in Medicare Part B, there are at least three options on the table:

1. Adopt Payment Bundles
2. Revive Competitive Bidding
3. Move Part B Drugs Under Part D

It is possible that all three ideas will receive consideration in the context of the Post-Election budget/deficit negotiations.

Bundling was the most popular solution discussed at the IoM meeting, teed up by United SVP Lee Newcomer’s discussion of his company’s experiments with bundling payment for cancer therapeutics in specific practices.

Memorial Sloan Kettering’s Peter Bach discussed his ideas for bundling cancer payments under Medicare by setting payment to the midpoint of regimens that are rated as equivalent in practice compendia. Emanuel urged similar steps in that directions, including that treatment guidelines start to explicitly rank regimens by cost, and that insurers pay for adherence to those guidelines. He even suggested that Medicare could share savings directly with beneficiaries by paying patients for choosing lower cost alternative regimens.

As for the mechanics of acquiring drugs for Part B, Bach made the case for reviving competitive bidding as one element of the solution. Bach noted that the original attempt to create a competitive bidding program for Part B, enacted by the Medicare Modernization Act of 2003, didn’t get very far. Physicians didn’t sign up in large numbers, and the program covered all Part B products and so was administratively cumbersome. (Also see "A CAP Casualty " - Pink Sheet, 1 Jun, 2006.)

Bach (who was a senior advisor at CMS during the MMA experience) suggested that a modified Competitive Acquisition Program could work now. He noted that oncologists may be more prepared to sign up, given growing concerns about the sustainability of buy-and-bill as well as the practicalities of managing incredibly high inventory costs for the wave of newly approved cancer drugs.

To make the program more administratively efficient, Bach suggested that it could focus on the biggest Part D line items, like the top 10 biopharmaceutical products. (The focus could be specifically on oncology products, but Bach noted there is no reason to maintain “buy and bill” for products like Lucentis or Remicade if you are ending it in oncology.)

Bach suggested an alternative approach that would limit the competitive bidding program to products that cost more than a certain amount per dose. He noted that high dollar items would assure that administrative costs don’t eat up the savings from negotiating lower prices on items that are already low cost.

The logic of competitive bidding leads quickly to ideas like simply moving all Part B products into the Medicare Part D program, an idea that has some support in industry and that has at least been floated in budgetary talks. (Also see "Part D Rebates and the Numbers Game: Pharma Readies for Post-Election Deficit Fight" - Pink Sheet, 1 Oct, 2012.)

However, no one at the IoM meeting was making that case—and it is not clear what if any savings would actually result from a blanket transfer of B to D.

Primary Impact on Older Therapies

All of those changes may sound unsettling to biopharma companies comfortable with the historic models for oncology. But the actual impact of ending “buy and bill” isn’t likely to be so dire.

For manufacturers, payment bundling sounds threatening, since it raises the specter of converting the lucrative chemotherapy market into something more analogous to the hospital products market, where it is extremely difficult to command premium pricing on new therapies.

However, the discussion around bundling in oncology tends to focus on areas where there are multiple regimens consisting primarily of older chemotherapeutic options. If that is indeed the focus of early bundling experiments, the impact will be felt largely by generic manufacturers.

Not that that is a meaningless impact: United’s Newcomer noted that chemotherapy costs are increasing at a similar rate for older generic ingredients as for premium priced new entrants, so there would be potential savings from bundles that did not directly impact the newer therapies.

However, Newcomer explicitly emphasized that United’s Pathways do not in any way restrain pricing of new therapies; United, he says, simply has no choice but to price-in ever higher new drug costs to its premiums.

For manufacturers, the entire tone of the workshop had to be dispiriting: the incredible wave of new cancer drug approvals was clearly being defined as part of the problem, rather than in any way an element of the solution to affordable cancer care.

Several speakers were almost apologetic about expressing enthusiasm for the unprecedented number of new drugs for oncology approved by FDA in the past two years. “This is incredible,” Dana Farber Cancer Institute’s Deborah Schrag said when she presented the list of seven new cancer therapies cleared by FDA this year. She treated the list as a starting point for talking about the high prices of the new agents. Cancer Clinics of Excellence Chief Medical Officer Robert Green referred to an “onslaught” of new agents seeing the negative implications of choosing incorrect therapies from the long list and the high learning curve for oncologists to incorporate the new agents into practice.

Prices Unrelated to Value…

Simply put, the IoM forum speakers generally see no correlation between cancer drug prices and their value as therapy.

The trend in cancer drug pricing is unmistakable, with launch prices seeming to increase exponentially over time.

Schrag offered perhaps the least critical comments on the subject, highlighting what she described as a “seller’s market” for new therapies. She noted of the seven FDA therapies approved this year that “they all seem to have a very similar price,” to the point that “you would think they are sheep”—even though each drug is different. She summarized the prices as “about $10,000 per month” for each of the therapies, even though her own slide noted prices from $5,900 per month up to $11,000.

Newcomer cited Schrag’s “seller’s market” comment and took it a step further, saying “there is no market. It is simply the seller naming their price.”

Memorial Sloan Kettering’s Bach went even further, describing the pricing model as “chutzpah,” and saying that the best predictor of a new therapies price is the price of the last agent launched. Bach in particular highlighted Regeneron Pharmaceuticals Inc.’s Zaltrap (ziv-aflibercept) as an example of an agent with a questionable value proposition. Based on pivotal trials showing a small survival benefit against background therapy, Bach calculated a Quality-Adjusted Life Year cost estimate for the brand of about $470,000—which, he noted, assumes there is no adverse impact on quality of life from the therapy itself.

Sloan-Kettering isn’t just lamenting the cost in that case; the cancer center announced a policy of not covering the drug in an editorial published by The New York Times the week after the IoM event.

That announcement, however, is itself instructive about the dynamics of cancer pricing: Sloan-Kettering will not cover Zaltrap because it believes it is mechanistically equivalent to another VEGF inhibitor for the same indication: Roche’s Avastin.

Thus is the last decade’s poster child for uncontrolled cancer treatment costs now cast as the cost-effective alternative. (Also see "The Avastin Dilemma: Two Personalities and Two Points of View on Cost Effectiveness" - Pink Sheet, 1 Apr, 2009.)

…But Not Price Controls Discussed

Despite the assertions about a lack of correspondence between price and value, there were no proposals offered to restrict or limit manufacturers’ ability to set their own prices. The closest to a suggestion of price controls came from United’s Newcomer; he emphasized the insurer’s inability to negotiate discounts on cancer drugs and suggested that any solutions would have to be “draconian” and “may require legislation.”

The high cost of new drugs was a common refrain, but the clear focus of the conference was on issues like the need to reduce variability in practice and the role of oncologists and hospitals in driving costs were more emphasized than drug costs. To the degree that medical technology was the focus, screening tests and surgical technologies were highlighted as much or more than drug costs.

The agenda underscored that theme: There was one 15-minute presentation specifically focused on the role of biologics and pharmaceuticals, and that occurred as part of an afternoon session on “Cancer Treatment and Surveillance.” Virtually all of the questions that followed the presentations were for the presenters who discussed radiation oncology and surgical technologies.

Indeed, the public lamentations about drug pricing during the two day conference can be interpreted as an acknowledgement of powerlessness: essentially all of the stakeholders in the oncology sector recognize that they have no choice but to provide therapies that have demonstrated any clinical benefit above and beyond standard care—no matter the cost.

And that, ultimately, may be the best reason for biopharma companies to embrace the end of “buy-and-bill”: it focuses the next phase of the affordability discussion on incentives for oncologists rather than on mechanisms to restrain launch prices.

The transformation in payment models for oncologists won’t be an easy step, to be sure, and there are bound to be winners and losers depending on exactly how and how fast the transition occurs.

But for manufacturers, an emphasis on payment models protects the ability of companies to continue to seek breakthrough prices for breakthrough therapies.

The only industry speaker on the two day program, Bristol-Myers Squibb Co. VP Renzo Canetta, was given just five minutes on the closing panel, and used it to discuss the factors that make drug development expensive but also to highlight a more optimistic way of thinking about new therapies: the potential of new, targeted therapies to deliver dramatically better survival than anyone is used to seeing in some disease settings.

He noted the recent breakthroughs in melanoma, including Bristol’s Yervoy. “I am very hesitant to use the word ‘cured,’” but “these are patients who return to their normal life, to productivity. The value of this must be recognized.”

Canetta noted the transformation in HIV, from certain death sentence to a chronic, manageable illness. The same may be happening in oncology.

Finally, Canetta said, “we are all in the same boat. We might have different employers, but progress is only going to come from collaboration, and not from creating little parishes where we fight each other on separate issues.”

For manufacturers hoping to market a wave of breakthrough cancer therapies, that same message applies: supporting oncologists in transitioning away from “buy and bill” just might mean they maintain the ability to command prices that reflect their conception of the value of their breakthroughs.