High cost of biologics takes a toll on hem/onc practices

CHICAGO—Oncologists will continue to see dwindling margins as the price of chemotherapy agents steadily rises, according to a presentation at the 2008 Oncobiotechnology Research, Clinical, and Business Summit.

The difficulty of manufacturing new chemotherapeutic agents—particularly specially formulated biologic cytotoxins—escalates the financial outlay that must be made by physicians as well as driving up the cost of drug delivery to patients, said Howard A. Burris III, MD, chief medical officer and director of drug development at the Sarah Cannon Research Institute and associate with Tennessee Oncology, both in Nashville.

“The quotes nowadays range from $1–$1.5 million per day to get a new drug to market,” Dr. Burris said during his keynote address. The summit was sponsored by Northwestern University’s Robert H. Lurie Comprehensive Cancer Center.

The gross margin for IV chemotherapy is only about 4% to 5%. “That’s a real factor for doctors. You wouldn’t open a high-price car dealership on a 4% to 5% margin. It would be a bad strategy,” he said.

In the late 1990s to 2000, medical oncology practices had a margin of more than 20% built into chemotherapy delivery. So even if patients could not meet copay requirements, physicians would not be at high financial risk. Most patients also had supplemental coverage. “Now if you are down on the copay, you can lose as much as $10,000 on a patient before you find out you are not going to get supplemental coverage,” Dr. Burris said.

Physicians also must pay a 0.75% or 1% fee to drug distributors (see ONI July 2008, page 26). “If your margin is 4% to 5%, it’s difficult to give up 25% of your profit to a wholesale distributor,” he added.

Dr. Burris offered some ways that a practice can deal with these financial pressures. One option is to form mega-oncology practice groups, particularly in areas that do not have a strong academic environment. For instance, Tennessee Oncology already has 40 medical oncologists, 9 radiation oncologists, and 5 specialists in gynecologic cancer, bone marrow transplantation, and psychology.

“There are physicians in the Nashville area who are interested in joining Tennessee Oncology just because of the significant problem of buying drugs and delivering therapy in a three- or four-physician practice,” Dr. Burris explained.

Factors such as prompt pay discounts work against small physician practices. Absolute cash outlay or accounts receivable can climb into the millions if 20 or 30 patients in a practice are on rituximab(Drug information on rituximab) (Rituxan) or cetuximab(Drug information on cetuximab) (Erbitux).

“Physicians must buy large quantities of chemotherapy, but smaller physician groups don’t have that kind of cash or bank strength, and so that cuts into their margin,” Dr. Burris said.

With doubly insured patients, such as those who have primary coverage under Medicare and backup coverage with Medicaid, each physician in Tennessee Oncology contributes $500 a month for chemotherapy care. “We come out with $20,000 a month for the group for taking care of patients, and that is only going to get worse as drug prices go up,” he said.

A less appealing solution would be to send some types of patients to hospitals for treatment, eg, those who are receiving combination therapy or who are covered through Medicare and Medicaid.

“This is not convenient for the patients, and it loses some of the physician-patient, nurse-patient continuity, but hospitals are under a different reimbursement system so ironically they won’t actually lose money on treatment,” Dr. Burris said.

Private oncology groups also may work directly with a specialty pharmacy. Tennessee Oncology entered into a joint venture with a local specialty pharmacy that delivers chemotherapy agents to patients in their homes or to physicians’ offices. The pharmacy also provides full-time secretarial support to process claims.

“Putting it all together, from the precertification through the dispensing, takes hours to days because of the paperwork and time spent on the phone. It’s not like you know Medicare is going to pay for the IV administration of paclitaxel(Drug information on paclitaxel). Even under Part B, patients have almost 100 plan choices. We have to work through that process because for every patient, it’s a completely different story,” he said.