Cancer Economics: Hospitals -- What's Happening to Their Cancer Program's?

Albert B. Einstein, Jr, MD

Oncology practice and economic realities are inexorably linked today. Developments in cancer economics are explored in this regular feature.

Introduction

During this tumultuous time in health care, cancer care management has experienced significant evolution. The hospital's traditional central leadership role in the provision of cancer care has been significantly challenged and diminished. Some hospitals do not yet realize that their role has changed, while more enlightened hospitals are now seeking new strategies to sustain their influence in the continuum of cancer care.

The Hospital-Based Cancer Care Program

The traditional cancer care model has been the hospital- centered cancer program that coordinated and provided the full continuum of cancer diagnostic, treatment, and support services as defined by the American College of Surgeons¹ and the Association of Community Cancer Centers.² A typical hospital cancer program consisted of the cancer committee, a tumor board, the tumor registry, the inpatient oncology unit, psychosocial support services, home health care, and hospice services. Major cancer surgery was performed in the hospital's operating rooms. Complex chemotherapy was administered in the inpatient oncology units by skilled, trained oncology nurses. Outpatient radiation and chemotherapy were provided either in hospital-based outpatient facilities or in associated physician- operated facilities. The surgical, medical, and radiation oncologists were closely aligned with and provided leadership for the hospital's cancer program. The hospital often supported a dedicated oncology administrative position and a medical director position for the oncology product line in recognition of oncology's contribution to the hospital's revenue. Clinical research programs such as the National Cancer Institute's Community Clinical Oncology Program were sought after to add prestige and a competitive advantage to the program. This hospital-based model functioned well in providing the array of services in the environment of unrestricted fee-for-service reimbursement.

Managed Care: The Brave New World

With the rapid rise in health care costs in the United States in the 1980s and 1990s, both the government and employers were anxious to reduce their health care costs. In 1993, newly elected President Clinton attempted to formulate a sweeping national health care reform plan but failed to get the support of the US Congress.^3,4 In the vacuum created by the federal governmentís failure at reform, managed care companies have emerged as the immediate solution to decreasing the cost of health care. They have reduced the health care premiums in exchange for control over the provision of health care for large populations of people. In turn, they contract with hospitals, physicians, and other providers of health care systems at reduced reimbursement rates. In particular, the for-profit managed care corporations have strived to reduce the percentage of the premium dollars being spent directly on health care in the interest of covering their administrative fees and returning a significant profit to their shareholders. The providers have found themselves having to accept lower and lower reimbursement rates to contract for potential patients now controlled by the managed care corporations. Traditional provider relationships have been fragmented as the managed care corporations have disregarded the established community patterns of patient care and have contracted for individual services based principally on cost.

Hospitals in heavily penetrated managed care markets are now experiencing a marked increase in their patient activity as well as in control of associated revenue by the managed care plans. They have universally experienced declines in inpatient admissions, lengths of stays, and associated inpatient revenue. Most hospitals, if not all, have had to reduce staff, reconfigure services, and eliminate unprofitable services in order to align their cost structure with the competitive reimbursement rates offered by the health plans.⁵ Hospitals now compete with physicians and other providers such as home health services and home infusion services for their traditional outpatient services. Previously lucrative ancillary services such as pharmacy, radiology, and clinical laboratory are being contracted out independently by managed care corporations to lower-cost commercial providers.

In response to the need to cut costs and the increased competition, hospitals have formed hospital alliances, have merged services, or have been bought out by larger for-profit and not-for-profit hospital organizations. Traditional community health care relationships have been significantly altered to enable hospitals to survive the fierce competition.

Impact of Managed Care on the Hospital-Based Cancer Care Model

The fragmenting impact of managed care on health care in general has also threatened and, to a great degree, disrupted the established hospital-based cancer care program. Prior interdependent provider relationships on which the cancer programs have been built have been upset by the insurers' piecemeal contracting and the providers' heightened competition.

The merger or realignment of some hospitals with separate, independent competing cancer programs into new health care systems has required the reorganization of their oncology product line. Some of the options for hospitals in this reorganization include centralizing all of the new system's oncology services into one hospital, retaining basic oncology services in all institutions but referring specialized or tertiary oncology services to one specialized hospital, or maintaining full services in all facilities because of their geographic separation.

Whatever the organizational structure, many cancer programs are being eroded as hospitals reduce the resources dedicated to oncology. Cancer center administrators are often asked to take on additional responsibilities or their positions are being eliminated as cost reductions impact middle management. Medical directors are experiencing less support for their programs. Hospitals are providing less funding for activities that are not revenue producing, such as the tumor registry and the American College of Surgeons accreditation process. Support of clinical research trial activities is being denied by the insurers and is no longer affordable by many hospitals. Community Clinical Oncology Program grants no longer have the appeal they used to have because support of these programs incurs significant additional expenses that are over and above the support provided by the National Cancer Institute.

Oncologists are more concerned about their personal revenue with decreased reimbursement by the health care plans and are more competitive with the hospitals for outpatient oncology services. Medical oncologists have moved as much chemotherapy as possible out of the hospital setting into their own facilities, though recent threats to chemotherapy reimbursement may reverse this trend in the future.⁶ Radiation oncologists find it more profitable to treat patients in free-standing radiation facilities than in hospital-based units with their higher overhead costs. Diagnostic radiologists are moving procedures into their own outpatient centers. Surgeons are performing more surgeries in free-standing ambulatory surgery centers. Physician providers now are competing with the hospitals whose cancer program they previously supported for the increasing outpatient diagnostic and treatment services as their own revenues are threatened.

The oncologists in some markets are also aligning themselves into larger physician entities in order to compete for managed care contracts and to control the treatment of their cancer patients, including where they are treated. These physician networks are taking different forms -- some regional, some state, and some national.⁷ For-profit physician practice management companies are purchasing and managing oncology practices, thus gaining power and control in the marketplace. They potentially could dictate which hospitals will treat the patients they are managing.

Other for-profit corporations are attempting to seize their share of the business, including home health care and home infusion services. Some payers have separate contracts with pharmaceutical wholesalers to provide the chemotherapeutic and other oncology-related drugs rather than use expensive hospital pharmacies. Commercial laboratories, with their lower overhead and greater cost efficiency, now have contracts to provide both clinical and anatomic pathology services at costs that are lower than those of hospital laboratories.

The current managed care market forces significantly threaten the hospital's leadership role and dominance in the evolving cancer care paradigm. Control and coordination of the various oncology components have become more chaotic and problematic. The best interests of the patient seem to be overshadowed by the interests of the payers and the providers.

New Hospital Strategies in the Brave New World

To maintain their role in the new cancer care paradigm, hospitals need to evaluate and consider new services and new relationships with other care providers. Hopefully in the process, they will demonstrate appropriate concern for the patient. The hospital is no longer the major source of capital for developing new programs. Its contribution and, consequently, its role in providing cancer services have significantly diminished. Defining its new role may put the hospital at odds with its previously supportive and loyal medical staff.

The new model for cancer care is disease management. This system requires the formation of a group of providers who are willing to manage as well as provide cancer care and who will cover a wide geographic area defined by the insurance marketplace. Care management networks can be created by physicians only, by hospitals only, by a partnership of physicians and hospitals, or by for-profit health care management companies. Services not covered by the investing providers can be provided on a contract basis. Management of cancer care requires both clinical and administrative expertise with the willingness to standardize care with consideration for both cost and quality of care. A medical support organization with the capacity to case manage, to process claims, to credential providers, and to monitor outcomes according to clinical protocols or guidelines needs to be developed by the network or accessed by outsourcing.⁷

The strategically oriented hospital needs to recognize its new role in the cancer care management paradigm and ascertain what it can contribute to enhance the provider network other than its traditional inpatient services. The administrative expertise, information systems, and capital resources of hospitals can be very useful in developing such networks. They may provide leadership, but they need to partner with physicians rather than dominate them. Hospital administrators will need to be collaborative and willing to share or defer leadership to physician leaders if the new partnership relationships are going to be successful. A common vision needs to be developed and supported by all participants. An organizational structure and governance plan needs to be defined, with representation usually being defined by equity contribution. Participation by noninvestors needs to be defined. Fair distribution of patients and revenues and the establishment of appropriate incentives will most likely determine the potential success of the organization. The old physician hospital organizations have generally failed because of the dominance of physicians by hospitals and the lack of alignment of participants' incentives and purpose. All parties need to recognize that each can make a valuable contribution to the success of a provider network. All parties must subjugate their parochial interests to the primary well-being of the network for it to be successful.

The solution by some hospitals has been to partner with a for-profit disease management company not only to manage the hospitalís oncology services and facilities, but also to contract with or employ physicians to provide care at the facility. Such companies can then contract with interested insurance plans or employers to provide carve-out oncology care for their beneficiaries. This solution seems to appeal to institutions that want a quick, relatively easy solution to providing oncology care. Institutions and physicians with traditionally strong reputations in oncology care, however, have continued to strive to develop their own oncology management product.

With the transition of cancer care from the inpatient oncology unit setting to the free-standing outpatient setting, hospitals need to be able to flexibly partner with surgeons, medical oncologists, and radiation oncologists to develop outpatient facilities and networks. Joint ventures need to be envisioned that link the goals and objectives of the hospitals and the physicians. Traditionally, the academic or major community hospital has been regarded by the public as the guarantor of quality, state-of -the-art cancer care. If competitive, it can help provide access to capital, programmatic support, marketing expertise, insurance contracting capability, and administrative expertise for the physicians. In turn, the physicians can provide medical leadership in managing clinical services, in defining quality of care, and in developing clinical guidelines and pathways while continuing to primarily practice medicine.

The hospital's ability to forego its traditional, more dominant role and adapt to a more collaborative role with physicians and other providers will go a long way toward ensuring its place in the future oncology care management system.

References

1. American College of Surgeons. Commission on Cancer. Cancer Program Manual. Chicago, Ill: 1991.
2. Association of Community Cancer Centers. Standards for Cancer Programs. Rockville, Md: 1993.
3. Clinton B. The Clinton health care plan. N Engl J Med. 1992;327:804-807.
4. Zelman WA. The rationale behind the Clinton health reform plan. Health Aff (Millwood). 1994;13:9-29.
5. Einstein AB. The impact of health care reform on cancer care. In: DeVita VT Jr, Hellman S, Rosenberg SA, eds. Cancer Principles and Practice of Oncology. 5th ed. Philadelphia, Pa: Lippincott-Raven; 1997.
6. Peters WP, Ross M, Vredenburgh JJ, et al. High-dose chemotherapy and autologous bone marrow support as consolidation after standard-dose adjuvant therapy for high- risk primary breast cancer. J Clin Oncol. 1993;11:1132-1143.
7. Berger EL. Specialty physician networks in managed care. Health Care Innovations. 1995;July/August:16.

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