The Path to Site Neutrality

Ted Okon, executive director of Community Oncology Alliance, described the cost disparity situation between oncologists within the hospital and within the community, and site neutral payments as a goal.

An hour of chemotherapy in a hospital is already more expensive than an hour in an oncologist’s office, Okon explained. Then the hospital adds onto the billing a facility fee under Medicare. “…I couldn’t tell you how it evolved, as much as it has evolved because the hospitals say they need higher prices because they have to subsidize their emergency rooms, and they have [Joint Commission] accreditation issues, but the problem is that there is this disparity and it’s costing Medicare a lot of money,” Okon continued.

Things have improved, however, with the signing of the Balance Budget Act. According to this piece of legislation, any hospital that will, or is in the process of, acquire a physician’s practice or has an off-campus facility, will have to bill 2017 under the Medicare physician fee schedule instead of the hospital fee schedule. Although Okon would like to see payments increase on the physician’s side, he believes this site payment parity on Medicare is a big step forward.

Okon also does not expect the acquisition of private practices to intensify since this requirement took effect once the act was signed; if there had been a grace period then there would have been a huge influx of acquisition activity happening.

Scott Gottlieb, MD, voiced the concern that even though the number of practices being acquired might go down somewhat that there might be other reasons, like 340B, that hospitals would continue acquiring.

Okon agreed on this point and pronounced the consolidation situation as a “hemorrhage of practices.” Over the last 8 years, close to 500 practices have been acquired by hospitals and the biggest driver for this is 340B. “If you think about it the economics are really simple here. An average oncologist accounts for about 4 million dollars’ worth of drug a year depending on what types of cancer he or she treats. So if you look at 340B discounts, which are between 30-50%, and on the brand side average out around 40% or so but can go up to 50%. You are looking at 1.2 million dollars to 2.2 million dollars’ of huge profit right to the bottom line.”

Along with Gottlieb, Okon considers this a major form of arbitrage and in the outpatient setting of hospitals where over 60% of the oncology drugs are 340B discounted, this is unsustainable.

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