Oct. 20 (Bloomberg) -- UnitedHealth Group Inc., the biggest U.S. health insurer by sales, will pay cancer doctors to stop marking up the prices of drugs, in a test aimed at reducing costs for medical plans and their customers.
Physicians serving 1,500 cancer patients in Georgia, Missouri, Ohio, Tennessee and Texas will receive reimbursement for the wholesale cost of medicine they administer, plus a fee that will stay the same regardless of the drugs involved, UnitedHealth said today in a statement.
That will erase an economic incentive for doctors to prescribe more-costly drugs, as physicians now buy the medicines from drugmakers and charge as much as 30 percent more when submitting claims to insurers, said Lee Newcomer, UnitedHealth’s senior vice president for oncology for UnitedHealth, based in Minnetonka, Minnesota. Cancer drugs account for 60 percent of income for oncologists, Newcomer said.
“If they are using expensive drugs, that’s OK -- we’re going to reimburse for the cost of that,” Newcomer said. “But they’re not going to make any more or less profit off of it, and we’re not going to pay inflated prices for a drug.”
Newcomer said it’s unclear how much money the experimental system may save UnitedHealth. Its commercial insurance unit, UnitedHealthcare, spent $1.1 billion on injectible chemotherapy drugs in 2009, about a quarter of the company’s cancer-care spending, he said.
UnitedHealth rose $1.43 cents, or 4.1 percent, to $36.73 at 4 p.m. in New York Stock Exchange composite trading, its biggest single-day increase in 10 months. The shares increased 42 percent in the past 12 months.
$20 Billion Market
U.S. outlays on oncology drugs reached $20 billion last year, led by products from Roche Holdings AG of Basel, Switzerland, and Sanofi-Aventis SA of Paris, according to IMS Health Inc., a research company in Norwalk, Connecticut.
The insurer, in its statement, said it developed the system with practices in Dayton, Ohio; Kansas City, Missouri; Marietta, Georgia; Fort Worth, Texas, and Memphis, Tennessee. In each area, doctors established “best-practice” drug regimens for forms of breast, colon and lung cancer, the three most common tumors, Newcomer said.
From those decisions, UnitedHealth calculated so-called episode fees -- the amounts that doctors will receive each time they give medicine to a patient -- based on what the insurer normally has paid for each set of treatments in 2010. Doctors can deviate from the regimens and choose other drugs, and UnitedHealth will cover the wholesale cost, Newcomer said. What it won’t do is pay any markup beyond the episode fee, he said.
How much the program may hurt doctors’ earnings isn’t clear. While the system is designed not to crimp physicians’ revenue in the first year, it may eventually pay doctors less than they would have made by choosing more-profitable drugs, Newcomer said.
Bruce Gould, a doctor at Northwest Georgia Oncology Centers, the Marietta practice in the pilot program, said he’s willing to take that chance because doctors see the U.S. health-care system as unsustainable, and are concerned that government and private payers may impose bigger cuts if oncologists don’t find their own solutions.
The pilot project will help counter a “skewed reimbursement system” that pays oncologists more for drugs than for office visits, nutritional care or psychological counseling, Gould said in a telephone interview.
“We want to be part of the solution and not have somebody else’s half-baked idea thrust upon us,” Gould said. His practice won’t lose money because “we’ve never played the drug-margins game,” he said.
UnitedHealth and doctors declined to say how much the episode fees pay. They typically cover six months to a year of care for patients recovering from surgery to remove a tumor. Office visits, laboratory work and nurses’ time are paid separately.
Cancer patients will be helped because the program asks oncologists to share data about which medicines work best, said Charles Bane, medical director at Dayton Physicians Hematology & Oncology in Dayton, Ohio. That should help fill in gaps that have made it hard to judge new drugs, and potentially lead to fewer relapses or side effects for patients, said Bane, whose medical practice is participating in the program.
Three Roche drugs -- Avastin, MabThera and Herceptin -- were the top-selling oncology drugs in the U.S. last year, generating $6.81 billion in revenue, according to IMS. Taxotere, sold by Paris-based Sanofi, was fourth, with $1.18 billion in sales, IMS said.
Roche caps Avastin costs at $57,000 a year for patients who enroll in the company’s subsidy program, said Kent Lieginger, a senior vice-president at the company’s Genentech unit in South San Francisco, California. The drugmaker doesn’t see UnitedHealth’s program as a threat, Lieginger said.
“We’re very confident in the profile and the efficacy of our product,” Lieginger said in a telephone interview. “We don’t really fear ultimately any of these changes” in reimbursement.
Jack Cox, a Sanofi spokesman, didn’t return messages seeking comment.
UnitedHealth appears to have struck a balance between protecting patients and fixing incentives that push some doctors toward unnecessary or unproven care, said Stephen Finan, policy director at the American Cancer Society in Atlanta, which isn’t part of the project.
“UnitedHealth seems to be taking the right approach in saying they are willing to pay for a treatment as long as it’s evidence-based,” Finan said in a telephone interview.
To contact the reporter on this story: Alex Nussbaum in New York email@example.com.
To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net