May 2018 Edition Vol.12, Issue 5

The Total Cost of Cancer Care Challenge


What is the total cost of care, and why does it matter when it comes to cancer care costs? Unfortunately, the answer isn’t a quick and easy one, but today’s healthcare costs continue to grow at an unsustainable rate and these costs weigh heavily in today’s healthcare environment.

With spending on healthcare in the United States increasing 4.3% in 2016 and reaching $3.3 trillion or $10,348 per person, it continues to outpace the overall share of gross domestic product (GDP).1

As this increase in spending is expected to continue, it brings with it increased scrutiny by managed care organizations (MCOs) and government agencies who are both looking to reduce costs, especially in oncology, where prevalence is only anticipated to increase with the growing aging population; and by 2020, total costs of care are projected to increase anywhere between 27% and 39%.2

In addition to MCOs, this increase in cancer care cost is a major concern among other cancer care stakeholders, including specialty pharmacies (SPs), oncologists, office practice managers (OPMs), and employers. When presented with 14 healthcare issues and asked to rank the top 5, the most pressing challenges they reported were: (1) control of overall cancer care costs, and (2) control of cancer specialty drug costs (Table 1).3

Table 1. Top 5 Most Pressing Challenges Facing Cancer Care3

What are the drivers associated with the increase in the total costs of cancer care?

For the year 2015, the Agency for Healthcare Research and Quality (AHRQ) estimated that the direct medical costs (total of all healthcare expenditures) for cancer in the United States totaled more than $80.2 billion4:

  • 52% of costs accounted for hospital outpatient or office-based provider visits
  • 38% accounted for inpatient hospital stays

Regarding total cost of care, a 2016 analysis by Milliman analyzed the specific elements that make up total costs of care for treating patients with cancer. During the years 2004 to 2014, their analysis found that spending on cancer drugs increased from 15% to 18% ($37,799 to $51, 566, respectively) in the Medicare population and from 15% to 20% ($55,789 to $90, 656, respectively) in the commercially insured population of actively treated patients with cancer (Figure 1).5 The increase in cost of drugs may be attributed to the use of biologics, which increased from 3% to 9% in the Medicare group and 2% to 7% in the commercially insured group (Figure 1).5


Figure 1. Per Member Per Year allowed cost by cost category in the actively treated cancer population, Medicare and commercial5

Following that 2016 study, Milliman published an analysis in 2017 of real-world claims data on cumulative costs of care for three cancer types: lung, colon, and breast. Results indicated that total healthcare costs were highest immediately following a cancer diagnosis, declined in the months post-diagnosis, but then costs remained persistent.2

Using lung cancer as an example, the total healthcare spending per patient was shown to be highest in the diagnosis month (Month 0) and the first month post-diagnosis, with hospital inpatient stays showing the lion’s share of cost (Figure 2); this was evidenced for colorectal cancer patients as well.


Figure 2. Distribution and magnitude of monthly total healthcare spending by service category before and after diagnosis, patients diagnosed with lung cancer (2011-2014)2

Staying with the lung cancer example, Figure 3 shows that drug costs accounted for about 20% of total costs post-diagnosis for the years studied, and 80% of total costs post-diagnosis were shown to be associated with other cancer care services, such as hospital inpatient stays, facility services, and other professional services.

In the early months of diagnosis (Month 0 – Month 1), the report indicates significant use of inpatient hospital stays for lung and colorectal cancer patients, which may suggest that patients underwent inpatient surgery, adding to the total cost of treatment. Breast cancer patients showed less costs associated with inpatient hospital stays and lower overall spending in the same months’ time.


Figure 3. Distribution of cumulative total healthcare spending by service category before and after diagnosis, patients diagnosed with lung cancer (2011-2014)2

While stabilization of the disease may typically occur between six and nine months for cancer patients, the analysis showed spending fluctuated dependent on the type of cancer. For instance, breast cancer patients spent a higher proportion of their total amount on non-inpatient facility services (Figure 4), while lung and colorectal cancer patients spent a higher proportion of their total spend on inpatient services.


Figure 4. Distribution of cumulative total healthcare spending by service category before and after diagnosis, patients diagnosed with breast cancer (2011-2014)2

Measures CMS is proposing to add quality measures in the outpatient hospital setting

Most payers, including Medicare, typically will pay less for chemotherapy infusion if it is administered in the community practice setting versus the hospital outpatient setting. However, due to extenuating circumstances such as 340B and hospital acquisition of practices, physician administered chemotherapies are increasingly shifting to the more expensive hospital outpatient setting.2

With Medicare payments for cancer treatment totaling almost 10% of Medicare fee-for-service dollars,6 cancer care is a priority for outcomes measurement. And, as our healthcare payment system shifts from a volume-based payment system to a value-based payment system, oncology is ripe for payment scrutiny and reform. Hence, the Centers for Medicare and Medicaid Services (CMS) and commercial payers are adopting and piloting new payment methods, such as oncology medical homes, episode-based payments, and accountable care organizations with physician payments and hospital payments based on determinates such as performance, outcomes, patient satisfaction, and cost.

For the first time, CMS has recently proposed adding oncology measures to its Hospital Outpatient Quality Reporting (OQR) Program.6

The proposed measure, OP-35: Admissions and Emergency Department Visits for Patients Receiving Outpatient Chemotherapy, aims to improve performance provided to cancer patients receiving chemotherapy in the hospital outpatient setting and reduce the number of potentially avoidable inpatient admissions and emergency department (ED) visits.7

CMS is focusing on 10 chemotherapy-related patient issues, such as anemia, fatigue, nausea, dehydration, etc., that the agency believes are predictable and manageable side effects of cancer treatment, but are also the most common reasons for hospital visits by patients. The severity and cost of an inpatient admission is different from that of an ED visit, so CMS is proposing separate quality measures: one based on inpatient admissions and one based on ED visits.6

In addition to OP-35, CMS is also proposing to assess variations in patient outcomes following surgery at a hospital outpatient department. The proposal, OP-36: Hospital Visits after Hospital Outpatient Surgery, measures outcomes for (1) An inpatient admission directly after the surgery; or (2) an unplanned hospital visit (ED visits, observation stays, or unplanned inpatient admissions) occurring after discharge and within 7 days of the surgery.8

The first reporting period for OP-35 and -36 began January 1, 2018 and goes through December 31, 2018, for the CY 2020 payment determination.9

Key Points

As healthcare spending continues to increase, analyzing the different aspects that comprise total cost of care will increasingly be scrutinized.Depending on type of cancer, determinates of total cost of care may significantly vary by type of treatment, services and facilities used, and the cost of drugs and biologics. Measures by payers based on value and outcomes take into consideration the various determinates with the goal to reduce total cost without sacrificing quality.


  1. National Health Expenditures 2016 Highlights. Accessed April 18, 2018.
  2. Dieguez G, Ferro C, Pyenson BS. A multi-year look at the cost burden of cancer care. Milliman Research Report, April 11, 2017.
  3. The 2017 Genentech Oncology Trend Report. 9th Edition. Accessed April 17, 2018.
  4. American Cancer Society. Economic burden of cancer. Last updated January 3, 2018. Accessed April 18, 2018.
  5. Fitch K, Pelizzari PM, Pyenson B. Cost drivers of cancer care: A retrospective analysis of Medicare and commercially insured population claim data 2004-4014. Milliman, April 2016.
  6. Federal Register. Vol 81, No. 219, pg 79756-November 14, 2016 / Rules and regulations. Accessed April 18, 2018.
  7. Miller B. CMS proposes outcomes-based quality measure for outpatient cancer care. The Advisory Board. August 17, 2016. Accessed April 18, 2018.
  8. CMS proposes hospital outpatient prospective payment changes for 2017. July 6, 2016. Accessed April 18, 2018.
  9. Hospital quality reporting program. November 29, 2016. Accessed April 18, 2018.

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