Prognosis: Profits

N.C. nonprofit hospitals make big money on cancer drug markups

Growing systems gain leverage with insurance companies

jneff@newsobserver.com aalexander@charlotteobserver.com kgarloch@charlotteobserver.comSeptember 22, 2012 

  • About the reporting To research their stories about chemotherapy costs, reporters for The News & Observer and The Charlotte Observer obtained and analyzed a database with information on more than 5,000 chemotherapy claims statewide. The newspapers’ data include records from more than 200 providers, a substantial portion of North Carolina practices and hospitals that treat cancer patients. Reporters also examined several dozen itemized bills and explanations of benefits from insurance companies and asked hospital billing experts to review some of them. In addition, reporters interviewed more than 25 cancer patients, along with a number of hospital officials, oncologists, practice managers, national experts and insurance company executives. When calculating the number of cancer specialists employed by hospitals, the newspapers focused on medical oncologists, who oversee infusion of drugs in a process called chemotherapy. Surgeons and radiologists who specialize in oncology were not counted.
  • Prognosis: Profits - The Series In April, The News & Observer and The Charlotte Observer published a five-part investigation showing how urban hospitals in North Carolina have piled up huge profits, often at the expense of the communities that support them. The investigation revealed that the state’s hospitals have: • Recently generated record profits and have amassed billions of dollars in reserves. • Inflated prices on drugs and procedures, sometimes as much as 10 times over costs. • Paid top executives millions. At least 25 North Carolina hospital executives received annual compensation exceeding $1 million. • Regularly sued uninsured or poor patients having trouble paying their bills or sent their accounts to collection agencies, ruining the patients’ credit. To read the series, visit newsobserver.com/prognosisprofits.

Large nonprofit hospitals in North Carolina are dramatically inflating prices on chemotherapy drugs at a time when they are cornering more of the market on cancer care, an investigation by The News & Observer and The Charlotte Observer has found.

The newspapers found that hospitals routinely mark up prices on cancer drugs two to 10 times or more over cost. In some cases, the markup is far higher.

The total annual cost of cancer drugs for a single patient can easily top $100,000. Such costs have proved financially devastating to some and, according to national studies, have caused a significant number to put off needed treatments.

An analysis of data from more than 5,000 chemotherapy claims obtained by the newspapers also shows that hospitals and the doctors’ offices they own typically charge more for cancer drugs than independent clinics – sometimes much more. A News & Observer investigation earlier this year showed one key reason: By consolidating into large systems, hospitals have gained leverage to negotiate higher payments from insurance companies.

As in much of the rest of the country, North Carolina hospitals increasingly are controlling the chemotherapy market by buying or partnering with independent oncology clinics, a trend that has left patients with fewer options. Hospitals have purchased, or formed financial agreements with, nearly 400 oncology practices across the country, according to the Community Oncology Alliance, a group that represents independent providers.

In the Triangle, almost all practicing oncologists – 88 percent – work for Duke University Health System or UNC Health Care. That means their patients get charged for treatment based on the hospital fee schedule.

The claims data, along with scores of interviews and records shared by patients, help to explain why hospitals have become so expensive – and why health care spending has grown to represent almost one-fifth of the national economy. The growing market power of North Carolina’s major hospitals has driven up the cost of care while allowing hospitals to book record profits in recent years, the newspapers reported in “Prognosis: Profits,” a series published in April.

Some hospitals have sued thousands of patients for unpaid bills, while others use collection agencies to pursue debtors.

Defending the charges

Hospital officials defend their prices. Unlike independent clinics, they say, hospitals provide free chemotherapy to uninsured patients and to others who can’t afford it. They lose money treating Medicaid patients.

Some independent doctors acknowledge that they often send uninsured patients to hospitals because they simply can’t afford to treat them.

Hospitals also say they provide counseling, follow-up care and many other cancer services for which they never charge.

“For decades, the insured have supported the care of the underinsured and the uninsured,” said Kevin Sowers, president of Duke University Hospital. “It is far from a perfect system, but it is the system we have been given to live with right now.”

Still, hospitals have another advantage over independent clinics: A federal program allows many hospitals to get discounts of 20 to 50 percent from manufacturers for drugs for outpatients. Most cancer drugs are administered in an outpatient setting, but there’s little indication that the hospitals pass those discounted drug prices along to patients.

Among the markups the newspapers found:

• Duke received $10,670 for a dose of Neulasta administered to an insured patient. The drug helps fight infections for patients undergoing chemotherapy. Medicare, which allows a modest markup on drug costs, would have allowed about $2,800.

• Duke charged $32,370 and received $19,420 for a course of rituximab, used to treat lymphoma and leukemia. Medicare would have allowed a maximum payment of $6,420.

• UNC Health Care collected $228 for nine units of cisplatin, a drug used to treat a variety of tumors. That was 14 times the drug’s average sales price of $1.80 a unit. Cisplatin is so inexpensive that Medicare reimburses for the infusion fee, but not the drug. Duke Hospital collected seven times the average sales price for the same drug. Maria Parham Hospital in Henderson, managed by Duke, collected more than 50 times the average sales price.

• UNC Health Care was paid $267 for a dose of taxol, used to treat breast and ovarian cancer. That’s more than 600 percent higher than the Medicare allowance of about $36.

• Levine Cancer Institute, owned by Carolinas HealthCare, this year collected nearly $4,500 for 240 milligrams of irinotecan, a drug used to treat people with colon or rectal cancer. That’s 68 times what Medicare would allow for that amount of the drug: less than $66.

• Duke was paid $22,680 for a dose of Avastin, a colon cancer drug. Its original charge: $32,400. Levine Cancer Institute in Charlotte would be paid $17,085 for the same dose. Medicare would have allowed a maximum payment of $7,200.

These markups are largely hidden from patients, even an informed consumer such as Steven Rosenberg of Raleigh. His wife has been treated for ovarian cancer at UNC since February 2011. Rosenberg loves the doctors, but hates the stream of confusing invoices and bills.

Rosenberg has cataloged, scanned and analyzed every bill and insurance statement for his wife’s care in two huge binders and in his computer. He even published a 21-page pamphlet titled “6 Easy Steps to Take Charge of Your Medical Bills.”

The bills: $430,030 in total charges, with Blue Cross paying $186,945 through its agreed reimbursement schedule and the Rosenbergs paying $27,092. Three-quarters of the bill, $313,369, came from chemotherapy.

But the Rosenbergs had no idea of the underlying markups on the drugs. In March, UNC billed them $9,184 for a dose of Doxorubicin, used to slow or stop the growth of cancer cells. Blue Cross and Blue Shield of North Carolina paid $6,328. Medicare would have allowed payment of $3,836 for a drug with an average sales price of $3,322.

“There is no way possible to be an informed consumer,” Rosenberg said.

Karen McCall, spokeswoman for UNC Health Care, said the drug markups are driven by a complex mix of factors. Hospitals provide free care to the poor and uninsured and lose money treating Medicaid patients. The hospital has to make up those losses through revenue from insured patients.

“We have to provide the best and safest cancer care and recover our costs,” she said.

Almost all North Carolina hospitals, including UNC, are nonprofits. They plow profits back into the business. In return for paying no income, sales or property taxes, the hospitals are expected to provide charity care and other benefits to their communities.

Hospitals will likely face fewer unpaid bills under the federal Affordable Care Act. That’s because the law, scheduled to become fully effective in 2014, requires more people to buy health insurance. At the same time, hospitals will likely face cutbacks in government reimbursement for patient care.

Last year, UNC Hospitals had a total profit of $133 million. It reported charity care worth $75 million.

‘It seems ... predatory’

In 2008 and 2009, Chuck Moore got nine weeks of chemotherapy for cancer at the base of his tongue at Forsyth Medical Center in Winston-Salem. He has been paying the bills for treatment ever since. Though he has good health insurance, he has still had to shell out about $15,000.

As part of Moore’s treatment, Forsyth was paid about $680 for 50 milligrams of cisplatin, a widely used cancer drug. The markup: more than 50 times the drug’s average sales price.

“I’ve never had a business where I could get a markup like that,” said Moore, an assembly plant supervisor who now lives near Atlanta. “It seems almost predatory.”

Officials for Novant, the large nonprofit hospital chain that owns Forsyth Medical Center, say they provide charity care to many patients who can’t afford cancer drugs. Novant would not respond to questions about specific bills.

The N.C. Hospital Association, the hospitals’ lobbying group, cited the high cost of handling and preparing cancer drugs.

“Medicines that treat cancer are toxic, dangerous chemicals that demand the highest levels of trained personnel, specialized equipment and facilities,” the association said in a written statement. “The resources hospitals must devote toward making cancer care safe for patients and staff far exceed those required for most other medications.”

Community oncologists say that they use the same toxic drugs in their practices at a much lower price.

Some experts say hospitals shouldn’t charge so much for chemotherapy drugs.

Dynamic Medical Solutions, a Charlotte-area company that reviews hospital bills for insurance companies and other payers, examined several chemotherapy bills at the newspapers’ request.

In virtually all cases, the bills far exceeded the amount that Medicare has deemed “usual, customary and reasonable.” Company CEO Donna Hopkins called the markups “outrageous.”

“If you have enough money or good-enough insurance, it may not be an issue for you,” Hopkins said. “If you’re somebody who doesn’t have that, it can be a death sentence.”

Fair market value?

Charges for chemotherapy drugs vary wildly, even among hospitals.

Duke Hospital charges $32,370 for a typical dose of rituximab. Catawba Medical Center in Hickory charges $24,477.50, and N.C. Baptist Hospital in Winston-Salem charges $8,782.10.

While hospitals seldom collect their full charges, higher charges usually bring more revenue, the newspapers found.

Hospitals collect a fixed percentage of charges for outpatient care that varies from contract to contract. Duke, for example, generally collects about 60 to 65 percent of outpatient charges, says chief financial officer Ken Morris.

Two of the state’s largest hospital systems – Carolinas HealthCare and Duke University Health System – appear to charge larger than average amounts for a number of common cancer drugs, the newspapers’ analysis found.

Sowers, the Duke University Hospital president, said Duke reviews its charges every year for fair market value.

“We are doing everything a community oncologist would do and more,” Sowers said. “We are advancing the science at the bedside, we are advancing the science through clinical trials, we have the opportunity for cutting-edge therapy.”

Duke has also been making record profits. It booked a total profit of $542 million in 2011, a 20 percent profit margin. In February, it opened a lavish $235 million state-of-the-art cancer center.

Heather Waters, a spokeswoman for Catawba Valley Medical Center, a nonprofit community hospital, says market data indicate that the hospital’s chemotherapy drug charges are in line with those of several others.

“We are committed to those we serve and continually evaluate our pricing structure to be fair and competitive within the local market,” Waters said. “Any price found to be excessive will be adjusted.”

Treatment drains savings

New drugs have given hope to cancer patients who until recently had little. But some of those drugs come with annual price tags that rival those of a home.

Treating a cancer patient with a typical 12-dose treatment of Avastin, for instance, could cost anywhere from $73,000 under Medicare to $272,000 at Duke, according to data obtained by the newspapers. Provenge, a new drug used to treat prostate cancer, can also run into six figures.

Neither drug cures cancer, but merely promises to add months to a person’s life, according to Dr. Lowell Schnipper, professor of oncology at Harvard Medical School.

“Many cancer drugs aren’t curative and are astronomically priced,” Schnipper said. “How do we justify this?”

Drug companies say they must charge high prices to cover research and development costs. Hospitals say they also must shoulder hefty overhead costs, along with losses from treating the uninsured and those covered by Medicaid and Medicare.

But some experts question the rationale for charging such high prices.

Gerard Anderson, who heads the Johns Hopkins Center for Hospital Finance, said he thinks hospitals tend to mark up charges on cancer drugs more than most other drugs and supplies. One reason, he suspects, is that patients are “not inclined to do comparison shopping in a life-or-death situation.”

For some patients, the financial implications can be devastating.

In a 2010 survey for the American Cancer Society, 21 percent of people under 65 undergoing cancer treatment said they had used all or most of their savings.

Patients delay care

Cancer costs more per patient, on average, than any other medical condition. Nationally, the cost of treating cancer climbed from about $95.5 billion in 2000 to $124.6 billion in 2010, the National Cancer Institute estimates.

Much of the bill is picked up by employers and workers, who pay ever-increasing insurance premiums and out-of-pocket costs for medical care. But no one feels the pain more than patients.

“A lot of patients are forgoing care. We’re transitioning to a model that’s more expensive,” said Dr. David Eagle, a Huntersville oncologist who serves as president of the Community Oncology Alliance, a national nonprofit group dedicated to community cancer care. “When you have these big consolidated entities, it changes the playing field.”

In the American Cancer Society survey, 19 percent of those under 65 said they or their family members had put off getting a recommended cancer test or treatment because of cost.

Dr. Otis Brawley, chief medical officer with the American Cancer Society, said he has seen too many of those patients.

When he headed the cancer center at Emory University in Atlanta from 2001 to 2007, Brawley regularly treated patients who waited to get treatment – often because of financial concerns.

“Many folks put off managing their problems until it’s so, so bad, they have to come into the emergency room,” Brawley said.

Some doctors refer to cancer’s “financial toxicity.” A study by two Duke cancer specialists, Dr. Amy Abernethy and Dr. Yousuf Zafar, found that cancer patients, even with health insurance, averaged out-of-pocket expenses of $712 a month. Those expenses posed a significant burden to 30 percent of the study group and catastrophic problems to 11 percent.

Marge Beazley, president of the N.C. Oncology Management Society, said some underinsured patients can wind up with annual out-of-pocket expenses exceeding $50,000. She manages an oncology practice in Western North Carolina and said some patients choose not to be treated because of costs.

“Those are the ones that break your heart,” she said.

Quadrupling the charge

For years, Dr. Thomas Hauch provided chemotherapy in his Charlotte offices, resisting the pressure that many oncologists feel to join up with hospitals.

Following his death in 2009, his wife and practice manager, Karon Hauch, wanted to make sure his patients continued to receive good medical care.

She sold the practice, Carolinas Cancer Care, to the state’s largest hospital chain in late 2010. She said she felt good about the sale because officials at Carolinas HealthCare promised to care for patients whether they had insurance or not, just as her husband had.

But there was a downside, too. The cost of cancer care went up – substantially.

According to data obtained by The N&O, the charge for a dose of Neulasta, a drug used to reduce the chance of infection for chemotherapy patients, rose from about $2,365 to $9,750. The charges for other chemotherapy drugs soared as well, the data show.

At the four Charlotte-area offices of Carolinas Cancer Care, drugs weren’t the only thing that jumped in price after Carolinas HealthCare took over.

The clinic used to charge $252 for the work that went into infusing chemotherapy drugs for an hour. But after Carolinas HealthCare took over, the charge rose to $800.

“The suggestion that when a group comes to us ... we raise their prices, that’s not true,” said Joe Piemont, president of Carolinas HealthCare System. “When the group comes to us, they charge our prices.”

What happened there isn’t unusual.

Hospitals vs. solo clinics

On average, chemotherapy costs 24 percent more in an outpatient hospital setting than in a doctor’s office, according to a recent national study by Avalere Health, a Washington, D.C.-based consulting firm. The study was commissioned by Community Oncology Alliance at the urging of insurance companies that provided the claims data for the study, said Mary Kruczynski, director of policy analysis for the alliance.

Dr. Ira Klein, assistant to the chief medical officer at Aetna insurance company, said he believes that’s an understatement. Aetna officials say drugs and administrative charges are, on average, more than 50 percent higher at hospitals than at community oncologist offices.

At the newspapers’ request, Blue Cross and Blue Shield of North Carolina, the state’s largest health insurer, examined data from thousands of 2011 chemotherapy claims in North Carolina and found that hospital-owned facilities tend to be paid 50 to 150 percent more for cancer drugs than independent oncology offices.

The newspapers’ analysis also found significant cost disparities in North Carolina. In a review of claims for seven cancer drugs, the charges for all but one drug were significantly higher at hospitals and hospital-owned clinics – usually more than 45 percent higher.

At Aetna, Klein said he believes the acquisitions of oncology practices by hospitals have increased costs but not the quality of care.

“We’re essentially enriching people and getting nothing for it,” he said. “And there are higher premiums every year.”

Bob Berenson agrees. A physician and former member of the Medicare Payment Advisory Commission, the group that advises Congress on Medicare, Berenson said hospitals should be paid more because of charity care and the fact they operate around the clock.

But currently the differences in prices are much too big, he said.

“There’s no objective evidence,” he said, “that they’re providing higher quality.”

Database editor David Raynor contributed to this report.

Neff: 919-829-4516

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