NCPA - National Center for Policy Analysis


April 4, 2007

Hospitals would like you to think they are offering free cancer screening tests out of the goodness of their hearts.  But there may be another motive at work: providing free screening brings in new cancer patients and cancer generates profits, says Shannon Brownlee, senior fellow at the New America Foundation.

Cancer makes money for hospitals in a couple of ways, says Brownlee:

  • It's a disease of aging and that means the majority of people who get it are covered by Medicare, which always pays its bills.
  • In addition, many treatments for cancer patients are particularly profitable, especially compared to those for other diseases; overall, around $100 billion is spent each year on detecting and treating this disease.
  • For example, imaging tests like CT scans and M.R.I.s are well reimbursed by Medicare and other payers; the more cancer patients a hospital can attract, the faster it can recoup capital investments in imaging machines.

Another big source of profit is cancer drugs, says Brownlee:

  • Worldwide, we spend about $35 billion a year on chemotherapy and other drugs related to cancer treatment.
  • Hospitals make money on drugs by purchasing wholesale and charging insurers full price.
  • Cancer doctors also purchase drugs wholesale, making as much as two-thirds of their income on the "chemotherapy concession," in which they sell and administer chemotherapy drugs in their offices.

Hospitals and doctors need to make money, of course, but the high profit margin in cancer has created a situation where providers have every reason to screen more people and treat those who are diagnosed with cancer more aggressively -- and few incentives to hold back, even if that's what the patient might prefer, says Brownlee.  Recognizing this, Medicare reduced its reimbursements for chemotherapy in 2005, but even with those changes, cancer remains an enormous economic engine in our health care system.

Source: Shannon Brownlee, "Feeding the Cancer Machine," New York Times, April 1, 2007.

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