NCPA - National Center for Policy Analysis

In Treating Cancer, Insurer Tries New Way to Pay Docs

October 21, 2010

In the latest experiment aimed at curbing health care costs, UnitedHealth Group Inc. is altering the way cancer specialists are paid.

  • The program attempts to address potential overuse of expensive cancer drugs by eliminating any incentive for doctors to choose a drug based on profit.
  • As a result, oncologists will be reimbursed at cost for whatever drugs they prescribe and receive a separate payment covering their services.

Typically, doctors are paid by insurance companies for seeing patients and performing procedures or administering drugs and tests.  Critics have said this "fee-for-service approach" gives doctors an incentive to provide more -- but not necessarily better -- care, which can drive up drug usage and other costs.

UnitedHealth says cancer care poses a particularly thorny problem.

  • Spending on cancer treatment is rising at 15 percent to 18 percent a year, a rate that is almost double that of health care costs generally.
  • Cancer drugs account for 35 percent to 40 percent of UnitedHealth's spending on cancer treatment.

Many cancer drugs are infused by doctors in their offices, and historically doctors have purchased the drugs and billed insurers for their cost, plus a profit margin of around 15 percent, says Lee Newcomer, UnitedHealth's vice president of oncology.  "They've become drug dealers," says Newcomer.  Indeed, UnitedHealth estimates that drugs account for 65 percent of an oncologist's income.

UnitedHealth's new payment program, being tested at five clinics, requires doctors to decide in advance what treatments they would like to use for three types of cancer: breast, colon and lung.

  • The insurer will give doctors a set fee that includes the profit they would have made from the drugs they selected, plus costs for managing patient care.
  • If doctors use drugs outside of their original treatment plan, the plan will cover the drug but won't adjust the separate payment.

Source: Avery Johnson, "In Treating Cancer, Insurer Tries New Way to Pay Docs," Wall Street Journal, October 20, 2010.

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