Why cancer costs more at 11 hospitals

Medicare could save as much as a half billion dollars annually if it reimbursed 11 cancer centers the way all others are paid, according to a report released last week.

The average teaching hospital treating a Medicare cancer patient for a week-long inpatient stay gets about $14,500. But 11 cancer specialty centers get more than $20,500.

How did it get this way? In 1983, Congress created a loophole for the centers, which argued that their care is so complex and their patients so ill that they would lose money if they were paid under Medicare’s bundled payments. So the 11 centers are paid for actual costs — which means there’s little motivation to keep costs down, the Government Accountability Office report says.

Ten of those hospitals – which include Dana-Farber Cancer Institute in Boston and Memorial Sloan Kettering Cancer Center in New York – were forced to ‘rebalance’ in 2007, but retained 42% higher payouts, according to the GAO report.

But Seattle Cancer Care Alliance stands out. It was not required to rebalance, so its potential billing target –- the amount Medicare would pay if the hospital proves treatment costs that much — is nearly $135,000, or more than five times that of the other specialty centers. Payment figures show its 20-bed inpatient unit received $60,000 for every patient discharged — more than double any of the other centers.

Seattle Cancer Care Alliance
Dr. Oliver Press, left, examines a three-time transplant patient as Dr. Corey Casper, right, looks on with three Ugandan visiting physicians at the Seattle Cancer Care Alliance.

Seattle’s Alliance only treats bone marrow transplant patients at the small inpatient facility, communications director Holly Rosenfeld says. Other cancer patients are all seen at outpatient clinics or at University of Washington’s hospital.

Is the high-cost care worth it? GAO investigators found that the severity of illness, length of patient stay and complexity of cases barely differed between the 11 special cancer centers and other hospitals that treat cancer patients each year. Better technology and medications, along with some changes to Medicare funding to account for difficult cases, have leveled the playing field, the report concluded.

The Alliance of Dedicated Cancer Centers, which represents the 11 facilities, says the hospitals have  a five-year survival rate 17% higher than others. The group says the GAO’s recommendations would be “catastrophic,” costing its members 33 cents on every dollar spent on patients.

The organization said any changes to Medicare funding should be carefully considered. While a half-billion dollars in savings sounds like a lot, it’s a small fraction of what Medicare spends on cancer. According to the American Cancer Society, in 2011, almost 10 percent of  Medicare fee-for-service spending went toward cancer services and drugs. The total cost? $34.4 billion.

–Meghan Hoyer

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