Supply of Medical Services

Reducing Cancer Treatment Costs

Cancer is the second leading cause of death in the United States. Reducing mortality and morbidity from many types of cancer would be an enormous breakthrough.

Although the benefits from high-quality cancer care are clear, cancer care is expensive. GoozNews reports that a UnitedHealthcare official stated that reimbursement for cancer care now accounts for 12 percent of all payments for patients not on Medicare and Medicaid. Five years ago, the figure was only 10 percent. In fact, cancer care has now pulled even with cardiovascular care as the insurer’s biggest expense.

Can we maintain quality of care while reducing cost? Peter Bach, an oncologist at Memorial-Sloan Kettering Cancer Center in New York and former CMS official, offered an alternative model.

[Dr. Bach] suggested Medicare and insurers could shift to a system where oncologists are paid for episodes of care – a bundled payment – rather than fees for the various services. Besides eliminating the incentive to order duplicative or unnecessary tests, imaging and office visits, it encourages physicians to use the most cost-effective chemotherapy regimens that deliver comparable results. Bach cited the example of the initial chemotherapy regimen for patients diagnosed with lung cancer, which will account for 226,000 or 14 percent of all new cancer cases this year…There are seven approved chemotherapy regimens for the first round of treatment, which range in price from less than $1,500 to over $7,000. The guidelines produced by the National Comprehensive Cancer Network, which brings together experts from across the country to evaluate best practices, say there is no material difference in outcomes between the various regimens, although they do have different side effect profiles.

Advantages and Disadvantages of Bundled Payment

Bundled payment shifts part of the cost of treatment to the provider from the payer. Providers have an incentive to use low-cost, high-value care with bundled payment. Bundled payment can result in significant cost savings without–if the payment rate is set to adequately cover the cost of a high-value care–reductions in the quality of care.

Bundled payment does have some disadvantages. First, providers may shift to the lowest cost treatment even if their exists a higher value treatment regimen (more value per dollar). Second, providers typically are not as good at managing risk as payers; thus, some providers may go bankrupt. Third, bundled payments stifle innovation. If there is a new breakthrough treatment that costs more, providers will not have an incentive to adopt it if the bundled payment does not cover the cost. Fourth, identifying the correct bundle for the correct patient may be difficult. Patients in different cancer stages may require different bundles; measuring cancer stage, however, depends largely on provider interpretation.

Is bundled payment a viable option?

In many cases, the answer is yes. For treatment regimens where best practices are well-established, bundled payments allign provider incentives to reduce cost of treatment. Bundled payment, however, can be used in conjunction with quality monitoring to ensure that quality of care does not decrease and that patients are receiving the care they need.

In areas where treatment patterns are rapidly changing or best practices have not been established, bundled payments should not be used since not only do they stifle innovation, but it is unlikely that the bundle will be properly priced.


  1. Though chemotherapy is an effective way to treat many types of cancer, chemotherapy treatment also carries a risk of side effects. Some chemotherapy side effects are mild and treatable, while others can cause serious complications. -^;..

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