The Economics of Healthcare

By: Ron DiGiaimo, MBA, FACHE and Briauna Driggers

Healthcare has made a major impact on our country’s economy, and it is interesting to see how cancer care fits into that picture.  There are many moving parts to the oncology portion of healthcare economics; medical oncology and the associated high-cost drugs, surgical oncology, and radiation oncology being the most known and utilized.  We quickly recognize that Radiation Oncology has the lowest number of practicing physicians nationally of those three specialties.  

Why Proton Therapy Research Funding is Important

According to the 2022 Physician Specialty Data Report by the American Association of Medical Colleges, there were roughly 16,673 medical oncologists and hematologists in the US in 2021, or about 5 per 100,000 people. There were also 5,376 radiation oncologists in the US (1.6 per 100,000 people), and about 25,563 surgeons (7.75 per 100,000 people).  All modalities within radiation oncology, including proton therapy, represent a very small fraction of our national economy comparatively, despite all the handwringing of the high cost of cancer delivery.

Gross Domestic Product in the United States

Gross Domestic Product (GDP) is made up of all goods and services produced in a country each year.  According to the tradingeconomics.com and World Bank graphs below, the USA Gross Domestic Product has steadily climbed from 2018 to 2021 except for a small dip during 2020 due to the pandemic.  The GDP for the US in 2021 was $23.32 trillion, representing a 10.71% increase from 2020.
Of further interest, per the World Bank, the Global GDP in 2021 was over $96 trillion (Yes, TRILLION!), with the US representing about 24% of the entire world’s economy.
​
Projections estimate the USA will reach $23.62 trillion by the end of 2023 and roughly $24.33 trillion by end of 2025. 

Image Source: World Bank

Where is the US economic growth coming from?

According to investopedia.com, the main drivers of the US economy in 2021 were 1) healthcare, 2) technology, 3) construction, 4) retail, and 5) non-durable manufacturing.
​
The Centers for Medicare & Medicaid Services National Healthcare Expenditure Fact Sheet for 2021 reports that healthcare expenditures in the USA grew 2.7% to $4.3 trillion ($12,914 per person) and accounted for 18.3% of the Gross Domestic Product in 2021. Also of interest,

• Medicare spending grew 8.4% to $900.8 billion in 2021 (21% of total NHE)
• Medicaid spending grew 9.2% to $734.0 billion in 2021 (17% of total NHE)
• Private health insurance spending grew 5.8% to $1.211 trillion in 2021 (28% of total NHE)
• Out-of-pocket spending grew 10.4% to $433.2 billion (10% of total NHE)
• Hospital expenditures grew 4% to $1,323.9 billion in 2021, slower than the 6.2% growth in 2020.
• Physician and clinical services expenditures grew 5.6% to $864.6 billion in 2021, slower growth than the 6.6% in 2020.
• Prescription drug spending increased by 7.8% to $378.0 billion in 2021, faster than the 3.7% growth in 2020.

​The largest shares of total health spending were sponsored by the federal government (34%) and households (27%). The private business share of health spending accounted for 17% of total healthcare spending, state and local governments accounted for 15%, and other private revenues accounted for 7%.

The National Health Expenditure (NHE) and GDP are both projected to grow 5.1% per year until 2030. As a result of this growth, the NHE share of GDP is projected to rise to 19.6% by 2030.

Following the declines observed in 2020, healthcare utilization is expected to normalize through 2024.  By then, the government’s share of health spending is projected to fall to 46% as COVID-19 supplemental funding is expected to wane from the all-time high of 51% in 2020.

Healthcare spending in the US compared to other countries.

Now that we understand the current state of US spending and where that falls on the global spectrum, how does the US’ healthcare spending compare to the global landscape? Short answer: the US spends a LOT more than other countries. According to commonwealthfund.com, the US spends more than twice the amount of the Organization for Economic Co-operation and Development (OECD) average. What is most interesting is that healthcare spending in the US is astronomical, but Americans overall visit physicians less frequently than most other high-income countries. This may be due in part to the below-average number of practicing physicians in the US compared to other OECD companies. It may also be in part due to the consumer cost of healthcare. Below are some of the other countries with higher healthcare spending in the OECD.

• US: 17.8% - 18.3%
• GER: 12.8%
• FRA 12.4%
• UK 11.9%
• SWIZ 11.8%
• CAN 11.7%
• OECD AVERAGE 9.6%

Breaking Down Healthcare Spending in the US

Image Source: AMA

According to the American Medical Association, the US spent about $4.25 trillion on healthcare in 2021. Of this, $1.3 trillion came from hospital care, $680.4 billion from other personal health care, $633.4 billion from physician services, $378 billion from prescription drugs, and $231 billion from clinical services.

​Additionally, the Assistant Secretary for Planning and Evaluation reports that “Medicare covers prescription drugs provided during inpatient hospital and skilled nursing facility stays through Part A, retail prescription drugs through Part D, and drugs provided in physicians’ offices and hospital outpatient departments (HOPDs) through Part B.  In 2017, Medicare financed about 27% of the nation’s drug spending estimated at $4813 billion. Spending by Medicare Part D was $100 billion and Medicare FFS Part B was $24 billion.”

In 2017, Medicare Part B drug program spending accounted for about 5% of the nation’s drug spending at around $24 billion. This covers certain categories of drugs, including drugs furnished incident to a physician’s service (e.g., injectable chemo and non-chemo, therapeutic and non-therapeutic drugs used in connection with the treatment of cancer), drugs explicitly covered by statute (e.g., some vaccines and oral anticancer drugs), and drugs used in conjunction with durable medical equipment (e.g., inhalation drugs). Medicare covers Part B-covered drugs in several settings, including physician offices and hospital outpatient departments.

What is surprising (and unfortunate) is that only a small number of Part B drugs account for a large share of the spending. The top 20 drugs account for 60% of the Medicare payment, while the top 10 accounts for 46% of total payments in 2017.

From 2006 to 2017, the average annual Part B drugs spending per enrollee grew 8.1% per year. This is more than twice as fast as the 3.4% for Part D and 2.9% for the NHE retail drug spending per person in general. Consequently, the share of Part B drugs to total Part B benefit grew from 7.5% in 2006 to 12.5% in 2017.

The Medicare Physician Fee Schedule (MPFS) Proposed Rule 17127 references 2017 treatment utilization numbers for Protons at 10,000 or more, which was a 100% increase from the previous five years.  According to available data from CY2018, it appears that a total of over 2.1 million Medicare Physician Fee Schedule Radiation Treatments occurred for the specialty of radiation oncology, of which, the entire family of proton treatment codes (77520-77525) represented 4% (just under 85,000) of the total radiation therapy treatments tabulated for CMS.  Thus far the payment rates have been materially low to allow for modalities that are relatively new technology but high entry costs to benefit the specialty and more importantly radiation oncology patients.  The issue today may be protons, but MRI linacs, helium and neon ions, flash therapy, and a host of other research items that continually evolve technologically are also on the horizon.  The existing rates do not recognize the significant practice expense investment made for beneficiaries across the country in order to provide continuous innovation in radiation therapy for patients suffering from cancer. 

The relatively low volume of proton treatments qualifies them for inclusion into full consideration of the National Physician Fee Schedule Formula-based reimbursement:

Non-Facility Pricing Amount = [(Work RVU * Work GPCI) + (Non-Facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)] * Conversion Factor.

Unfortunately, the past carrier-priced outcomes have been inadequately low, particularly around PE, and have created an unfair and unrealistic payment rate that has been further adopted by new regions and newly opened facilities based upon flawed past carrier pricing allowing for only the geographic practice cost index portion to have influential recognition. 

CMS’ recent efforts to appropriately recognize specialties such as Family Practice, which has seen a roughly 32% increase in reimbursement since 2006, and Internal Medicine, which has seen a 23% increase since 2006, as well as various similar specialties that have also had material increases from 2006 to present are certainly commendable.  However, the Budget Neutrality mandate has had a negative and opposite effect on the radiation oncology specialty, resulting in a reimbursement reduction of 30% from 2006 to 2023. 

Image Created with Source Data from: Federal Register, Medicare Trustees Reports and US Bureau of Labor Statistics, AMA, Economics and Health Policy Research 9/22.

The first MPFS proton facility in the United States opened for patient care with low volumes in 2004 in Bloomington IN. Two more facilities opened in 2006 at the University of Florida Health Proton Institute in Jacksonville, FL, and MD Anderson (NCI Designated Cancer Center) in Houston, TX.  There was a three-year hiatus from 2006 to 2009 to complete a proton facility in Oklahoma City.  In the last decade, the benefits of particle radiation have become well known and appreciated around the world, in which the United States significantly lagged regarding this new technology.  As of this writing, there are only 42 operating proton facilities in both OPPS and MPFS settings nationwide, limiting accessibility.

Large academic and research institutional investments have been made to bolster this life-saving innovation over recent years; the United States now has the most proton facilities in the world, including the largest state-of-the-art facility built for treatment, research, Pencil Beam Scanning, and ultra-precision tumor targeting located in New York City, NY.  The unfortunate recent history of inadequate reimbursement and refusals to appropriately recognize initial and ongoing high maintenance costs has a compounded negative effect that materially puts the access to both existing and new proton facilities at risk that were and are planned and constructed for the benefit of local patients that do not have the financial resources to travel across state lines or other regions of the country for care at risk.

The failure to properly recognize the practice expense component manifests forward in new state-of-the-art facilities providing care not previously available locally for pediatric, brain, head and neck, esophageal, advanced left breast, prostate, liver, CNS, re-irradiated patients, highly complex tumors in non-surgical locations and a variety of other diagnoses that were previously referred to hospice care.  Protons and new technologies bring the necessary precision required of proton particles and high-energy x-ray treatment while simultaneously minimizing or eliminating harmful radiation effects to critical normal structures such as the optic nerve, spinal cord, heart, lungs, and previously irradiated tissue among other normal tissue sparing abutting tumor volume.  Protons have been a beneficiary of the material improvements made in image guidance and localization technology, which will continue to improve outcomes supported by phase two data illustrating the limits of normal tissue irradiation dose that would suggest that radiation-induced cardiac and pulmonary disease will be reduced or avoided.  In addition, the increased precision of protons and curative photon treatments contribute to generally reduced complications, hospitalizations, and secondary malignancies, which materially contribute to long-term financial savings for cancer patients. 

Protons continue to show promise for adjunct treatment and increased outcomes with lower volume latent side effects, thereby reducing long-term healthcare costs while contributing to increased quality of life.  Unfortunately, the low Medicare reimbursement also has the real compounded effect of reducing commercial payments which are often based on a percentage of CMS reimbursement.  Commercial insurance patients are further burdened with a time-consuming, costly, and overly burdensome authorization for the treatment process. 

New technology research and expansion will allow for the inclusion of new diagnoses, for the reduced duration of treatment protocols and damage to normal tissues. Further, according to data from Institute for Human Data Science, Cancer Drug spending alone reached nearly $50 billion in 2017 and at the time was expected to double by 2020 reaching over $100 billion.  In comparison, MPFS total proton treatment expenditures in 2018 accounted for only 0.17% of the cancer drug expenditures for 2017, even with materially increased treatment volumes.  More impressively, the entirety of all radiation therapy treatments in all modalities for MPFS in 2018 across the nation represented only 1.59% of overall cancer drug expenditures for 2017. INCREDIBLE!

IQVIA also reports that the top five tumor types (breast cancer, lung cancer, multiple myeloma, prostate cancer, and colorectal cancer), account for 53% of all oncology sales. The continued launch of innovative medicines is one of the key drivers fueling the growth in oncology.
Total cancer medicine spending rose to $185 billion globally in 2021, with 74% focused on the major developed markets (the United States, EU4+UK, and Japan) down from 77% in 2017.

According to JAMA, cancer spending accounts for a significant proportion of healthcare expenditures. Aging and population growth are projected to increase the costs of cancer care delivery from $183 billion in 2015 to an estimated $246 billion in 2030. Although drug prices constitute the fastest-increasing proportion of cancer care costs, other significant drivers include suboptimal care coordination and inappropriate or duplicative services (exemplified by high rates of chemotherapy within 2 weeks of death), emergency department (ED) visits, hospitalization, and intensive care use within 1 month of death, and short durations of hospice enrollment.
​
In a 2019 white paper by Optum, they point out that more than a quarter of health care costs — about $455 billion — are associated with four complex condition categories. It costs:

• $181 billion a year to treat diseases of the heart
• $130 billion to address the musculoskeletal system
• $104 billion to fight cancer
• $40 billion to manage kidney disease

​Around 5% of the national health expenditure is attributed to cancer management, which is the 4th highest expense contributor of total health care spend.

The Importance of Investing in Cancer Care Research

As previously mentioned, radiation oncology (and protons in particular) account for a negligible amount of spending from Medicare and, by similar reference, commercial insurers.  This is extraordinary given the fact that approximately 60% of cancer patients will receive radiation therapy at some point during their battle against cancer. 
New research powers the reduction of time under the beam and allows for increased dose delivery to cancer while sparing normal structures.  We need to make continuous improvements to our technology with the goals of minimizing geographic miss, increasing accurate targeting, and helping our patients where possible. The current reimbursement environment appears to penalize our radiation oncologists and treatment facilities by giving less reimbursement for reducing the duration of treatment, which seems to disregard the fact that the main reason for the reduction in the treatment cycle is advancements in technology, which has been increasing in price steadily over the years.   
​
New technology is a key component of new research in radiation oncology.  The new systems like MRI, cone beam CT, stereoscopic image guidance, IMRT, protons and (soon) carbon ions will help with single fraction lung treatment, hypofractionation, decreased long-term side effects, and increased quality of life.  We cannot continue to penalize providers with reduced or inadequately recognized reimbursement and simultaneously expect vendors to be able to create, maintain and produce higher and more effective technology improvements.  Incredibly important progress has been made with chemotherapy drugs, CAR-T drugs, and immunotherapy drugs; however, we must not lose sight of how relatively inexpensive radiation oncology is and support it in a way that helps more patients in our nation and the world survive their battle against cancer.