The Cost of Excellence: Rethinking PPS-Exempt Cancer Centers

How do we balance innovation, financial sustainability, and access to care?

The PPS exemption was legislation enacted in 1983 to allow certain dedicated cancer centers to be reimbursed at higher rates for outpatient and inpatient services. This was to incentivize specialized care, research and education, as well as to offset disadvantages inherent to dedicated cancer centers. Over the last few years, as financial toxicity became a hot topic, discussions emerged about the perceived unfairness and lack of demonstrated value of the program. At an annual cost of $500 million and its financial benefits limited to under a dozen cancer centers, there are reasons to have a conversation about the program. This week, there were dual essays debating the pros and cons of the program. I did a deep dive and then offer a critique.

PPS-exempt hospitals have been a point of contention in an era of cost containment, discussions of financial toxicity, and the constant barrage of reimbursement cuts, as they are perceived to be protected from these challenges. Faculty from these centers were chosen to lead discussions on radiation oncology payment reform that would not affect them. Thought leaders at these high cost centers led the discussions about financial toxicity and value-based care. These centers have earned, through legislation, a dispensation that allows them to charge higher prices in exchange for providing specialized cancer care, research, and education, as well as offsetting potential losses due to exclusively treating cancer patients.

As someone who has worked at freestanding centers (the most cost-effective site for radiation therapy) and community hospitals, learning about 'The Chosen Eleven' has been eye-opening. Dr. Chirag Shah wrote about it in his opinion piece, Rethinking the Chosen Eleven. As a counterpoint, Dr. Sean McBride and Dr. Craig Bunnell have written Continued Promise and Possibility of Prospective Payment System Exemption: An Investment in the Future of Cancer Care Innovation defending the PPS exemption. I’ll spend some time summarizing their points and provide my analysis.

(Editorial note: I know both Chirag and Sean well and would consider them friends. I am very happy they chose to write these pieces. Chirag is considered a hero to many in our specialty due to his concerns about the job market, first published in The Red Journal in 2013 and discussed ad infinitum in this thread. He is the chair of Radiation Oncology at Alleghany Health Network and they are lucky to have him. Sean is a brilliant man and thought leader who I always learn from, particularly about non-oncology legal opinions. I swear he must have gone to law school. He is the chief of radiation oncology for the Manhattan division at Sloan-Kettering. He has the most adorable wedding announcement in the Times. I don’t know Dr. Bunnell, but he is the CMO at Dana-Farber and I presume a sharp guy who I hope to know one day.)

Let’s go!

“Rethinking the Chosen Eleven”

I will skip the history part, because I’ve gone over it above and Sean/Dr. Bunnell do a little better job covering it.

Financial Implications

PPS-exempt hospitals receive ~40% higher Medicare payments on average. In 2012, this was ~$500 million. It is interesting that the additional payments are not the same for each center, as Agarwal, et. al report:

For example, noting that in 2012, while the base rate for intensity-modulated radiation therapy (IMRT) at Sylvester Comprehensive Cancer Center was $461 USD, the PCH payment methodology added a $64 USD additional payment (+14%). At Memorial Sloan Kettering Cancer Center, the base payment rate was $545 USD, but PCH payment methodology added a $244 USD additional payment (+45%).

Note that the base rate and the additional payment are higher at Sloan, even when compared to another PPS-exempt center (University of Miami). Commercial payers also pay them at higher rates, though he did not define the amount. As a point of comparison, the RO-APM, a radiation oncology payment reform program that did not get enacted, was projected to save only $46M a year, or about 1/10th of the annual cost of the PPS exempt costs in 2012; presuming this was an even lower percentage in 2020 when RO-APM was being debated).

(Lack of) Justification For Program and Competitive Imbalance

Chirag concedes that these are great cancer centers, but does not agree they are superior to other NCI designated cancer centers. He also states that based on studies, they do not see more complex cases or have a unique case mix. He then says that because of increased revenue, they are able to grow faster and advertise substantially more.

For example, an older analysis analyzing cancer center advertising spending from 2005 to 2014 showed that the top 20 centers accounted for 86% of total advertising spending on cancer care nationwide, with seven of the 11 PCHs were included on that list including two of the top three spenders.

He then states that although these centers were supposed to treat cancer only, several do not. Finally, these centers have substantial financial assets, further increasing their advantage - i.e. ‘it takes money to make money’.

The Path Forward

He feels all centers that do what PPS-exempt hospitals do should receive the same reimbursements, and he feels this is in alignment with the original goals of the program. He does note that this would be costly, perhaps exceedingly so. If they eliminated the exemption and then redistributed the savings amongst all the NCI designated cancer centers, the current 11 centers would likely be resistant, as each individual center would receive substantially less. So, he proposes eliminating the exemption anyway and then re-distributing (hehe). He thinks the money could be used to pay providers more, to give more to the other NCI-designated centers and those taking care of the underserved. An issue may be that Medicare may choose to put the savings back into Medicare rather than keeping in it oncology. So, another option would be to earmark it for use it only NCI-designated cancer centers, but make them report out clinical quality and research mission metrics so consumers can compare and contrast, which is currently not happening with PPS exempt hospitals. This could be done over the course of 5-10 years so it is not “shock therapy”. Finally, this would need to be done by an act of Congress, as the only way to correct it is legislatively (Editor’s note: bahahhahahahahahhaha).

Chirag’s Song

Eleven towers, sky so high,
Paid in gold while the rest scrape by.
They say it's ‘cause their care’s the best,
But the data says they’re like the rest.
Same patients, same disease,
No proof they cure with greater ease.
Higher bills, deeper ties,
Built on laws that prop their rise.

Cut the ties, break it down,
No more kings in a cancer town.
Congress wrote it, now unwind,
Fairer pay for all in kind.
More money, more control,
Private payers play their role.
Ads and towers, claims so grand,
While the rest fight hand to hand.

Legislation made this scheme,
Only Congress can end the dream.
Take the power, spread it wide,
Cancer care should have no sides.
No more whispers, no more fear,
Time for change, the time is here.
Rewrite the rules, set things right,
Fairness wins this final fight.

Next we go to Sean and Dr. Bunnell’s piece, which is a rebuttal. This summary is much longer, because their piece is significantly more complex. My critique that follows the summary is also longer and this is not because it was worse or I had a bone to pick - they just had a lot more to say, so I did, too.

“Continued Promise and Possibility of Prospective Payment System Exemption: An Investment in the Future of Cancer Care Innovation”

History

I am including this because they did a great job informing the reader of the initial rationale. Dedicated cancer centers were not a cash cow way back when and did not have cardiology, orthopedics and other highly reimbursed specialties to offset the cost of oncology care. The higher payments were to essentially make them approximately revenue neutral and not go bankrupt. So, it was not just for specialized cancer care, research and education, although these are the primary factors used to justify its existence.

PPS-Exempt Centers Have Better Outcomes

They claim that PPS-exempt centers have better outcomes and reference the Pfister study. I’ll critique the study later. The title is “Risk Adjusting Survival Outcomes in Hospitals That Treat Patients With Cancer Without Information on Cancer Stage” and they suggests that patients treated at PPS-exempt centers have a 10% (!) survival benefit at year 1 compared to those treated at non-PPS exempt NCI designated cancer centers and community hospitals. Just to clarify - if a 100 patients walk into Sloan Kettering, 82 walk out alive at year 1. The authors suggest that if those same 100 patients walk into UPenn, only 72 will survive. They say that because they risk-adjusted for co-morbidity and socioeconomic status, this is likely true. In the Merkow paper, “Comparison of Hospitals Affiliated With PPS-Exempt Cancer Centers, Other Hospitals Affiliated With NCI-Designated Cancer Centers, and Other Hospitals That Provide Cancer Care,” they looked at short term complications after 9 common cancer surgeries, they noted.

Compared with hospitals affiliated with PPS-exempt cancer centers, patients treated at NCI-CCs were more likely to have postoperative sepsis (3.1% vs 1.7%; P = .002), acute renal failure (6.2% vs 3.9%; P = .01), and urinary tract infection (6.4% vs 4.0%; P = .002).

The community cancers fared performed slightly worse in seven of the measured metrics. And, yet, unlike Sean and Dr. Bunnell’s conclusion, they state (bolded mine):

In exploring differences in hospital characteristics, patient comorbidities, and postoperative outcomes at hospitals affiliated with PPS-exempt cancer centers, NCI-CCs, and other hospitals that provide cancer care in the United States, we found that hospitals affiliated with PPS-exempt cancer centers were largely similar to hospitals affiliated with NCI-CCs.

Flawed Financial Analysis of GAO Study

They felt that the 2015 GAO report that claimed rescinding the PPS exemption would save Uncle Sam $500M was flawed. Here is why:

1. It was outdated.

2. It did not account for cancer staging (hmm .. neither did the Pfister paper)

3. It did not account for what line of treatment patient was on

4. It did not account for the complexity of care provided at PPS-exempt centers.

5. The GAO calculated the operating margins with extra payments, but did not consider what their margins would be without those payments. The felt this was “like arguing that an umbrella is unnecessary in a rainstorm simply because the person using it isn’t getting wet”. (Well done with the analogy!)

Then, they did their own analysis and found that they were actually losing a lot more money than their non-PPS exempt peers. Since it is 2025, they are omitting very expensive treatments like CAR-T cell therapy, meaning actual losses could be even greater.

Magnitude of the Problem

Because it is a small amount compared to overall Medicare spending, let’s not worry about this too much.

Challenges That Make It Hard For PPS Exempt Centers to Stay Competitive.

Because they have be NCI designated cancer centers and focus on treating and researching cancer and educating trainees and have at least 50% of patient discharges be for cancer, they deserve the extra reimbursement. Because they are not able to merge into large networks or be part of large hospital systems, they cannot negotiate better reimbursement rates with insurance companies. If they were not PPS-exempt, they would get screwed over by the payors, because they would be offered lower payments. Patients with managed care or exchange-based insurance plans often cannot access these systems and these hospitals are fighting the good fight to ensure access to “top-tier oncology care”.

How This Extra Money Helps

By reducing their losses via the extra payments, the PPS-exemption allow them to conduct and publish more research. 86% of all new drugs included contributions by PPS-exempt centers. They also can engage in de-escalation studies that decrease costs to the system and patient. They centers can provide additional infrastructure for supportive care and integrative medicine that provide “immense benefits”. The volume of research conducted by these centers is massive and these publications have high h-indexes. Finally, it allow them to operate the largest oncology graduate medical education programs and train the future’s brightest and best.

What Would Happen To The Extra Money Otherwise

It would go to Medicare in general, rather than oncology. This way, it stays in oncology. In addition only PPS-exempt institutions are transparent enough and accountable enough. This is through the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program.

Here is a summary of the paper in allegory form:

The Schools Of McBrideville

In the town of McBrideville, there were two types of schools. Most were General Schools, offering a broad education, while a select few were Specialty Schools, dedicated to advanced science and research. These Specialty Schools were expensive to run, lacking the big sports programs or alumni donations that helped General Schools thrive. To ensure they could continue their mission, the town granted them extra funding decades ago.

Over the years, Specialty Schools became leaders in education, producing top graduates and pioneering new teaching methods. Their students excelled, earning higher test scores and facing fewer academic setbacks. These schools also trained future teachers and led major education research, shaping policies that benefited the entire town.

Critics argued that all schools should get the same funding, but supporters pointed out that Specialty Schools handle the toughest subjects and most advanced students, requiring more resources. Cutting their funding wouldn’t just impact these schools—it would slow down progress for everyone.

Some on the town council suggested redistributing the extra funds, saying Specialty Schools were now well-established. But their supporters pushed back, arguing that the audit calling for cuts ignored key details—like how their students often had more challenging coursework and required specialized instruction.

They also noted that General Schools could negotiate better funding through larger school networks, while Specialty Schools had to negotiate alone, often getting less favorable contracts for supplies and staff.

The town now faced a choice: continue investing in its top schools, ensuring McBrideville stayed at the forefront of education, or level the playing field by spreading the money around—potentially at the cost of its most advanced programs.

Specialty Schools argued they weren’t just another set of schools—they were the engine of innovation. And while reform might be necessary, cutting them down to size might shrink the whole system in the process.

Simul’s Deep Thoughts

First of all, kudos to all authors to writing these pieces - it take courage and a lot of work. I know they are very busy people. Overall, I think both gave great summaries, but I felt like they were talking past each other. Both pieces are weakened because they did not include a co-author from the opposite type of institution. If Chirag could have found a PPS-exempt faculty to join him and Sean found a non-exempt faculty to join him, this would give less “tribal”. Neither did that. Chirag is at Allegheny, a large community network. Sean and Dr. Bunnell are at Sloan and Harvard, respectively. In addition, neither of them “steel-manned” and accounted for the opposing point of view’s best arguments. They cherry picked studies that favored their point of view. They picked apart each other’s inconsistencies but not their own. This has been left for me and I’m here for it.

Critique of Chirag’s Piece

• Chirag did not point out that many non-exempt centers charge irresponsibly high rates for their treatments. I will not name names, but there are centers out there charging and receiving several times what a freestanding or community hospital gets for the same treatment. It is unfair to say only PPS-exempt centers do this. In addition, freestanding centers earn the least, but get no benefit for being value based. Cost of care is complex and I felt that neither side delved into this. Both authors should concede that freestanding centers offer high value for bread and butter cases, while cancer hospitals, PPS-exempt or not, are comparatively overpriced.

• He also did not mention articles showing higher quality of care (I will get to them in a moment), but is it important that we look at all the literature out there, not just the literature that supports one’s own viewpoint. I haven’t done a substantial lit review, but the papers mentioned are the ones that always come up in this discussion and they are deeply flawed.

• The main flaw in his argument is that since this needs a legislative fix, the PPS-exempt centers themselves have to decide for themselves that they do not need the extra money. I could sit here and type “hahahahah” forever, but this is a serious matter: LARGE HOSPITAL CENTERS AND ACADEMIC MEDICAL CENTERS WILL NEVER MAKE AN AFFIRMATIVE DECISION TO DO SOMETHING THAT IMPACTS THEM NEGATIVELY FINANCIALLY UNLESS FORCED TO.

• This is the problem. We have given so much credit to academic centers and elite institutions that they will do the right thing. They simply do not behave in ways that lead us to believe this is true. I understand Chirag is being collegial and he is beholden to editorial review. I am not. Even if every piece of data suggested that PPS-exempt was a colossal waste of money, “The Chosen Eleven” will absolutely not call their congressperson and ask them to eliminate it.

Critique of Sean and Dr. Bunnell’s Piece

(This will be a lot longer, because there is a lot to unpack here, it is not a reflection of my opinion)

• Though stand alone cancer centers exist, there was no statute saying that they had to be stand alone. This was a choice made on the part of Memorial or Farber or Anderson or whoever. They certainly could have joined up with a hospital system or become a division of a large academic center, of which many are, yet they still retain the benefits of PPS-exemption. The rationale that they make less money should have been no consequence to Congress. As I tell my kids, “tough cookies”.

• The studies citing better outcomes are sus. You are telling us that patients have a 10% survival decrement by going to Mayo Clinic or UT-Southwestern (not PPS-exempt) rather than University of Miami or Fox Chase (PPS exempt)? Are you kidding me? Let’s just think of the obvious reason why there is a difference. 1) People travel for these places. Who can travel? Those with money and those that are healthier. Who has better outcomes? You guessed it - those with money and those that are healthier to begin with. No amount of risk-adjustment or stratifying for socioeconomic status respectively will account for this. And not only that - the 10% survival decrement is absolute and it happens in year 1? What oncologic intervention has a 10% survival benefit at 1 year? If there is some magic in paying PPS-exempt centers more, we should shift INSANE amounts of money to the non-PPS exempt places. I can’t think of any treatment in the last year that is that effective. $500 million is, as they mention, a drop in the bucket. If it is that effective, let’s get the other centers the money, STAT.

• The second study’s conclusion did not support the author’s view of better. The conclusion was the outcomes were largely similar between PPS-exempt vs other non-exempt NCI designated centers. When I look at the paper, that’s what I see, as well. There are statistically significant, but likely clinically insignificant differences. Yes, they show up, but this is retrospective in nature and I don’t buy it. In addition, in both studies, the ‘n’ for PPS-exempt centers is far lower than for the other centers. I don’t care about power calculations - this is a problem.

• Their critique of the GAO starts out fair - yes, stage is important and yes, line of treatment is important. However, earlier, when discussing outcomes they cite papers that say that these are unimportant. Are you going to tell me that the patients going to The Ohio State University are that much more different than University of Michigan? That the patients going to Emory have lower stages and are earlier along in their course of treatment compared to those going to the Hutch? It is an important consideration, but the distinction between these hospitals are minimal. And, I swear I’m not dogging Ohio State just because I live in Michigan and I pray my kids get into U of M (both of which are true).

• The comment about the operating margins and “taking away an umbrella just because someone’s dry” is selective. In just a few paragraphs further down, the authors talk about having integrative care and better supportive care and all these other cool interventions. Have you been to MDACC? The food served to patients is out of this world. I cannot imagine how much more their food costs compared to Henry Ford Hospital in inner-city Detroit (my late father was a patient there—I assure you, the care was excellent, but the food was terrible). If you are going to say that you cannot remove those payments from PPS-exemption when calculating the operating margin, then you have take away what those payments have allowed you to spend on extra services. These centers have play-therapy and music-therapy and this therapy and that therapy. They have internists doing the histories and physicals so the oncologists can just do oncology. They have APPs and their APPs have APPs. Their RTTs have PhDs (not kidding, I know one!). Often times they pay their staff better - I don’t need to name names, but there is a huge difference between what a faculty at University of Michigan earns vs. a large unnamed PPS exempt cancer center in Texas. Because their inflows are higher, their overhead can be higher, but that is a choice.

• Because the number is a small portion of overall spend does not mean it should be ignored. We cannot do that. If we do that about all small cost centers, eventually we have no levers left to pull to reduce cost. This is a cop-out.

• Of course they can do more research - they have more money to have statisticians and research assistants and allow for the Holman Pathway. And success begets success. Once you get one grant, it becomes easier to know how to get another. Institutional wisdom, networking (i.e. - good ol’ boys club), network effects (different than networking) - all of these play a role in how any particular unit gets better at any given function. If you give one NFL team the entire first round draft every year for 3 years - all 30 whatever picks - and then in a few years say, “See how great the Lions are and what they can do with talent. It just wouldn’t be worth it to give the other teams this same benefit,” the league would be uncompetitive, because one team would dominate and no one else would get any better.

• I really don’t care how many thousands of articles an institution publishes or what their h-index is. In my opinion, the best research in clinical radiation oncology is not coming from the U.S. It comes from the UK, Europe and surprisingly India. Quantity =/= quality. In addition, the H-index is the statistical equivalent of a .. uh .. erm .. the words are unseemly so click here if you’re interested. These types of quantitative metrics are not worth mentioning - they do not correlate to meaningful science.

• The comment about inability of cancer centers to merge is simply not true. MD Anderson has generated a nation-wide (and international) network of cancer centers. I worked at one. Sloan Kettering is doing this in the tri-state. One Oncology is doing this in a different, non-academic model. McKesson/US Oncology has also done this, with great success. UPMC Cancer Center is a massive network. In addition, many of the centers are already part of large academic medical centers (Ohio State, University of Miami, USC; even Anderson is part of the University of Texas; Dana-Farber is part of Harvard). Either I am missing what they are saying or there is something disingenuous about it - I am willing to be corrected.

• Where are the reports on their outcomes? Where are the additional studies demonstrating the value of the PPS exemption? I have yet to see them. The PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program is mentioned, but I am not sure people are doing the work.

• I fully agree that the extra money allows these centers to offer additional services not found elsewhere. This is true. If my center got additional money, we too would offer additional services. I’d start with better coffee.

• And, I fully agree that if we get rid of the PPS-exemption, the money would go to Medicare and not be earmarked for cancer care. To earmark it for oncology care would take an additional act of Congress. I have used up my “hahas” for the day.

I enjoyed reading what they wrote - these discussions are important. Yet, this is a lost cause. No matter what is shown about the PPS-exemption, “The Chosen Eleven” are not going to want to do studies to prove their worth. They have not published data that they should have been publishing for years. We have done no prospective trials comparing PPS-exempt vs non-exempt, not even non-randomized studies. The published data that exists is retrospective and of dismal quality. Both sides will cherry pick what they believe helps their cause rather than finely scrutinize the studies that we do have. The benefits are vast for these institutions and there is no chance they will voluntarily give them up. The winner of the debate, by default, is PPS-exemptions. I am sorry to say there is no will or way to get rid of it, so it doesn’t matter who wins on the facts.

Finally, here is my idea for a new model—one that will never happen.

• Have the current PPS-exempt institutions define 15 patient/center focused metrics

• Reduce the number to 10 PPS-exempt centers

• For the first year, use all 15 metrics weighed equally (there has been no time to game the metrics) and drop the lowest ranked institution

• 5 years from now, randomly select 5 metrics.

• Weight them randomly, between 0.1 and 0.3 for a total of 1.0

• By doing randomization of metrics and weights, it becomes difficult to game the system.

• The top 10 scoring centers become PPS-exempt for a term of 5 years.

• This way, they do not consider this a “forever” payment and they use it improve their services and care.

• Every 5 years, they re-open the application, but this time it is a new random set of 5 out of the 15 pre-specified metrics with random weights.

• Rinse, repeat.

I would love to host a debate of this on the Accelerators one day. I think listeners would love this. Both Sean and Chirag know how to reach me.

Love you all,

Sim