NEWS

Reimbursing Cancer Care: Medicare Policies Challenged

Linda R. Benson

The delivery and administration of chemotherapy is the centerpiece of an oncologist’s work; about 80% of cancer patients receive their chemotherapy treatments in the doctor’s office or other free-standing facility.

"More than half of an oncologist’s income comes from selling chemotherapy," noted Peter Eisenberg, M.D., a private practice oncologist in Marin County near San Francisco. However, there is nothing simple about the way oncologists buy and sell these medications and the third-party reimbursement structure for the cancer patients who depend upon them.

At the heart of the matter is the unique status of chemotherapy drugs. Medicare does not pay for most prescription drugs, but it makes an exception for cancer. It covers about 24 drugs, most of them cancer treatment medications. Medicare pays 80% of these costs, and patients make a co-payment for the rest. About 50% of cancer patients are over age 65 and receive Medicare reimbursement for their treatment.

However, a recently released report from the General Accounting Office has put oncologists at odds with health care policy-makers and the U.S. Congress. The report, released Sept. 21 during a 6-hour investigative hearing held by a joint subcommittee of the House Committee on Energy and Commerce exposed some loopholes in reimbursement policies for cancer drugs covered under the Medicare program.

According to the findings of the GAO study, there are serious overcharges between the average wholesale prices (the manufacturers’ published prices of chemotherapy drugs, called AWP), the actual prices that oncologists pay for these drugs, and the reimbursements Medicare pays for their delivery.

The AWP is simply a "list" price like the list price that appears on a new car. Much like purchasing a new car, oncologists can negotiate this price, usually paying less than the AWP for the chemotherapy drugs they purchase. For example, according James Mathews, the GAO’s assistant director of health services, the AWP for the cancer drug paclitaxel was $180.57 for a single dose, but the discounted price to physicians was 19% less than that. Another cancer drug, carboplatin, was listed at $120.48 for a single dose, but sells on average at a discount of 20.3% to oncologists.

Oncologists are reimbursed by Medicare carriers at 95% of the manufacturers’ AWP. GAO estimates indicate that Medicare may be overpaying as much as $1 billion a year in reimbursements to oncologists.

On the surface it all sounds like capitalism in action. "Drug manufacturers can set any price that the market will bear," said Mathews. "There are no guidelines upon the manufacturers set by the government." Physicians, like other conscientious shoppers, can negotiate a better deal. But there is more than meets the eye when treating diseases as complicated as cancer, and Medicare’s payment structure to oncologists is a good example.

"Medicine used to be pure capitalism, which led to managed care," said Daniel Hayes, M.D., professor at the University of Michigan Medical School and clinical director of the Breast Oncology Program. "In its opposite, pure socialism, you have someone else making the decisions. What we have now is something in between, and both physicians and government are struggling to define it."



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Dr. Daniel Hayes

 
The "spread" between the price oncologists pay for the drug, the fee they bill to Medicare, and the co-payment that Medicare passes on to patients, while appearing greatly inflated, is used to offset the other expenses associated with chemotherapy administration and the basic costs of running an oncology practice.

"The drugs themselves have been subsidizing the other less obvious costs of cancer treatment," said Joseph Bailes, M.D., past president of the American Society of Clinical Oncology, and currently chief public policy liaison for the organization.



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Dr. Joseph Bailes

 
Oncologists point to the current Medicare fee schedule, mandated into law under the Balanced Budget Act of 1997, as one source of the problem. This legislation contained a large collection of Medicare reforms, but it predicated them on hospital-based instead of office-based cancer services.

"The current reimbursement amounts were established by Congress in 1997 based on the understanding that other costs associated with cancer treatment—including expensive equipment and specialized personnel—did not come close to being adequately reimbursed, " wrote Larry Norton, M.D., president of ASCO, in a recent letter in the Chicago Tribune. "An imperfect system, certainly, but one that was deemed fair by legislators."

Another source of the problem is administration codes, which identify and describe a wide range of procedures and services performed by physicians. Medicare assigns a payment amount to each code, said Mathews.

However, Mathews noted that the codes have not worked for all physicians. "There is a small subset of services that have not been reimbursed properly under the codes," he acknowledged. "We have problems in services performed by non-physicians. Chemotherapy administration, which relies on nursing, seems to be one of those areas."

Eisenberg noted that patients often need a variety of ancillary services that would have been readily available in hospitals decade or so ago. Instead, with the community-based approach to treating cancer, oncologists need to have these support services available in their offices and clinics.

"For example, Medicare does not pay for the vast majority of nutritional or psychological support services," Eisenberg said.

So far, there appears to be consensus from all parties that the system needs to be fixed, but the question is how. The GAO report, which was commissioned in December 2000, has proposed reforms of the AWP system. Two other forthcoming reports will look at other aspects—the practice expenses and Medicare payments to clinical oncologists and the data used to calculate and refine practice expense payments from Medicare.

Thomas Scully, head of the Centers for Medicare and Medicaid Services, testified that Congress could provide about $51 million a year in additional funding to oncologists that would cover their "practice expenses." At this point in time, it is unclear whether the $51 million would be newly authorized money or money that is redistributed from the Medicare budget. Scully claims that reducing these drug prices to their actual cost and closing this payment loophole would result in a net savings of about $900 million to taxpayers, but this number is derived from a change in the calculation of the chemotherapy administration codes.

ASCO’s position is that Medicare should not overpay—or underpay—for anything, but oncologists feel that the chemotherapy administration codes have to be adequately covered. "Congress wants to get closer to the actual price of these drugs," said Bailes. "ASCO is in total agreement with restructuring as long as the administration of these drugs is properly funded."

One solution that ASCO members favor is to use the database gathered from Clinical Practice Expert Panels. These panels were established by Medicare to look at what resources go into various medical services, and their data could provide a guideline for restructuring the administration codes. Many oncologists, including Bailes, believe that the data from these panels will indicate that a four- to fivefold increase would be needed to appropriately cover the cost of chemotherapy delivery and administration in addition to the drug costs.

On the other hand, Medicare questions the validity of CPEP. It has stated publicly, in the November 1999 Federal Register, that CPEP’s figures for services without a physician component are not entirely reliable for most medical specialties.

What next? ASCO representatives have met with the GAO and are working with the commerce committee staff to see if there is a legislative fix that can be implemented this year.

"Change will probably come later rather than sooner," said Bailes. "However, these two issues have to be fixed at the same time. Otherwise you will potentially have patient access problems."



             
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