Medicare Reform: A Patient Perspective

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Julia Draznin Maltzman, MD
Abramson Cancer Center of the University of Pennsylvania
Last Modified: September 24, 2003

Why reform Medicare reimbursement?

Over the past ten years, multiple attempts have been made by congress to reduce the amount government pays for prescription drugs. Given current world politics -- the war on terrorism and in Iraq, as well as domestic issues such as the expansion of Medicare's prescription drug coverage, the current Bush administration is eager to cut costs. The contention that oncologists, cancer doctors, are getting fat at the tax payers expense has fueled the recent debates and proposed legislations.

When founded, in 1965, Medicare was intended to cover drugs given in the hospitals. Today, Medicare has expanded coverage to any drug that requires administration by infusion, injection, or with the use of a medical device. Medicare now spends approximately $6.5 Billion on some 450 medications most of which are chemotherapy agents.

There is total lack of regulation and considerable variability on how chemotherapy drug prices are set and how they are actually sold. For the most part intermediaries, such as the Oncology Supply Company, negotiate prices with pharmaceutical companies. These prices are based on variables such as volume purchased, availability of generics, and a variety of other marketing considerations. The intermediaries then, sell the drugs to individual doctors, pharmacies, or hospitals. In a sharp contrast, the government can buy chemotherapeutics directly from the drug manufactures at a mandatory 24% discount. Pharmaceutical companies are legally obligated to offer this discount on any drug it sells to the government. (The branches of government that buy these drugs include the VA hospitals, public health service, and the Department of Defense).

Because Medicare reimburses the private doctor who buys the drugs in the open market, it cannot benefit from such a discount. Thus, Medicare pays physicians for the drugs based on their Average Wholesale Price (AWP). Unfortunately, the AWP is not a defined by law or regulation, but rather established by pharmaceutical firms and published in an industry reference book known as the "Red Book". As a result, the AWP does not reflect the true price paid for the drug by the physician. In 1997, the Balanced Budget Act stipulated that Medicare would pay 95% of the published AWP. As an example, a drug who's AWP is $100, but may have actually been purchased by the physician for $75, will be reimbursed by Medicare at $95; thereby giving the practice a $20 profit.

What are the proposed Medicare reforms?

In an attempt to stop Medicare overpayment for chemotherapy drugs, the Centers for Medicare and Medicaid Services (CMS) offered four possible ways to reduce their reimbursement. One solution was that Medicare carriers reimburse doctors the same amount as they would for their non-Medicare patients. Another option was to take the current AWP, reduce it by 10% to 20%, and subsequently update the prices according to the annual consumer price index or inflation. A third approach is to use market-based prices, and the fourth possibility was to establish a competitive bidding process.

Why do oncologists dislike these proposals?

Oncologists contend that the mark up of drugs helps to support other vital services that are not reimbursed by Medicare. Physicians point out that the cost of administering a chemotherapeutic goes far beyond the actual cost of the drug. One has to consider the cost of storing, preparing, and discarding the drugs. Physicians also need to pay for the IV tubing necessary to administer the drug, the specialized nurse pharmacist who is responsible for preparing the drug, and the chemotherapy nurse who actually administers the chemotherapy. Other services offered and not directly reimbursed include: patient education, patient and family support, and close monitoring for early and prompt recognition of disease or chemotherapy complications. It is these specialized non-reimbursable services that are offered by the oncologists that are currently subsidized by the profit made on chemotherapy. Trying to underline that cancer doctors are not motivated by money or greed, Drs. Feinberg and Leff, in a recent letter to the New York Times Editor, noted that cancer doctors are not wealthier than other sub-specialist physicians. In fact, on average they earn less than cardiologists, gastroenterologists, radiologists and anesthesiologists.

How will these changes affect patients and patient care?

Many fear that the proposed changes would force physicians to drop or significantly reduce the number of Medicare patients they treat. This would be a calamity as 65% of all cancer patients are Medicare recipients. Rural clinics will be hit the hardest, as those patients have few other alternatives. These patients will likely be forced to travel great distances to seek treatment. The larger hospitals/clinics will then become overcrowded with patients and the quality of care may suffer.

Another possible ramification of this bill is that cancer therapy maybe shifted from the outpatient setting back to the inpatient. Oncologists have worked hard in past years not only to heal their patients but also to improve their quality of life. The ability to give chemotherapy as an outpatient is considered a great coup in oncology. Patients, for the most part, no longer require admission to the hospital for chemotherapy administration. Rather, they can return home, eat dinner with their friends and family, sleep in their own beds, and return the next day for further treatment. Not only does this improve the patients' psychological well being, but it also saves a significant amount of money. Insurers - including Medicare -- no longer have to pay for a hospital room and all the costs that are attached to such an admission. If physicians will be unable to give chemotherapy in the office due to financial constraints, they may be forced to admit the patients to the hospital for chemotherapy. Many believe that a shift from the clinic back to the hospital would ultimately cost Medicare more money.

If the proposed bills become law, a recent survey by the American Society of Clinical Oncologists (ASCO) found that nearly three fourths (73%) of all physicians would send their patients to a hospital for their treatments and over half (53%) would limit the number of Medicare patients they treat.

What is the governments' answer to the Oncologists?

House representatives Charlie Norwood (R-Georgia), and Lois Capp (D-California, a former nurse and a mother of a child who died of cancer), have introduced a bill (HR 1622) that proposes to compensate doctors for all the currently non-reimbursable services that they provide in addition to cutting the chemotherapy reimbursement. This bill has the support of the American Society of Clinical Oncology and the Cancer Leadership Council. HR 1622 attempts to strike a compromise by offering the following:

  1. Reimbursing cancer drugs at a rate that reflects the manufactures actual sale price plus an additional amount to cover currently non-reimbursed costs.
  2. Covering the entire cost of chemotherapy administration including nursing expertise and special supplies and equipment.
  3. Reimbursing the oncologist for special services that they provide such as counseling, end of life care, careful monitoring, nutritional support, as well as other essential patient oriented services.

What does the Oncology community think of HR 1622?

Overall, the oncology community is in support of reform that is fair and equitable. However ASCO officials caution that is it not prudent to cut payments from a well functioning system of care for the most vulnerable in our society (elderly cancer patients) without first studying the impact of such changes.