Re: Chemotherapy Drug Concession

With the passage of The Medicare Prescription Drug and Modernization Act, there is a 10 to 15 percent reduction in the money an oncologist is reimbursed for purchasing and administering chemotherapy drugs.

Medicare reimbursed doctors well enough for chemotherapy drugs that made up for low reimbursements on the services associated with administering those drugs to patients, but it served as an incentive for treatment rather than counsel, and treating with certain "deal of the month" drugs.

The measure lowers reimbursement rates for cancer treatments administered in a community setting, such as a doctor's office, so patients may have to go to a cancer-center hospital. That may not be a bad idea. A cancer hospital is the proper place for cancer care. The ideal would be if patients received chemotherapy at some treatment center that wasn’t involved in the decision to treat and in which the oncologist didn’t have a financial interest.

Congressional targeting of cancer clinics goes back about two years to investigations on Capitol Hill that revealed oncologists obtained cancer-fighting drugs at bargain-basement prices but then received Medicare reimbursements five times the amount they paid.

The Medicare legislation attempts to address the imbalance by taking away from the oncologist's drug reimbursements and adding to their office expenses. The cancer related provisions in the bill contain significant cuts to cancer drug reimbursement over the next 10 years, thanks to patient advocacy groups, individual oncologists and patients and their loved-ones.

An editorial from one of the first medical oncologists to call attention to this issue at a Medicare Reimbursement Executive Committee meeting held in Baltimore on December 8, 1999:

The previous system (which remains in effect until 2005, when the new chemotherapy reimbursement structure phases in) basically paid oncologists for being retail pharmacists. The lion's share of all payment provided was in the form of reimbursement for the drugs, themselves, at reimbursement levels which bore little and often no relationship whatsoever to the actual cost of the drugs. There were instances where Medicare would reimburse the oncologists ten-fold or more greater than the actual cost to the oncologists of the drugs. I indicated my testimony to the Medicare Executive Committee 4 years ago, this created an incentive to choose the drugs which the highest "spread" between cost and reimbursement. It furthermore created a huge incentive to write a chemotherapy prescription, rather than taking time to explain to the patient that chemotherapy in general may not be all that helpful. These conflicts of interest have always been a part of Medicine; for example a surgeon gets paid much more for performing surgery than for counselling against surgery. But the Medicare chemotherapy reimbursement schedule was particularly egregious, with respect to offering incentives to good doctors to prescribe bad treatments.

Early reactions to the provisions of the new law have included predictable howls of protest from the oncology community, including dire warnings/threats that treatment facilities will be closed and that patients may not in the future receive optimum therapy. Yet the provisions of the bill are hardly draconian to the oncologist.

° The new law provides reimbursement at a level of 120% of the "true" nationwide average cost of the drug OR 100% of the actual cost of the drug to the oncologist, whichever is greater.

° The new law protects oncologists from failure to receive patient-responsibility co-pays or other patient-related bad debt.

° The new law provides payment to the oncologist for supervisory responsibilities relating to drug administration.

° The new law provides payment for all required drug administration expenses, including nurses' and other employees' salaries and indirect costs.

° The new law provides payment for related services, such as nutritional counselling and psychosocial support.

In short, the implication that oncologists will lose money by administering chemotherapy is completely unfounded. Rather, what will happen is that oncologists will be paid and reimbursed for providing medical services and will not receive the excessive level of windfall compensation (out of line with other medical subspecialties) from operating a retail pharmacy concession. According to the Congressional Budget Office, there will be a $4.2 billion reduction in payments for the drugs themselves over ten years, with a corresponding $3 billion increase in reimbursements for actual chemotherapy administration expenses. Thus, there will be a $1.2 billion cut in total reimbursement over 10 years. But this simply reflects correction of the previously-existing $420 million per year overpayment for drug costs and the previously-existing $300 million per year underpayment for costs of administration.

The new system still has major flaws, in that it continues to provide incentives to administer chemotherapy, in the same way that surgeons have a financial incentive to recommend surgery. Additionally, it is a certainty that there will be large differences between the profit margins of administering different drugs, providing continuing incentives to base drug selection on profit margin. However, the new system is clearly an improvement from the standpoint of cancer patients, taxpayers, and advocates of basing drug selection on individual tumor biology, rather than on a least common denominator approach which invites conflict-of-interest medical decision-making.