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Medicare Drug Reimbursements: A Broken System for Patients and Taxpayers
Subcommittee on Oversight and Investigations
Dr. Larry Norton
Principal
Points
My name is Larry Norton,
President of the American Society of Clinical Oncology (ASCO).
ASCO is the national organization representing physicians who specialize
in clinical research and the treatment of cancer. ASCO has over 17,000 members, including nonphysician
healthcare professionals and cancer specialists located abroad. I appreciate the
opportunity to appear before the Committee today to present ASCO's views on
the important subject of Medicare payment for the drugs and related services
furnished in outpatient cancer treatment. ASCO
agrees that Medicare payments for drugs and related services should be
restructured to more closely align the payment amounts with the cost of
providing cancer care. Payments for
drugs should be reduced while payments for the related services should be
increased. It is imperative that
this be done carefully, however, to insure that delivery of treatment to
Medicare beneficiaries is not disrupted. Need
to Preserve Outpatient Chemotherapy I am Head of the Division of Solid Tumor Oncology at Memorial Sloan-Kettering Cancer Center in New York. As a specialist in the treatment of breast cancer, I am very familiar with chemotherapy and its importance in cancer treatment. Any reform of the Medicare payment system for chemotherapy must insure that cancer patients can continue to receive what they need to fight their disease. Chemotherapy is central to modern cancer treatment and is likely to be even more important in the coming years. Chemotherapy treatment was once considered far worse than the disease, requiring extensive hospital stays. Now, with better drugs to control side effects, patients can receive treatments in outpatient settings most convenient for them - and for their families. This is usually in physician offices. In restructuring the
Medicare payment system for chemotherapy, the net result must be aggregate
payment amounts that enable physicians to continue offering office-based
chemotherapy. It has been estimated
that 70% or more of chemotherapy treatments are furnished in physician offices.
If Medicare payments are not adequate to cover the costs of this service,
physicians will be forced to have chemotherapy delivered in some other setting.
It is far from clear, however, whether hospital outpatient departments
have the capacity or the resources to handle a large inflow of chemotherapy
patients. Any significant reduction
in office-based chemotherapy could therefore result in a massive disruption in
the care of Medicare patients with cancer.
Payments for Drug-Related Services As I stated above, ASCO
supports a reduction in the Medicare payments for drugs.
Before discussing that aspect, however, I want to speak first about the
simultaneous change that must be made to insure that Medicare cancer patients
will still be able to obtain chemotherapy treatment after the drug payments have
been reduced. Under the current
reimbursement system, the payments
for drugs compensate for the underpayment or lack of payment for the related
services, and all parts of the system must therefore be reformed at the same
time. In the 1970s, there were
few drug treatments available for cancer and, as I mentioned earlier, those that
were available were generally administered to hospital inpatients.
The few types of chemotherapy that were first furnished in the office
setting were relatively simple, but they established the basis for the low
Medicare payment levels for chemotherapy administration services that continue
to exist today. There has been no
major revision, even though the complexity of chemotherapy furnished in the
outpatient setting has increased enormously.
This problem was noted by Congress as early as 1987, when the Omnibus
Budget and Reconciliation Act required the Department of Health and Human
Services to conduct a study of the costs of furnishing chemotherapy in the
office and assess whether payments are adequate.
Unfortunately, this study was never conducted. Last year, however, the
Health Care Financing Administration, now the Centers for Medicare &
Medicaid Services (CMS), reviewed the matter and wrote Congress that "Medicare
payments for services related to the provision of chemotherapy drugs . . . are
inadequate." The inadequacy of the
Medicare payment amounts is illustrated by the costs of one of the principal
services. Under the physician fee
schedule, the current Medicare payment level for the first hour of a
chemotherapy infusion (CPT 96410) averages about $62.
The cost of the supplies and equipment used in this procedure are
estimated to be about $29, based on the 1994-95 prices used by CMS for these
estimates. The salary and benefits
of the oncology certified nurses who furnish chemotherapy are currently
estimated by CMS to average about $35 an hour, and the total nurse time involved
in furnishing an hour of infusion is estimated at about two hours. Among other elements, this work includes reviewing the
patient's medical history, verifying the drug orders, preparing the drug,
educating the patient, assembling the necessary supplies, administering the
drug, documenting the procedure, and follow-up phone calls.
Thus, the costs of the
supplies, equipment, and nurse time for an infusion by themselves significantly
exceed the Medicare payment amount. Moreover,
there is nothing in the Medicare payment to cover the other costs of the office,
including the administrative staff and the overhead, which CMS, using American
Medical Association data, estimates to be about two-thirds of a physician's
costs. The Medicare payment amount
for chemotherapy services are far less than the costs incurred to furnish the
services. ASCO estimates that
Medicare pays less than one-fourth of the total costs of the principal
chemotherapy procedures. ASCO believes that this
underpayment results at least in part because of the way in which the
methodology for the Medicare physician fee schedule sets payment amounts for
services that may represent significant expense to a practice but are not
directly furnished by the physician.
Chemotherapy is one example. At
the time CMS adopted this methodology in 1998, it characterized its approach as
"interim" but the methodology has not yet been revised. ASCO believes that the
payment amounts for services of this kind - those that do not have a physician
work component - should be based on information about the costs of providing
those services, and not on the current "top-down" methodology that is used
in general to set payment amounts. Although
it would be desirable to collect new cost data, any restructuring in the near
future must depend on information that currently exists or can be promptly
developed. Consequently, ASCO
recommends use of the data on costs that was initially developed by the Clinical
Practice Expert Panels and has subsequently undergone review in the American
Medical Association refinement process and analysis by CMS. Medicare should pay the full direct and indirect costs of
chemotherapy services as estimated in that process. There should also be a new type of Medicare payment for services that are related to chemotherapy but are not part of the chemotherapy procedure itself. Oncologists and their professional staffs typically furnish a variety of services to cancer patients for which there is no explicit reimbursement. These services include the extensive support that seriously ill cancer patients frequently require, including social worker services, psychosocial services, and nutrition counseling. Social worker services encompass a variety of services intended to help patients carry out their therapy, such as help with insurance, arranging transportation to treatment, and filling prescriptions. Psychosocial support includes services such as counseling patients on their activities of daily living, support groups that meet in the physician's office, and grief counseling. In addition, physicians treating cancer patients perform an extraordinarily high amount of work outside the patient's presence, including family counseling, telephone calls, arranging for entry into clinical trials, and so forth. While other types of physician specialists may provide such services to occasional patients, oncologists and their staffs typically provide these services to the bulk of their entire patient load. If the Medicare payments for the drugs and drug administration are aligned closely with their costs, there will not be sufficient funds available to continue these services, which are so important to the seriously ill cancer patient population. Medicare patients need to continue to receive these services to deal with their disease, and the services should not be cut off to save money. Payments for Drugs Finally, let me turn to the
Medicare payments for the drugs themselves.
The current Medicare payment amount for covered drugs is based on 95% of
published average wholesale price (AWP). As
is widely known, published AWP overstates, by a varying amount, the prices at
which drugs can actually be purchased. This
circumstance does not necessarily make AWP useless, however, and AWP is widely
used by public and private insurance programs in their reimbursement methods for
drugs that are dispensed by pharmacies or administered in physician offices. In
recent years, the difference between AWP and actual prices for some drugs has
become very large. This situation
typically occurs for multiple-source drugs or drugs with close competitors,
where competition forces down the actual price even though the list price, on
which AWP is based, remains high. The large discrepancy between price and reimbursement amount
for some drugs is not an appropriate situation. As part of restructuring
the Medicare payment system, ASCO recommends one of two approaches to revising
the payments for drugs. First,
Medicare could determine the market prices of each drug.
Instead of using AWP, the law could require drug wholesalers to report to
a Medicare contractor the prices at which they sold each Medicare-covered drug,
considering all discounts, and the quantity sold at that price. The contractor could then compile those reports into a
picture of the range of market prices for each drug and set a Medicare payment
level accordingly. If this market approach
is adopted, ASCO believes that a number of features should be included to insure
that the survey results in an appropriate payment level: §
The price reports should be frequent so that they reflect changing
market conditions. ASCO recommends
that the wholesalers submit reports every month and that the contractor process
the data promptly so that it can be used for reimbursement purposes in the
second following month. For example, prices of drugs sold in January would be used to
set the payment amounts for March. §
Since there will be a variation in the prices, the Medicare
payment level for each drug should be set at an amount that will cover the
prices actually paid by the vast majority of physicians.
ASCO recommends the 95th percentile.
Prices actually paid may vary greatly because physicians in larger groups
are able to negotiate lower prices based on their volume purchases.
It would be extremely unfair to pay based on the median price or some
similar price because that would systematically discriminate against physicians
who are unable to negotiate lower prices. Oncologists
who are routinely reimbursed less than what they pay for a drug would be unable
to continue furnishing drugs to their patients. §
The payment methodology should be flexible enough to take known
manufacturer price increases into account immediately.
For example, if data on wholesale prices is collected during January for
use in March, but the manufacturer raises the price of a drug by 5% on February
1, that should be taken into account in setting the March payment amounts. §
There should be an add-on amount to reflect certain costs
associated with use of the drug. These
include costs such as spillage, wastage, the opportunity cost of the capital
tied up in drug inventory, procurement and storage costs, and unpaid patient
coinsurance (bad debt). Although
Medicare Part B does not ordinarily cover bad debt, bad debt here represents an
out-of-pocket loss to the physician and should be treated specially.
The various components of these extra costs are difficult to estimate, so
ASCO recommends a flat 10% add-on to cover them. §
Sometimes physicians will encounter especially high prices for
drugs, such as if they have to purchase a drug from a pharmacy in an emergency.
The system should always allow a physician to be reimbursed for the
actual acquisition cost by submitting documentation as to the purchase price. §
In states that impose a sales or gross receipts tax on
physician-administered drugs, Medicare should also cover that amount so as to
keep the physician financially whole. An alternative approach
to using a survey of market prices would be to make the published prices used by
Medicare more accurate. The main
concern expressed about the published prices has been the particularly large
differences between the published prices and actual prices for some drugs.
The law could be changed to require manufacturers to submit accurate
prices to the publishers. This
approach would have the advantage of not requiring a government contractor to
compile data. ASCO could support either
of these approaches and we would be happy to work with Congress to develop the
details of an appropriate methodology. Our
concern is only that the resulting Medicare payment must be adequate to cover
the full costs incurred by oncologists. Oncologists
pay varying amounts for drugs, with large practices and entities able to obtain
volume discounts not available to everyone.
The methodology adopted must be adequate to insure that all oncology
practices, regardless of size, obtain full reimbursement of all their
drug-related costs. Hospital Outpatient Departments The Medicare statute ties
payments under the hospital outpatient prospective payment system to AWP by
paying for drugs used in cancer therapy based on 95% of AWP for a two to three
year transitional period. As the
payment methodology for drugs furnished in physician offices is revised, it is
important that possible effects on payments for services in hospital outpatient
departments be kept in mind. Hospital
outpatient departments are an essential part of the delivery system for cancer
care, and Medicare payments must be adequate to support their continued
operation. Conclusion In summary, ASCO supports
restructuring Medicare payments for chemotherapy related services by reducing
the payments for drugs and appropriately increasing the payments for related
services. It is essential that the
cumulative payments after this restructuring fully cover the costs of the items
and services that oncologists furnish to cancer patients.
If their costs are not covered, oncologists will be unable to continue
furnishing chemotherapy in their offices, and the result could be extreme
disruption of the cancer care delivery system.
Oncologists have dedicated their professional lives to treating patients with cancer, and our only objective here is to insure that our patients can continue to receive the therapy and services that they need in the setting that is most convenient and accessible. We believe that Medicare payments can be restructured without adverse consequences if our recommendations are adopted, and we look forward to continued work with the Congress toward that end.
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