Impact of New Medicare Law on Reimbursement for Cancer Chemotherapy
The new Medicare law contains sweeping changes in the way that Medicare pays for chemotherapy.  It is designed to address an issue to which I was one of the first to call attention, at a Medicare Reimbursement Executive Committee meeting held in Baltimore December 8, 1999. The verbatim transcript of my comments at that meeting is available online:
Transcript of December 8, 1999, MCAC Executive Committee Meeting.htm

Present editorial remarks:

The old system was basically an impossible conflict of interest.  The present system is somewhat improved, but some conflict remains.

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.  As indicated my above 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.

 An additional  problem with the present reimbursement system is the strong disincentive for the oncologist to use cell culture drug resistance testing (CCDRT or "chemosensitivity testing") in drug selection.  If the oncologist does not order CCDRT, then he/she is "free" to select from a half dozen or more different forms of chemotherapy, all reasonable and justifiable options, based on the existing literature relating to empically-chosen therapy.  But CCDRT takes away some of the "freedom to choose," by putting drugs into different "sensitive" and "resistant" categories, with markedly different likelihoods of providing clinical benefit.

Early reactions to the provisions of the new law have included predictable howls of protest from the oncology community (which companies which sell their services to oncologists are beginning to exploit, e.g. click on a direct mail advertisement I recently received), 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.

Larry M. Weisenthal, December 15, 2003

nb: Follow-up news relating to early impact of new Medicare chemotherapy reimbursement rules (Jan. 31, 2004).

Indianapolis (Bloomberg) -- Eli Lilly and Co. and Pfizer Inc. have cut prices on cancer medicines after doctors said they couldn't afford to administer the drugs under lower reimbursement rates that Medicare adopted in January.

Lilly cut the price of the pancreatic cancer drug Gemzar by about 7 percent, said Ed Sagebiel, a spokesman for Indianapolis-based Lilly... (etc.).  (Moral:  Good legislation can sometimes work to improve health care through improving market efficiency, as an alternative to government "command and control" Look for further market adjustments of this type.  nb. Gemcitabine (Gemzar) remains a very high priced drug, with a much lower-than-average profit margin for the oncologist who administers office-based chemotherapy)