1.5% Medicare increase secured, but future pay cuts are forecast

Reimbursement changes for cancer drugs may cause oncologists to stop administering chemotherapy in their offices.

By Joel B. Finkelstein — Posted Aug. 16, 2004

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Medicare officials gave doctors a dose of good news in the proposed 2005 payment rule. But the regulation includes a shot of bad news, too.

While an increase in physician payments and new preventive services came as welcome announcements, some specialty societies voiced concerns over a steep drop in reimbursement for injectable drugs covered under Part B of the program.

The proposed rule, issued by the Centers for Medicare & Medicaid Services late last month, includes the 1.5% increase in the 2005 physician fee schedule mandated in last year's Medicare reform law.

"Efforts by Congress and the Bush administration prevented an access-to-care crisis for patients this year and next by halting a 4.5% cut in Medicare payments this year and a 3.7% cut in 2005," said J. James Rohack, MD, chair of the AMA Board of Trustees.

"The narrowly averted 2004 and 2005 cuts -- and the upcoming cuts forecast for 2006 through 2012 -- are an alarm bell for America's Medicare patients and their physicians that the flawed payment formula must be replaced," said Dr. Rohack.

Those impending cuts of 5% each year are due to the sustainable growth rate formula contained in the Balanced Budget Act of 1997 and designed to limit growth in Medicare spending on physician services. The AMA is seeking legislation that would permanently rewrite the formula.

In addition to the 1.5% increase in physician payments, the proposed rule includes a 5% bonus for primary care physicians and specialists working in underserved areas of the country.

The rule also would provide coverage for the first time for a host of preventive services. Among the new benefits are a "Welcome to Medicare" physical, including an EKG and other diagnostic tests. Medicare would also start to pay for screening for heart disease and diabetes. This is in addition to already covered benefits, including bone mass density screening; screening for cancer of the colon, breast, cervix and prostate; and influenza, pneumonia and hepatitis B vaccination.

"We're taking another step toward focusing Medicare on disease prevention and management -- preventing diseases and preventing the complications of serious illnesses," said CMS Administrator Mark McClellan, MD, PhD. "Critical to all these efforts is appropriate payment for physicians and the important services they provide."

These additions, along with the expected continued growth in the volume of physician services provided to beneficiaries, mean total Medicare payments are expected to grow by more than 4%, from an estimated $52.7 billion in 2004 to $55 billion in 2005, according to Dr. McClellan.

Cuts to cancer drugs

Those increases are significant, but hidden within the overall total is $530 million in cuts, some of which will affect oncologists and other specialists who administer drugs in their offices.

Traditionally, Medicare has reimbursed doctors for cancer and other office-administered drugs at retail price, which is often well above the actual market price for the pharmaceuticals. Physicians used that difference to help cover the cost of storing, preparing and administering the drugs.

"Until now the spread was hidden," said Dr. McClellan. "It could vary from doctor to doctor in ways that might have no relationship to how much it cost to administer the drugs. Now we want to bring out the cost of these critical physician services and pay for them appropriately."

In an attempt to make payment more accurate, Congress told CMS to revise these drug prices down, while increasing physician reimbursement for administering them. But many of the specialists who offer these services in their offices are not sure that the changes will result in fair payment.

"Although we have heard from congressional staff and members that their understanding was that we would be held basically neutral between 2004 and 2005, clearly CMS admits in the rule that it's another 8% cut," said Deborah Kamin, senior director of cancer policy and clinical affairs for the American Society of Clinical Oncology. "Our early analysis is that it's even higher than that."

The rule, like the Medicare law it is based on, doesn't appear to fully take into account the complexity and cost of purchasing, storing and handling chemotherapy drugs, she said,

The result is that physicians are preparing for the worst.

The AMA, along with several of the specialty societies affected by the cuts, are working to assess the fallout from the drop in drug reimbursement, which is as much as 89% in some cases. Preliminary reports are not encouraging.

"We have data from some of the practices showing that they're paying more for the bladder cancer drugs than the reimbursement," said Robin Hudson, manager of regulatory affairs for the American Urologic Assn. "That's one of the things CMS keeps saying they don't mean to happen."

The agency is setting the new drug reimbursement rates at the average sale price plus 6%. This number reflects a range of purchasing arrangements, from small physician practices to managed care pools.

Many oncologists may decide to discontinue these services in their offices if Congress does not take action to assure them that their reimbursement will be enough to cover their costs, said Kamin.

The AMA is working with the specialty societies to revise and create new CPT codes for administering the drugs in physicians' offices to ensure accurate reimbursement for these services. Those codes will be out later this year, and CMS has promised to consider adding them to the program.

"It's a little bit premature to say exactly what the impact is, and I think it is very likely that the CPT process will result in some further changes we will want to take into account," said Dr. McClellan.

But that uncertainty is at the center of the current problem.

"Doctors are looking at their practices now, and if they project a resource cut to the point that they can't afford this, they really need to start making decisions now because once patients embark on chemotherapy it might be a six-month or year-long process," said Kamin.

Back to top


Top 5 price drops

Code Drug 2004 price 2005 price Change
J7644 Ipratropium bromide $2.82 $0.30 -89%
J7619 Albuterol sulfate, Proventil, Ventolin $0.39 $0.04 -89%
J9265 Taxol, Onxol, Nov-Onxol $138.28 $25.84 -81%
J2430 Aredia, pamidronate disodium $237.88 $67.27 -72%
J9219 Viadur $4,831.40 $2,190.71 -55%

Source: The Centers for Medicare & Medicaid Services

Back to top

New for 2005

Under the proposed rule, Medicare would begin paying for several new items and services next year, including:

  • Telehealth monthly management of dialysis treatment for rural patients with end-stage renal disease.
  • One-time evaluation and counseling from a physician employed by a hospice to determine end-of-life services for terminally ill patients.
  • Low osmolar contrast materials used in x-rays and other radiological procedures.

Back to top

External links

Centers for Medicare & Medicaid Services physician fee schedule information (link)

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn