Medicare payment ample for cancer drugs, GAO says

Washington -- Cancer doctors are on track to do just fine next year, at least when it comes to Medicare reimbursements, according to the Government Accountability Office.

Oncologists had warned that many of their practices soon would be unable to cover their medication expenses under Medicare, forcing them to shift some of their patients to local hospitals for outpatient treatments. But when 2005 rates kick in next month, total Medicare payments to physicians for obtaining cancer drugs and administering them in their offices will exceed doctors' costs, the GAO says in a new report.

The oversight agency estimates that even though their drug reimbursements will go down, oncologists still stand to receive more than $200 million above their expenses for these drugs next year, after receiving payments in excess of costs by nearly $800 million during 2004.

In addition, significant boosts in reimbursement for dispensing chemotherapy will result in doctors receiving total administration payments that are 130% higher than they were in 2003, assuming a stable level of patient utilization, the GAO found. Before Congress approved a new payment system for cancer drugs last year, Medicare significantly overpaid physicians for the drugs themselves but underpaid them for administering the treatments.

The financial outlook for oncologists likely will improve further with several policy changes that the Centers for Medicare & Medicaid Services adopted too late to be included in the GAO assessment. An upcoming $300 million demonstration project on patient pain reporting and improved codes for chemotherapy administration that CMS approved last month will boost the doctors' profit margin by another several percentage points, the agency says.

Oncologists remain skeptical

The advocacy group that for years has pushed for a more equitable Medicare payment system for cancer doctors took issue with the GAO's conclusions and warned that many individual practices will encounter a much different situation when they try to buy drugs starting in January.

Analysts at the oversight agency likely erred when they said physicians will be able to make a 6% profit when they are paid 106% of the drugs' average sales price next year, said David Johnson, MD, president of the American Society of Clinical Oncology.

"This is a dubious finding because, by definition, [average sales price] is based on manufacturers' prices," he said. "Community practices experience an additional markup when purchasing the drugs and, therefore, pay more than the manufacturer's price, contrary to what the GAO's finding implies."

ASCO estimates that the average 2005 drug reimbursement rate will be closer to 4% above costs based on its survey of 140 members, a sample that the GAO labels as insufficient in size and diversity.

The report does acknowledge that some drugs cannot be obtained for less than what Medicare pays. In addition, ASCO has demonstrated that there is wide variation among oncology practices in the level of additional discounts and rebates that doctors are able to negotiate with drug manufacturers. This means that some physicians encounter significant markups as compared with their colleagues.

The oncology group also questioned the report's findings on the adequacy of reimbursement rates for chemotherapy administration. The GAO simply accepted CMS assumptions without doing its own analysis, Dr. Johnson said. The society maintains that a report from federal officials saying Medicare rates for some services will be nearly four times their projected costs cannot be verified without an independent review.

ASCO is reserving its final judgment on next year's payment system until CMS releases the final drug reimbursement rates, a move that the agency did not accomplish by press time. CMS Administrator Mark McClellan, MD, PhD, has said that the final rate schedule, based on third-quarter drug pricing data, will not differ greatly from already released projected rates that are based on second-quarter information.

A new roadblock on Capitol Hill

The optimistic scenario painted by GAO and affirmed by Medicare officials could prove problematic for oncologists, who are still holding out hope that Congress will approve a minimum payment level for cancer drug payments through 2006.

Congressional aides suggested that the latest offering from the oversight agency will stop any momentum that cancer care advocates on Capitol Hill had made by warning of the inadequacy of proposed drug rates and administration payments. More than 40 House members have signed on to a bill authored by Rep. Charles Norwood, DDS (R, Ga.), that would ensure drug payments are equal to at least 96% of 2004 rates for the next two years and would extend a transitional practice expense rate boost.

In addition, after implementing the chemotherapy demonstration project and updated coding, Medicare officials will be largely focused on setting up the new Medicare outpatient prescription drug benefit, called Part D, which will launch in a little over a year.

At least one lawmaker took the GAO report as an indication that Medicare is being fair to both physicians and beneficiaries. Sen. Charles Grassley (R, Iowa), Finance Committee chair, noted that reining in cancer drug overpayments will lower out-of-pocket costs for seniors and leave more federal funding available to subsidize Part D.

"By reducing huge beneficiary co-payments for [Medicare] Part B drugs by paying for chemotherapy drugs based on the market price, we've taken a step toward ensuring the affordability of care," Grassley said. "And by diligent monitoring of these payment changes through reports from the GAO, we can continue our efforts to maintain access to high-quality cancer care while ensuring that physicians receive a fair payment rate for drug administration."