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Lawmakers Seek to Ease the Burden of Sequestration Cuts

Tony Berberabe, MPH @OncBiz_Wiz
Published: Wednesday, Jul 02, 2014
Dr. Jeffery Ward

Jeffery Ward, MD

A bill has been proposed in the House of Representatives seeking to ease some of the financial burdens placed on community oncologists by the sequestration. But does it go far enough?

In 2004, with the passage of the Medicare Modernization Act, oncologists were paid for chemotherapy drugs based on the average sales price (ASP) plus 6%. However, the distributors between the physician and pharmaceutical manufacturer were also taking their cut of the 6% that was designated for the physician.

“This may work out for large physician groups and institutions who are able to buy at lower than ASP, but only at the expense of smaller groups who can only buy at more than ASP,” said Jeffery Ward, MD, a practicing oncologist at the Swedish Cancer Institute in Seattle, Washington.

When the Congressional mandated sequestration budget cuts went into effect on March 1, 2013, Medicare applied the 2% across-the-board cut to the entire 106%, according to Ward. “It had a profound effect on community oncologists and hematologists.” He said pharmaceutical manufacturers continued to get paid the ASP because the sequestration did not affect them.

But because the 2% sequestration cut was applied to the entire cost of the drug, it changed how much oncologists were paid, essentially reducing the original formula, going from ASP plus 6% to ASP plus 4.3%.

“If some practices before the sequestration were only getting 2% over their drug costs, they are now under water after the sequestration,” said Ward. “The impact of that has been a dramatic shift from private practice-based to hospital-based oncology.”

Shift to Hospital-Based Care

This shift to hospital-based oncology care has many in the oncology community concerned.

Some advocates in the oncology community go so far as to suggest that there is a concerted effort by the “current administration to do away with private practice medicine, shift everything to the hospital, and then consolidate hospitals into large health systems,” said Ted Okon, executive director of the Community Oncology Alliance (COA), a national advocacy and lobbying group that supports community cancer treatment efforts.

But the sequestration is a blunt budgetary instrument, points out Jack Hoadley, PhD, research professor in the McCourt School of Public Policy at Georgetown University in Washington, DC.

“I think it’s important to remember that somebody who is a community oncologist and looks at this as a particular payment cut may feel like it’s targeting them—well, no, it’s not.

It’s what all federal programs are facing,” said Hoadley. His research focuses on health financing topics, including Medicare and Medicaid, with an emphasis on prescription drug issues. It’s appropriate to think through a more balanced discussion about which spending programs should be increased, or which ones should be cut, Hoadley suggested. “Maybe everyone can agree that the sequestration is not the way to go, but getting all the players to agree on an alternative? Now, that has proven to be politically difficult,” said Hoadley.

Congressional representatives prefer addressing the cost differential between office-based and hospital-based oncology through corrective legislation.

Rep Bill Cassidy (R-LA), who is a practicing gastroenterologist, said a Moran Company1 report in 2013 estimated that chemotherapy spending was between 25% and 47% higher on a per beneficiary basis in a hospital outpatient setting versus a physician office setting. “Given these data, we should examine further the causes of this cost differential. To the extent we find a lack of justification for this cost difference, we should address this from a policy standpoint,” he said.

According to the report, “Innovation in Cancer Care and Implications for Health Systems,” issued by the IMS Institute for Healthcare Informatics,2 reimbursement levels for drug administration costs in hospital outpatient facilities are on average 189% of the level of physician office reimbursed costs for commercially insured patients under the age of 65 years. These higher reimbursement levels are associated with higher costs incurred by hospitals and overheads related to their delivery of care.

The report says higher costs in hospital outpatient facilities are incurred despite the increasing proportion of hospital systems that benefit from discounted drug pricing via 340B eligibility. This federal program requires drug manufacturers to provide outpatient drugs to eligible health care organizations at significantly reduced prices.

Competitive advantages achieved through 340B pricing, in conjunction with the decline of independent oncology practices, suggest a trend toward hospital outpatient drug administration at a substantially elevated cost to payers and increased patient out-of-pocket expenses, according to the report (see Figure 1).


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