Lawmakers Seek to Ease the Burden of Sequestration Cuts

Oncology Business News®, June 2014, Volume 3, Issue 3

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?

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).

“Every time care shifts to the hospital, it shows an increase in costs. The Milliman3 and Moran1 studies demonstrate this,” said Okon. “If the data show that the same services have different costs based solely on the setting of care, this must be addressed,” said Cassidy.

Figure 1. Hospital outpatient costs compared to physician office costs

Source: IMS PharMetrics Plus, 2012

“A number of changes are occurring in health care right now, and we are looking at all of them to see what effect they are having on this trend. These include the continued volatility posed by the unreformed Sustainable Growth Rate (SGR) payment formula, the implementation of the massive Health Information Technology initiative, as well as all of the provider and market pressures caused by Obamacare.” The SGR is a method that the Centers for Medicare & Medicaid Services (CMS) uses to control spending by Medicare on physician services.

HR 1416

Determining the cause of this differential is a major undertaking, but in the meantime, a bill in the House of Representatives is making its way through committee to provide community oncologists some financial relief.

House bill HR 14164, entitled “The Cancer Patient Protection Act of 2013,” directs the CMS to lift the sequestration on reimbursement for physician-administered drugs and biologicals under Medicare Part B.

It is sponsored by Rep Renee Ellmers (R-NC) and is supported by both the American Society of Clinical Oncology (ASCO) and COA.

“Many patients have local cancer centers in their communities and they feel very comfortable going there for their care and we have to maintain that,” said Ellmers. As more consolidation occurs, “Patients will have to travel long distances to receive their care, which is very difficult,” said Ellmers, who was a nurse before being elected to office.

Receiving care in a hospital setting also places a financial hardship on patients, according to Ellmers. In the IMS Institute report, the average increased cost to the patient is $134 per dose received in the hospital as an outpatient when compared with the oncologist’s office (see Figure 2).

The sequestration was enacted to try to save money across the board, according to Ellmers, but “that isn’t the way I would have done things, and now we’re seeing that the cuts to Medicare Part B drugs were an unintended consequence. There’s a big difference in costs when patients have to go to the hospital to receive their care. It completely defeats the purpose of the sequestration.”

The 3-page, open-ended bill has 122 cosponsors and was referred to committee on April 9, 2014. The bill does not address any of the value-added payment reform issues that have been promoted by advocacy organizations such as ASCO.

Ward, who is chair of the payment reform group for ASCO, said the bill “is just a way to get back to where we can tread water. It’s not solving the real issue. The real issue is much more complicated and will require a change in how people think about how we deal with the drug industry.” He added that a new approach to physician payment for cancer care services under Medicare was released jointly by advocacy groups ASCO and COA . “We can certainly do more in the future, but we thought this was a very good starting point,” said Ellmers.

Ward concurred: “I think the bill is essential to preserve access to oncology for the time being. It will give us time to implement real reforms.” “I think our oncologists need to know that members of Congress are working very hard on this issue for them. We certainly want to make sure that every oncologist is empowered to continue to deliver care to their patients,” said Ellmers. “I would just ask every oncologist that hears this message to reach out to your congressperson and let them know this bill is out there and how much it will help you give good care to your patients.”

Figure 2. Hospital Outpatient Costs Compared to Physicians Office Costs

Source: IMS Institute for Healthcare Informatice


  1. The Moran Company. Results of analyses for chemotherapy administration utilization and chemotherapy drug utilization, 2005-2011 for Medicare fee-for-service beneficiaries. https:// 48B6285786/01655fe9-7f3d-4d9a-80d0-d2f9581673a1.pdf. Accessed May 19, 2014.
  2. IMS Institute for Healthcare Informatics. Innovation in cancer care and implications for health systems—Global oncology trend report. May 2014.
  3. Milliman, Inc. Comparing episode of cancer care costs in different settings: an actuarial analysis of patients receiving chemotherapy. August 2013.
  4. The Cancer Patient Protection Act of 2013. HR 1416. BILLS-113hr1416ih.pdf.