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Medicare Reimbursement Cuts Caused by Sequestration Begin to Take Effect

Ben Leach
Published: Thursday, Apr 04, 2013

Capitol HillAs a result of sequestration-related federal budget cuts, Medicare reimbursement has been reduced by 2% across the board, with the reduction affecting a number of services offered to cancer patients.

This latest round of cuts took effect on April 1, 2013.

Any Medicare physician claims made on or after that date are subject to the cut. Additionally, drugs that are administered on the physician claim, such as chemotherapy or other cancer drugs that must be given at the physician’s office, are also subject to the cut.

Before sequestration took effect, when both Medicare and a beneficiary covered drugs, physicians were reimbursed for a total of 100% of the average sales price (ASP) of the drug plus 6% to cover overhead and storage costs. Medicare would cover 80% of the cost, with the remaining 20% coming from the beneficiary.

The 2% reduction in reimbursement is taken off of the 80% reimbursement that Medicare normally pays. For example, if the ASP of a drug was $1000, under the old system, Medicare would pay $848 and the beneficiary would pay for $212 for a total of $1060. Under these sequestration-related cuts, Medicare would pay 98% of what they would have paid before. In this example, Medicare would pay $831 of the $848. The beneficiary would still cover 20%, or $212 in this example, meaning that the percentage above the ASP used to cover overhead and storage costs would be reduced from 6% to 4.3%.

The cuts also affect physician reimbursement if the drugs are given in an office. While medications are typically covered under Medicare Part D, which includes private insurance, services provided by a physician are covered under Medicare Part B, and those services are subject to the cuts.

Sandra M. Swain

Sandra M. Swain, MD

This reduced Medicare reimbursement comes after cuts were made at both the National Institutes of Health and the FDA. Cuts of more than 5% were made at both agencies, reducing the budget for research into cancer as well as potentially slowing down the approval process for cancer drugs.

Sandra M. Swain, MD, president of the American Society of Clinical Oncology (ASCO), made a statement concerning the sequestration-related cuts, saying that sequestration will have “a shattering impact on the entire cancer enterprise in the United States.”

“ASCO is deeply disappointed in the failure of lawmakers to avert this fiscal crisis, and will closely monitor the impact of sequestration on the oncology community,” she said. “In the meantime, ASCO will immediately urge Congress to enact measures that retroactively reinstate critical funding to ensure patients have continued access to high quality cancer care.”

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