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Chemotherapy Drug Concession

gdpawel's picture
Posts: 538
Joined: May 2001

Drug Concession Profits are Hugh for Cancer Doctors

Cancer doctors have the financial incentive to select certain forms of chemotherapy over others because they receive higher reimbursement.

Medical Oncologists are pocketing hundreds of millions of dollars each year by selling drugs to patients, a practice that almost no other doctors follow. These cancer specialists can make huge sums from the difference between what they pay for the drugs and what they charge insurers and government programs.

Typically, doctors give patients prescriptions for drugs that are then filled at pharmacies. But Medical Oncologists buy the chemotherapy drugs themselves, often at prices discounted by drug manufacturers trying to sell more of their products and then administer them intravenously to patients in their offices.

The practice creates a potential conflict of interest for these doctors, who must help cancer patients decide whether to undergo chemotherapy or continue if it is not proving to be effective and which drugs to use. The money these doctors make from selling medicine is contributing to the nation's high health care bills and adding to the waste and inefficiency in the health care system.

Over the course of the 1990's, Medical Oncologists have been able to rely on the sale of chemotherapy drugs as an important source of revenue. They are now among the best-paid doctors. In 2001, the median compensation for an oncologist in a large practice was $274,000, surpassing obstetricians and general surgeons, according to data from the Medical Group Management Association. All the evidence suggests that doctors do respond to money.

These cancer specialists have successfully resisted most government efforts to take this drug concession away. Medicare, which does not cover most prescription drugs, does pay doctors about $6.5 billion a year for drugs they personally administer, largely cancer drugs.

According to the General Accounting Office, doctors on average, were able to get discounts as high a 86% on some drugs. Medical Oncologists in private practice typically make two-thirds of their practice revenue from chemotherapy concession.

Joseph P. Newhouse, a health policy professor at Harvard, has been asked by the government to look into how the Medicare reimbursement system may affect how Medical Oncologists prescribe chemotherapy. The drug concession may lead some doctors to recommend chemotherapy when patients may not benefit. A 2001 NIH study found that a third of patients received chemotherapy in the last six months of their lives, even when their cancers were considered unresponsive to chemotherapy. Those findings strongly suggested overuse of chemotherapy at the end of life.

The government is also looking into how the drug concession is affecting prescribing patterns. Medical Oncologists began selling drugs directly more than a decade ago, after they persuaded insurers that it would be less expensive to administer the drugs in their offices than in hospitals. This was part of a trend of doctors' being paid much more to perform services and treatments in their offices than in hospitals.

Some oncologists acknowledge that the current system creates a perverse incentive. The potential for conflicts of interest is troubling. In several prominent cases, drug companies have been accused of using discounts to influence doctors. For example, Pharmacia is accused of having induced physicians to purchase its drugs, rather than competitors' drugs, by persuading them that the wider "spread" on the defendant's drugs would allow the physicians to receive more money and make more of a profit, at the expense of the Medicaid program and Medicare beneficiaries. Medical Oncologists would be motivated to give too much care or the wrong kind.

This kind of chemotherapy concession may not last. Health plans are all starting to take a much harder look. Some insurers are getting Medical Oncologists to forgo profits from chemotherapy drugs, by paying the doctors more for administering them. Other insurers plan to give Medical Oncologists a choice: either they can allow health plans to buy the drugs at a lower price and pay the doctors for administering chemotherapy or they can accept a lower payment for the drugs if they continue to buy them.

gdpawel's picture
Posts: 538
Joined: May 2001

Cancer doctors say a provision in Medicare overhaul legislation pending in Congress would shrink federal financing for their services so dramatically that they would be forced to close clinics and turn away patients.

But lawmakers say the doctors' emotional outcry is obscuring a shocking financial loophole that for years has fattened oncologists' wallets: They have been collecting from Medicare many times what they paid for their patients' drugs.

The Bush administration estimates that Medicare profits collected by oncologists last year amounted to $700 million and projects it will reach $1.7 billion in 2004 unless changes are made.

"We clearly have been overpaying them in this area," U.S. Sen. John Breaux, D-La., said.

Unlike most prescription medications, doctors order cancer drugs from manufacturers directly and then bill Medicare. The program pays 95 percent of the average wholesale price. The problem, as noted by a General Accounting Office report last year, is that the average wholesale price is neither "average" nor "wholesale."

"It is simply a number assigned by the product's manufacturer," the GAO wrote.

Cancer doctors frequently pay far less than the average wholesale price -- the administration estimates 13 percent to 34 percent less -- because they negotiate private purchasing arrangements with manufacturers.

Sometimes the discounts are much deeper. U.S. Rep. Billy Tauzin, R-Chackbay, whose House Energy and Commerce Committee investigated Medicare overpayments for cancer drugs, said the difference between what some doctors paid and what they were reimbursed by the government was vast.

The average wholesale price for etoposide, a breast cancer drug, was $638.76 for 500 milligrams. The price paid by a national group purchasing company was $28.22, according the committee.

Calcium leucovorin, which is used to treat some colon cancers, was listed at $18.44, according to figures from the Bush administration. With Medicare paying 95 percent, doctors would get $17.52. They can purchase it on the open market for $2.77.

Not only are lawmakers concerned Medicare is paying inflated drug prices, but that seniors, who must fork over a 20 percent co-payment, also are getting overcharged.

"No one on the committee is unsympathetic to the plight of cancer patients," said Ken Johnson, spokesman for Tauzin, whose mother has undergone three cancer surgeries. "But bilking senior citizens can't be the answer."

Seeking a balance

The oncologists don't dispute that they have been making a substantial profit on Medicare-subsidized drugs. But they say they have good reason: It is to compensate for woeful underpayments from the federal government for their other services.

The American Society of Clinical Oncology estimates that Medicare covers about 25 percent of the clinical, administrative and labor costs associated with administering chemotherapy drugs. It doesn't cover, the group says, specially trained chemotherapy nurses, costs of billing and collection, malpractice insurance, overhead for clinics where the drugs are administered, intravenous fluids and tubing, or pharmacy costs for mixing the medications for each patient.

"We take the money from drugs to pay for administration," said Dr. John Rainey, president of the Oncology Society of Louisiana. "All we're asking for is to be paid fairly for what we do."

It's not that cancer doctors are pleading poverty. A recent issue of ModernHealthcare magazine published a nationwide study showing that oncologists earn between $213,855 and $325,000 a year. Still, they say it's not fair for them to have to subsidize patient costs.

Congress had proposed fixing both problems at once, something oncologists have been pushing for years: cutting drug payments to cancer doctors while raising the pay for their services. But doctors object to the balance House and Senate negotiators have struck.

Although the legislation is in flux, the doctors say that one plan would cut about $700 million next year from what doctors are paid for the drugs but raise the pay for their services by about $200 million.

Trickling down

If Congress follows through, doctors say patients will be hurt the most. In a survey of 2,900 of its members, the American Association of Clinical Oncology found that 19 percent said they would stop treating Medicare patients altogether, 42 percent said they would stop conducting clinical trials in their offices and nearly three-quarters said they would send chemotherapy patients to a hospital instead of administering their drug regimen, often an hours-long procedure, in their offices.

Rainey, the Lafayette oncologist, said he would close four satellite chemotherapy units and predicts the worst for elderly patients.

"They won't drive 60 miles to get care." He said. "They will go on and die."

Dr. William Stein, co-founder of the largest cancer-care group in metropolitan New Orleans, didn't predict that any of the area's 11 infusion units would close. But, he said, he wouldn't administer drugs in the pleasant environs of his office to patients whose only source of insurance is Medicare. Instead, they would be sent to the hospital, where he said they would face long waits.

Floyd Hendricks, 79, a retired thoroughbred horse breeder, has been getting chemotherapy at East Jefferson Medical Center to treat lung cancer once a week since July. He said that he calls in advance and that the drugs are ready for him when he shows up. He spends several hours at the hospital and called the nurses "the nicest bunch of people I've ever been around."

But Mary Ellen Kilgore, 64, said a hospital setting can't compare to Stein's clinic. Chemotherapy patients at the Covington facility are able to look out at a fountain and butterfly bushes in the "healing gardens" as they get their drug treatment. Kilgore knows her nurse's home phone number and said the staff is like family.

"It's a really positive atmosphere, and that is essential to a cancer patient," said Kilgore, who has leukemia.

The cancer provision is a small piece of the entire Medicare legislation and only one of many controversial elements. Even if the bill fails, the fight over cancer treatment is far from over. The Bush administration has proposed rules to change, without Congress, the cancer drug payments system, and cancer doctors have vowed to fight it.

"The concept of creating a system which rewards doctors for giving chemotherapy, and doesn't reward them for spending a half hour talking to a patient to explain why chemotherapy won't help is a bad system. But money will always corrupt. And the chemotherapy reimbursement system is corrupting. If it's finally going to go -- good riddance."

gdpawel's picture
Posts: 538
Joined: May 2001

With the passage of The Medicare Prescription Drug and Modernization Act, there is a 10 to 15 percent reduction in the money an oncologist is reimbursed for purchasing and administering chemotherapy drugs.

Medicare reimbursed doctors well enough for chemotherapy drugs that made up for low reimbursements on the services associated with administering those drugs to patients, but it served as an incentive for treatment rather than counsel, and treating with certain "deal of the month" drugs.

The measure lowers reimbursement rates for cancer treatments administered in a community setting, such as a doctor's office, so patients may have to go to a cancer-center hospital. That may not be a bad idea. A cancer hospital is the proper place for cancer care. The ideal would be if patients received chemotherapy at some treatment center that wasn’t involved in the decision to treat and in which the oncologist didn’t have a financial interest.

Congressional targeting of cancer clinics goes back about two years to investigations on Capitol Hill that revealed oncologists obtained cancer-fighting drugs at bargain-basement prices but then received Medicare reimbursements five times the amount they paid.

The Medicare legislation attempts to address the imbalance by taking away from the oncologist's drug reimbursements and adding to their office expenses. The cancer related provisions in the bill contain significant cuts to cancer drug reimbursement over the next 10 years, thanks to patient advocacy groups, individual oncologists and patients and their loved-ones.

An editorial from one of the first medical oncologists to call attention to this issue at a Medicare Reimbursement Executive Committee meeting held in Baltimore on December 8, 1999:

The previous system (which remains in effect until 2005, when the new chemotherapy reimbursement structure phases in) basically paid oncologists for being retail pharmacists. The lion's share of all payment provided was in the form of reimbursement for the drugs, themselves, at reimbursement levels which bore little and often no relationship whatsoever to the actual cost of the drugs. There were instances where Medicare would reimburse the oncologists ten-fold or more greater than the actual cost to the oncologists of the drugs. I indicated my testimony to the Medicare Executive Committee 4 years ago, this created an incentive to choose the drugs which the highest "spread" between cost and reimbursement. It furthermore created a huge incentive to write a chemotherapy prescription, rather than taking time to explain to the patient that chemotherapy in general may not be all that helpful. These conflicts of interest have always been a part of Medicine; for example a surgeon gets paid much more for performing surgery than for counselling against surgery. But the Medicare chemotherapy reimbursement schedule was particularly egregious, with respect to offering incentives to good doctors to prescribe bad treatments.

Early reactions to the provisions of the new law have included predictable howls of protest from the oncology community, including dire warnings/threats that treatment facilities will be closed and that patients may not in the future receive optimum therapy. Yet the provisions of the bill are hardly draconian to the oncologist.

° The new law provides reimbursement at a level of 120% of the "true" nationwide average cost of the drug OR 100% of the actual cost of the drug to the oncologist, whichever is greater.

° The new law protects oncologists from failure to receive patient-responsibility co-pays or other patient-related bad debt.

° The new law provides payment to the oncologist for supervisory responsibilities relating to drug administration.

° The new law provides payment for all required drug administration expenses, including nurses' and other employees' salaries and indirect costs.

° The new law provides payment for related services, such as nutritional counselling and psychosocial support.

In short, the implication that oncologists will lose money by administering chemotherapy is completely unfounded. Rather, what will happen is that oncologists will be paid and reimbursed for providing medical services and will not receive the excessive level of windfall compensation (out of line with other medical subspecialties) from operating a retail pharmacy concession. According to the Congressional Budget Office, there will be a $4.2 billion reduction in payments for the drugs themselves over ten years, with a corresponding $3 billion increase in reimbursements for actual chemotherapy administration expenses. Thus, there will be a $1.2 billion cut in total reimbursement over 10 years. But this simply reflects correction of the previously-existing $420 million per year overpayment for drug costs and the previously-existing $300 million per year underpayment for costs of administration.

The new system still has major flaws, in that it continues to provide incentives to administer chemotherapy, in the same way that surgeons have a financial incentive to recommend surgery. Additionally, it is a certainty that there will be large differences between the profit margins of administering different drugs, providing continuing incentives to base drug selection on profit margin. However, the new system is clearly an improvement from the standpoint of cancer patients, taxpayers, and advocates of basing drug selection on individual tumor biology, rather than on a least common denominator approach which invites conflict-of-interest medical decision-making.

gdpawel's picture
Posts: 538
Joined: May 2001

Neil Love, M.D. reports in a survey of breast cancer oncologists based in academic medical centers and community based, private practice oncologists. The academic center-based oncologists do not derive personal profit from the administration of infusion chemotherapy, the community-based oncologists do derive personal profit from infusion chemotherapy, while deriving no profit from prescribing oral-dosed chemotherapy.

The results of the survey show that for first line chemotherapy of metastatic breast cancer, 84-88% of the academic center-based oncologists prescribed an oral dose drug (capecitabine), while only 13% perscribed infusion drugs, and none of them prescribed the expensive, highly remunerative drug docetaxel.

In contrast, among the community-based oncologists, only 18% prescribed the oral dose drug (capecitabine), while 75% prescribed infusion drugs, and 29% prescribed the expensive, highly remunerative drug docetaxel. The existence of this profit motive in drug selection has been one of the major factors working against the individualization of cancer chemotherapy based on testing the cancer biology.

This is not to imply that the academic center-based oncologists are without their fair share of collective guilt. They were misguided in not recognizing that they were trying to mate notoriously heterogeneous diseases into one-size-fits-all treatments. They devoted 100% of their clinical trials resources into trying to identify the best treatment for the average patient, in the face of evidence that this approach was non-productive. However, such unsuccessful experiments will never be viewed as such by the thousands of people whose careers are supported by these experiments.

Henderson, et al, entered 3,100 breast cancer patients in a prospective, randomized study to compare cyclophosphamide/doxorubicin alone versus cyclophosphamide/doxorubicin plus Taxol (in the adjuvant, pre-metastatic setting). The results were microscopically positive, at best, and cannot begin to justify the enormous financial and human resources expended (while making no effort at all to test and improve methods to individualize treatment).

But these results changed the face of the adjuvant chemotherapy of breast cancer. Cyclophosphamide+Doxorubicin+Taxol became standard of care. Taxol recently went off patent. Now the thrust is to identify on-patent therapy which is microscopically better in clinical trials of one-size-fits-all treatment. Already, the community-based oncologists are migrating to Cyclophosphamide+Doxorubicin+Docetaxel (expensive/remunerative) so what was the purpose of doing that 3,100 patient prospective, randomized Henderson study?


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