This four-part ASCO in Action educational series is designed to help ASCO members better understand the complex issue of physician payment reform – and why 2013 may witness dramatic changes in how Medicare reimburses oncologists for treating cancer patients. This first article provides an overview of the issue; Part 2 will discuss the Sustainable Growth Rate formula; Part 3 will provide details on the current buy and bill system of reimbursing for oncology drugs; and Part 4 will discuss payment reform options being considered as alternatives to the current fee-for-service system.
The New Year will likely bring significant policy and practice challenges to the oncology community as Congress wrestles with the ever-deepening federal deficit and soaring healthcare costs. With the implementation of the Affordable Care Act and other shifts in the delivery of health care, the healthcare system in the United States will witness profound changes beginning in 2013 with possible far-reaching impacts to patients and providers alike.
As healthcare costs continue to increase and the population ages, Medicare spending – bearing a large burden of the ever-rising cost curve – is receiving intense scrutiny by lawmakers, many of whom view the federal program as a prime target for budget cuts.
Oncology care costs, in particular, continue to be front and center in discussions about reducing costs. Advances in early detection, prevention and treatment have resulted in declining cancer death rates in the United States. These advances, however, have driven significant increases in cancer care costs – due, in large measure, to advances in technology (including imaging, surgery robotics, and therapeutic radiology) and the prices of new oncology drugs.
The system under which Medicare reimburses physicians for patient care has not been able to keep up with the upward cost curve and is, therefore, a major current focus of reform as policymakers look for increasingly scarce healthcare dollars.
ASCO is actively working to ensure that the oncology community has a role in shaping alternative Medicare payment approaches that provide fair reimbursement for oncologists and ensure high-quality, more cost-efficient, and patient-centered care for cancer patients.
“Change is coming and, if oncologists are not part of the solution, change will be forced upon us,” said ASCO President Sandra M. Swain, MD, FACP. “We face a unique opportunity at this moment in our profession’s history to shape the future of Medicare, reward high-quality care, and stem soaring healthcare costs – if we face and address the tough realities before us.”
How We Got Here
The need to change the system for reimbursing Medicare providers is occurring against the backdrop of an unsustainable national debt, nearing $17 trillion and growing at a rate of $3.83 billion per day. Driving this trend are healthcare costs that have increased at a greater rate than the economy’s growth as a whole for 31 of the past 40 years. Medicare spending, specifically, is a major contributing factor in deficit projections. And, although cancer care costs represent just five percent of total healthcare costs, these expenses are the fastest growing, rising 15 percent to 18 percent annually.
Today, more than 60 percent of cancer occurs in Medicare beneficiaries. By 2030, due in large part to our aging population, that number is projected to grow to 70 percent.
In addition to an aging U.S. population at greater risk for developing cancer, new healthcare technologies, oncology drugs, and increases in intensive services are driving rising costs. Of the top ten Medicare physician-administered drug expenditures, for example, eight are for cancer treatment.
For the most part, potential savings will come on the backs of healthcare providers. However, it’s not only payers and providers who bear the burden of rising costs: costs are being passed on to patients through multiple means such as increasing premiums, deductibles, co-pays, co-insurance, prior authorizations, and tiered formularies. The “donut hole” in Medicare Part D, for example, creates a novel scenario with a gap in prescription coverage until a defined amount is paid by the beneficiary. The cost of cancer diagnosis and treatment, even for insured patients, can lead to delays in treatment, noncompliance, exhaustion of savings, and personal bankruptcy. In fact, medical expenses are the leading cause of personal bankruptcy.
In 2013, the physician payment reform debate is likely to be front and center on Capitol Hill and could surface at almost any point – during discussions about looming sequestration, the debt ceiling, the shutdown of government, deficit reduction, and appropriations. Congressional action may take the form of repealing the Sustainable Growth Rate, reducing the ASP+6 formula, adopting an entirely new payment approach – or some combination of all of these.
“There has never been a more important time for individual oncologists to have their voices heard,” said ASCO President Dr. Swain. “The first step is to become informed and then to get involved. There is strength in numbers and ASCO will give you the tools and resources you need to contact your elected officials as this issue unfolds.”
Sustainable Growth Rate: An Unsustainable Formula
The struggle to provide adequate compensation to providers without driving up Medicare spending on physician services dates back to the program’s inception. When Medicare was established in 1965, no set fee schedule was established for physician pay. Medicare paid a physician based on actual charges, as long as the costs were determined to be “reasonable” (i.e., costs were consistent with the claim history of the physician and his or her peers), and the patient paid the balance.
Over time, Congress established different mechanisms to control rising costs, including the Sustainable Growth Rate (SGR) formula in 1997, which tied physician payments to the Gross Domestic Product (GDP) – a formula that worked while the economy was growing quickly.
In 2002, the economy slowed and the SGR began turning out negative numbers. Congress let the reductions go into effect the first year (a 4.8 percent cut), but since then, lawmakers have passed legislation to defer the cuts, which are cumulative and, if enacted today, would decrease payments by more than 30 percent – effectively requiring many providers to close their practices.
The latest “SGR patch,” included in the American Taxpayer Relief Act of 2012, delayed for one year the scheduled 26.5 percent cut to Medicare physician payments.
The annual Congressional patches have only worsened the situation, increasing the federal deficit and injecting growing instability into oncology practice. Additionally, for more than a decade, average payment rates under the SGR have remained stagnant and today are barely higher than their 2001 levels.
Congressional lawmakers, administration officials, and physicians universally agree that the SGR formula is fundamentally flawed and should be repealed by Congress. With doctors facing the constant specter of severe cuts, the SGR formula represents an enormous impediment to successful health care delivery and payment reforms that can improve the quality of patient care while lowering growth in costs. The threat of steep physician payment cuts and last-minute congressional patches have created intense instability within oncology and the larger practice environment in which new Medicare patients have difficulty securing physician appointments.
“This vicious cycle that lands back on the nation’s books with compounding interest year after year must end,” said Jeffery C. Ward, MD, chair of ASCO’s Clinical Practice Committee. “We desperately need a transitional framework that eliminates the SGR and introduces a more rational, functional, and sustainable payment approach that provides stability and predictability for cancer patients and their doctors. It’s time for Congress and the Administration to muster the political will to fix it.”
Chemotherapy Drug Reimbursement
Prior to the Medicare Modernization Act of 2003 (MMA), Medicare payments for drugs administered in physicians’ offices were based on the drug’s Average Wholesale Price (AWP). Out of concern that Medicare was over-reimbursing practices for drugs, the MMA changed payments to 106 percent of the drug’s Average Sales Price (ASP+6), which remains the current system for reimbursing physicians for oncology drugs – commonly referred to as “buy and bill.” The additional six percent was designed to absorb the costs of drug handling, inventory and overhead costs.
Historically, Medicare has largely failed to recognize or adequately compensate patient care planning, care coordination, and non-face work. Oncology practices have been able to subsidize these and other practice operating expenses with margins made available as a result of buy and bill revenue. However, there are many practices that, even with this margin, are unable to negotiate favorable terms for purchased drugs, paying more than they are reimbursed by Medicare. This situation, referred to as “underwater drugs,” is occurring across practice settings. A growing number of practices are finding they cannot afford the substantial cash outlay this system requires.
Although oncology practices derive up to 65 percent of their practice revenue from this buy and bill system, it also represents the most significant cost. Policymakers, however, tend to focus on the 65 percent of revenue instead of the 6 percent margins, viewing the ASP+6 formula as a potential source for further budget savings. Many providers believe that a precipitous elimination of the buy and bill system – and the subsidy it provides to patient services – would effectively shutter their practices. Remaining practices would have to stop providing otherwise-unreimbursed services now offered to patients (e.g., end-of-life counseling, nutritional counseling, social work services).
“The current system puts a target on the back of medical oncology, but the method under which physicians are reimbursed should not be replaced without a concurrent, workable policy change,” said ASCO CPC Chair Dr. Ward. “Policies need to be pursued that move resources from drugs into patient services, but in a way that adequately covers high-quality patient care.”
The current fee-for-service system – whereby physicians bill Medicare for each specific service or item provided – is largely viewed by policy leaders and healthcare providers alike as unsustainable; any new reimbursement system will likely move toward a prospective, bundled payment approach in which set payments will be provided in advance to physicians for delivering a certain amount of services.
Under Medicare’s current system, oncologists are reimbursed for (1) “evaluation and management” (E&M) services when seeing a patient for a visit; (2) “chemotherapy administration” for giving patients chemotherapy drugs or cancer supportive care drugs in the physician’s office; and (3) drugs provided in the physician’s office.
ASCO, lawmakers, and administration healthcare officials are currently considering a range of payment options as alternatives to the current fee-for-service system. Options include bundled payments, episode-of-care payments, care coordination and pharmacy management fees, patient-centered medical homes, pathways, and accountable care organizations. Many of these payment approaches have been around for years, used by different medical specialties and tested by different healthcare organizations. For example, hospitals have long been paid under a bundled system through the Diagnosis Related Group/DRG system; renal dialysis is also reimbursed through a bundle.
Under the payment options listed above, the incentive changes from volume-driven (providers get paid more for more patient treatment) to budget-driven (providers get paid a lump sum, no matter how many services are provided). With this approach, however, concerns rise over underutilization, which could be addressed through a strong quality reporting system that monitors and measures quality and ensures that patients receive appropriate, evidenced-based care for their conditions.
ASCO believes that new payment models for oncology must be tested to avoid unintended consequences. Emerging science holds great promise for new and more effective therapies, but cancer is still an extremely complex and costly collection of diseases. It occurs largely in our most vulnerable citizens – the elderly. Advancing untested models of care could jeopardize not only quality and access to care, but further erode the increasingly fragile system that delivers oncology care today. Demonstrations of promising payment systems will allow for time to understand their impact and consequences.
“Despite a sense of urgency in Congress to do something quickly, we strongly believe that any changes to the current reimbursement system must be phased in gradually,” said ASCO CPC Chair Dr. Ward. “We must identify and shape alternative payment models that are viable from an oncology perspective. Furthermore, physician practices of every size and specialty must be supported and encouraged to develop the needed infrastructure to be able to adopt the most appropriate model for their patients and their practice.”
Quality in Oncology Care
Most private and public payment systems in the United States now emphasize quantity over quality by reimbursing providers for individual procedures and tests – another factor driving rising healthcare costs – rather than paying a flat rate or reimbursing based on quality of care or even patient outcomes.
There is growing recognition that the current system is skewed toward volume, rather than rewarding judicious use of resources, and that new payment models must foster improvements in the quality of patient care and reductions in the rate of growth in costs. According to a recent Institute of Medicine report, new payment models must include measurements of quality performance and provide incentives that reward high-value care.
Healthcare payers, including Medicare, are moving in this direction by beginning to demand greater accountability for costs and collect data on how costs relate to quality of patient care, through such programs as the Physician Quality Reporting System (PQRS) and the new and evolving “value-based modifier” payment administered by the Centers for Medicare and Medicaid Services (CMS). The ultimate desired outcomes for effective quality reporting systems will be the avoidance of suboptimal treatments, the elimination of unnecessary testing, and decreases in cancer treatment costs through reductions in drug expenditures, emergency department services, and unscheduled hospital admissions.
Congress took a critical first step toward a more robust quality monitoring system in cancer by including a provision in the American Taxpayer Relief Act of 2012 (the so-called “fiscal cliff” deal that allows physicians to satisfy federal quality reporting requirements through clinical data registries approved by the U.S. Department of Health and Human Services (HHS).
ASCO plans to work closely with HHS to provide input into the requirements for qualified clinical data registries, which may include ASCO’s Quality Oncology Practice Initiative® (QOPI), an oncologist-led, practice-based quality improvement initiative that promotes excellence in cancer care based on the latest scientific evidence.
“Any sustainable payment system must reward effective and accountable health care for our patients,” said ASCO President Dr. Swain. “We believe that QOPI provides an excellent framework for demonstrating high-value, high-quality care for the people with cancer we treat.”
ASCO was instrumental in achieving the clinical data registries provision, building on sustained efforts to educate Congress about the need to connect quality measurement to physician payment reform.
ASCO: A Voice for the Oncology Community
For the past several years, ASCO has been working with Congressional lawmakers, administration officials, and others in the cancer community to improve the Medicare reimbursement system so that evidence-based cancer care is available to all cancer patients.
With plans to step up advocacy efforts in 2013, ASCO is devoting considerable resources to help shape future reimbursement proposals. ASCO is working on several fronts to ensure that the oncology community’s voice is heard and that any new payment system is sound, viable, and works for both physicians and patients – without disrupting critical oncology care.
· Advocacy on Capitol Hill. During 2012, ASCO provided Congressional testimony and held numerous meetings with key Congressional lawmakers and their staffs to convey the importance of oncologist input into payment reform options. In the coming year, ASCO will intensify its outreach to Congress and enlist the support of ASCO members to participate in advocacy efforts.
· Communications with ASCO members. In 2013, ASCO plans to ramp up member education and outreach activities (including this special four-part series on physician payment reform), building on 2012 efforts that included focus groups during the Breast Cancer Symposium in San Francisco, California, and with Washington, DC-area oncologists; presentations to state oncology societies; and continuous electronic updates on its ASCO in Action web site and through its grassroots advocacy initiative, ACT Network.
· Consensus-building with other groups. ASCO has been collaborating with other medical societies – including the American Medical Association, the American College of Cardiology, and the American Society for Radiation Oncology—in calling on Congress to improve and restructure how Medicare pays for health care in the United States. In 2013, ASCO will seek input and consensus on any payment options it may decide to support.
· ASCO Volunteer Leadership. With leadership and guidance from the ASCO Board of Directors, ASCO’s Clinical Practice Committee (CPC) has been playing a critical role in the society’s payment reform efforts, beginning with the adoption of guiding principles to help steer ASCO’s advocacy for fair and reliable Medicare reimbursement of oncology care. In consultation with leading experts in the design, implementation and evaluation of payment systems, the CPC has been analyzing models and testing the feasibility of different payment options to determine their viability for oncology practices to ensure that individual oncology practices will be able to administer patient care without undue constraints under any new payment system. ASCO’s Government Relations Committee has also provided a key role in educating Members of Congress on the need to ensure that individual oncology practices will be able to continue administering high-quality, high-value patient care. Other ASCO volunteers from the Quality of Care Committee, the Health Services Committee, the Task Force on Health Disparities, and the Cost of Cancer Care Task Force have also significantly contributed to this effort.
“In addition to ensuring that every patient with cancer has access to high-quality, high-value, evidence-based care,” said ASCO President Dr. Swain, “we want to make sure that oncologists are prepared and in the best possible position for the changes that are coming. It’s ASCO’s highest priority.”
The second part of this ASCO Physician Payment Reform series, coming soon, will focus on the Sustainable Growth Rate formula. For more information, visit ASCO's new payment reform webpage. For help in deciphering terminology related to payment reform, check out ASCO’s glossary of terms.
 National Cancer Institute.
 For example, new federal spending, amounting to $1.2 trillion through 2022, is offset primarily through reductions in Medicare provider payments.
Meropol, Neal J., et al. (August 2009). “ASCO Guidance Statement: The Cost of Cancer Care.” Journal of Clinical Oncology, 27 (23).
Himmelstein DU, Thorne D, Warren E, Woolhandler S. Medical bankruptcy in the United States, 2007: results of a national study. Am JMed. 2009; 122:741-746.
 Congressional Budget Office, “Medicare’s Payments to Physicians: The Budgetary Impact of Alternative Policies Relative to CBO’s March 2012 Baseline,” July 2012.
 “Best Care at Lower Costs: The Path to Continuously Learning Health Care In America,” Institute of Medicine, September 6, 2012.