This ASCO in Action four-part 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. Part 1 provides a broad overview of the payment reform issue; Part 2 discusses the Sustainable Growth Rate formula; Part 3 provides details on the current Medicare payment system for reimbursing for oncology drugs; and Part 4 will discuss payment reform options being considered as alternatives to the current fee-for-service system.

Introduction

Most injectable oncology drugs are characterized as “physician-administered drugs” and are reimbursed under the medical benefit—as opposed to the pharmacy benefit—in many insurance plans. Under Medicare, these drugs are also known as “Part B” drugs, as they are covered by the Medicare Part B benefit, which pays for certain doctors' services, outpatient care, medical supplies, and preventive services. When providing chemotherapy as a service under Part B Medicare, physicians purchase the drugs, manage inventory, administer drugs in-office, and submit claims to Medicare and Medigap insurers for reimbursement of the drug and certain associated administrative costs, such as copay collections. This process is commonly termed “buy and bill.” Historically, practices have been able to purchase drugs at a rate lower than Medicare reimbursement, providing a source of revenue that can help to offset the cost of many essential but under-reimbursed patient care services.

Headline-grabbing drug prices—and a widely held belief among policymakers that incentives in Medicare’s payment  system influence prescribing behavior—have placed oncology center-stage in Medicare payment reform politics. Senior congressional aides indicate Part B reimbursement for chemotherapy has been on virtually every list of potential targets for deficit reduction.   

“As we enter a new year, oncology drugs will continue to be a focus as Congress debates payment reform,” said ASCO President Sandra M. Swain, MD, FACP. “The oncology community must lead the way toward a system that delivers high-quality, high-value cancer care, or we will be the target of damaging cuts that would limit access to patient care.”

How MMA Changed Medicare Payment for Chemotherapy Drugs

Prior to 2005, oncology practices were reimbursed for oncology drugs at a percentage of a drug’s average wholesale price (AWP). This price can be viewed as similar to “suggested retail price.” Set by manufacturers, the payment formula typically resulted in payment amounts higher—in some cases, significantly—than the price for which physician practices could purchase the drug. Policymakers have long complained about this dynamic and, over the years, made several attempts to address it.   Oncology practices acknowledged the existence of margins, but argued they were used to cover both drug administration and critical patient support services not recognized or compensated adequately by Medicare.

After nearly a decade of controversy over AWP, Congress passed The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA), which included an overhaul of the Medicare reimbursement system for Part B drugs. In an effort to bring payments closer to a drug’s actual cost, the new law directed reimbursement based on the use of the manufacturers Average Sales Price (ASP) formula. It added a 6 percent markup to ASP in order to compensate physician practices for storage, handling and other administrative costs associated with procuring and managing chemotherapy drug inventory. Manufacturers are required to calculate a drug’s ASP every calendar quarter and submit that information to the Centers for Medicare and Medicaid Services within 30 days of the close of the quarter. For each drug, CMS calculates a weighted average sales price using data submitted by manufacturers.

Congress recognized the shift to ASP would have a dramatic impact on practice incomes and provided certain increases to chemotherapy administration codes. Additionally, the law provided for extra payments through a demonstration program in which physicians submitted reports for certain quality measures. These efforts were intended to provide a combination of permanent payment increases for chemotherapy services and temporary relief as practices transitioned to the new payment levels. 

Finally, in an effort to transition practices to a new method of obtaining chemotherapy drugs for Medicare patients, Congress directed establishment of the Competitive Acquisition Program (CAP). A voluntary alternative for practices, CAP was intended to provide a seamless mechanism for third party acquisition, management, and delivery of chemotherapy drugs to practices. Physicians were to submit prescriptions/requests for required chemotherapy drugs and the CAP contractor would deliver the drugs. Medicare reimbursement and patient copayments would be made directly to the contractor. For a variety of reasons—many of them highlighted by ASCO and others in the oncology community before enactment of MMA—the CAP program failed to attract a sufficient number of participants (both physicians and contractors) and did not achieve its goals. Factors that contributed to CAP’s failure included contractor requirements that patient copayments be completed before they agreed to deliver drug, insufficient flexibility with changes in chemotherapy scheduling, and restrictive rules about use of drugs in multiple practice locations. The CAP program is currently dormant.

According to a Medicare Payment Advisory Commission (MedPAC) report to Congress, the move to ASP resulted in an $800 million reduction in Medicare drug expenditures from 2004 to 2005. As noted, MMA did offset some of the reduced payments with increases in chemotherapy administration codes, but payment for these codes has fluctuated (up and down) in the ensuing years. These changes have caused a range of financial pressures and significant disruption to practices across the country. For many practices, ASP-based payments resulted in “underwater” drugs, meaning that the practice paid more for the drug than they were reimbursed by Medicare. This dynamic is the result of several factors: discounts that are not offered to physician practices but which figure into the ASP formula (e.g., prompt pay discounts), lags in Medicare’s updates to ASP, and bad debt in the form of uncollected patient copays.

The combination of economic downturns in the past few years, along with the growing challenge of underwater drugs, has caused many practices to either close their doors or shift chemotherapy administration services to more expensive hospital settings. Ironically, stresses put on practices as a result of moving to ASP-based payment has blunted savings Medicare hoped to achieve with this policy change. 

An added concern for many practices is that margins once used to subsidize important services are no longer available and have created access problems for critically important care. This includes the work of highly trained oncology nurses who administer chemotherapy, patient education, extensive patient and family counseling and psychosocial support, nutritional counseling, and social work services.

“The MMA added yet another burden on oncology practices as doctors strive to provide the best possible patient care – always our primary concern,” said ASCO President Dr. Swain.  “An unintentional consequence of cuts to Medicare payments for chemotherapy drugs was erosion of the safety net that supported critical services for cancer patients.”

Why Is ASP Important to Oncologists?

Chemotherapy drugs comprise the largest single expense for community oncology practices.[1] These costs include purchasing the drugs, special storage and inventory costs, safe handling, and specialized staff to mix and administer the drugs as well as monitor the patient during treatment. It has been estimated that Medicare pays only about 70 percent of the costs associated with administering chemotherapy.

“Oncology is different from other specialties in that many cancer treatments are administered in a physician’s office – yet, oncologists play absolutely no role in setting the price of drugs,” said Jeffrey C. Ward, MD, chair of ASCO’s Clinical Practice Committee (CPC). “Our practices are left to absorb the high cost of drugs and struggle with a reimbursement system that does not recognize actual costs. ASP+6 is a failed business model.”

ASP: A Persistent Congressional Target for Savings

Motivated by the need for deficit reduction and in the face of rising drug prices, policymakers have eyed changes in Part B drug reimbursement as a means to achieve savings—and a strategy to slow price increases. In 2011, during debt-ceiling and budget negotiation discussions, the Joint Select Committee on Deficit Reduction, also known as the "Supercommittee," entertained reductions to ASP. Suggestions included a move from 106 percent to 104 percent of ASP and some discussions included proposals for even greater reductions. According to the Congressional Budget Office, a three percent cut to ASP would result in an approximately three billion dollar cut over 10 years—three billion dollars no longer available to cancer care.

Congress spared cuts to ASP in 2011, but once again at the end of 2012, fiscal cliff negotiators considered ASP as a target for savings. With the fiscal cliff averted until March 1, 2013, Congress has just a few short weeks to identify savings targets, or slash budgets across-the-board.

“We are hearing consistent reports that ASP remains on the table,” said ASCO CPC Chair Dr. Ward. “It is incumbent on physician leaders to come to the table with something better—and soon.”

While the current reimbursement formula is far from ideal, ASCO asserts that additional cuts to ASP should remain out of the political calculus until appropriate payment reforms are tested, demonstrated to be consistent with delivery of high quality cancer care—and in place. The Society believes that putting additional strains and risk to cancer care delivery—especially in today’s uncertain economic environment—would be irresponsible. In addition, political bargains using ASP to offset future reforms, such as the Sustainable Growth Rate, could threaten access to quality care for elderly Medicare beneficiaries with cancer.

“As physicians, we have a fiscal responsibility to do our part in helping to control rising healthcare costs and we are looking at various alternative payment models that would do exactly that,” Dr. Ward said. “But, any new payment reform model cannot be at the price of our patients whose access to care is threatened.”

A Sustainable Future: Taking Drugs out of the Equation

The oncology community is actively developing alternative payment models that base reimbursement on what physicians can control: delivery of high quality services to their patients. By properly recognizing and paying for patient services—and ending reliance on unstable margins to provide such services—practices can focus on coordinating and delivering high quality, cost effective care. Part 4 of this series will describe proposals for bundled payments (episodes of care), management fees, and solutions that emphasize quality, patient-centered care and cognitive services and eliminate the significant expense (and risk) now borne by practices using payment margins to survive.

“The deep flaws that plague the Medicare payment system year-after-year threaten seniors’ access to cancer care,” said ASCO President Dr. Swain. “ASCO stands ready to work with Congress to develop a new system that fairly and adequately reimburses for all of the services required to treat Medicare patients with cancer.”

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.