The Background

Twenty years ago, chemotherapy for cancer was provided in the hospital.  Over the next several years, community cancer centers began providing chemotherapy in outpatient offices.  This evolution benefited patients by reducing their travel (the patient can see the physician at the same visit; the office is closer to home than the large cancer center), improving continuity of care (the same chemotherapy nurses see the patients at each visit), and improving supportive care (social workers, nutritionists, pharmacists and psychologists on site).

However, Medicare reimbursement rules did not keep pace with these changes.  Physicians received reimbursement the same way hospitals were traditionally reimbursed at 95% of the Average Wholesale Price (AWP), a price provided by pharmaceutical companies to various publications.  As a result, physicians giving chemotherapy in their offices sometimes were reimbursed more than they paid for the chemotherapy drug.  This money was used to pay for the special equipment and infusion suites, chemotherapy nurses to administer chemotherapy, overhead, and waste that inevitably occurs with chemotherapy administration.  Medicare does not reimburse for these services and expenses (often referred to as “service expenses”).

The Fix

In 2003, with the passage of the Medicare Modernization Act (MMA), Congress did away with reimbursement based on AWP (Average Wholesale Price).  For 2004, reimbursement was 85% of AWP.  At the same time, practice expense reimbursement increased.  Beginning January 1, 2005, reimbursement for chemotherapy will be based on the Average Sales Price (ASP) of chemotherapy drugs (ASP + 6%).  At the same time, service reimbursement will decrease. 

The Problems

Most of the problems center around ASP (Average Sales Price—the new reimbursement method) as a poor standard for reimbursement. 

ASP, as defined in the MMA, is compiled by the Centers for Medicare and Medicaid (CMS) from pharmaceutical companies who report the average price at which they sell drugs in a particular quarter.  This is a poor indicator of the prices that physicians pay for several reasons:

• Pharmaceutical companies sell drugs to wholesalers and other large purchasers who in turn sell drugs to physicians.  Physicians that are small buyers of chemotherapy drugs pay an even higher cost than large buyers.  So ASP is not representative of the price actually paid by physicians for chemotherapy.

• Because of the process for compiling ASP, there is a lag of two quarters from the time ASP is compiled to when it is used for reimbursement.  For example, reimbursement in January 2005 (1^st Quarter 2005) will be based on data compiled in the 3^rd Quarter of 2004.  This results in reimbursement that is unrelated to current prices of chemotherapy.

• ASP will vary from quarter to quarter.  While this doesn’t seem problematic, it is difficult for oncology practices to project and plan for these changes.  In order to stay in business and keep treating patients, oncology clinics (like any business) must be able to project expenses and income.

• Reimbursement at ASP + 6% does not cover the cost an oncology clinic incurs for chemotherapy drugs.  These drugs most be stored carefully and require special handling and equipment.  Many physicians employ a pharmacist for this task.  In order to mix chemotherapy, a practice must invest in a special mixing hood to protect employees from toxic chemotherapy.  All oncology practices must “waste” some portion of chemotherapy, for instance, when a patient is unable to receive chemotherapy on short notice because of toxicity, a change in dose, or illness.

• Finally, CMS has just released the first (incomplete) calculations for ASP (based on data from 1^st Quarter 2004).  Since this system has never been used before and tested in real practice, no one knows how it will work.  Implementing this untested approach is a dangerous gamble to take with cancer care in our country.

Also beginning January 1, 2005, services reimbursement again decreases, further decreasing overall reimbursement to oncology physicians.

The Implications

CMS estimates that cancer care reimbursement will decrease by at least $500 million.  COA estimates that reimbursement will decrease by at least $900 million (based on market estimates for drugs not included in CMS estimates).  Either way, community cancer clinics will face a substantial decrease in revenue.  Since expenses will not change, these cuts are magnified.  Like any business, oncology practices cannot continue to operate when expenses exceed revenue.  The likely implications include:

• Medicare patients will receive chemotherapy in the hospital.  Hospitals do provide chemotherapy infusion, but will be unable to handle a large influx of new patients in a short timeframe (January 2005).  This will lead to increased waiting time before chemotherapy can be given, increased travel time for weakened patients and decreased continuity of care (an indicator of quality of care).  Rural patients will bear the brunt of this change, as their travel time will increase and their access to care will decrease disproportionaltely.

• Private insurers may also follow suit leading to the same issues on an even larger scale.

The Solutions

• Hold off on implementing an unknown, untested new methodology for reimbursement and freeze reimbursement at 2004 rates.

• Proceed with analysis of the new reimbursement scheme as directed by Congress in the MMA to include complete information for all chemotherapy drugs and a baseline.

By waiting for a more complete understanding of the implication of new reimbursement methods, we can prevent a dangerous decrease in access to cancer care in America.