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Physician Reimbursement: CMS Pay Cut Controversy

By: Dr. Brent Schillinger, Guest Contributor

“Part B Drug Plan Draws Fire From All Sides,” shouts the headline in MedPage Today, an online newsfeed for physicians.  If you have enough time to read the entire article you will realize the headline is not exactly correct.   While oncologists and rheumatologists and their respective specialty societies are furious, the last paragraphs of the same article points out that the American Academy of Family Physicians applauds the measure.  Sounds like opinions based largely on special interests.

All this noise stems from a federal proposal to reformulate the equation by which the Centers for Medicare and Medicaid Services (CMS) reimburses doctors and facilities for in office dispensing and administration of drugs.    The current methodology reimburses providers the average sales price (ASP) plus a 6% add-on fee to “cover costs.”   The new proposal would replace this formula with a rate of the ASP plus 2.5% plus a flat rate of $16.80 per drug per day.  

Let’s plug in the physician reimbursement numbers with a medication that costs an even $1000.00 for a course of therapy.  Under both the old and new proposed formulas the doctor and/or facility would be reimbursed the $1000.00 ASP, that part doesn’t change.  Under the current plan after recouping the cost there would be a 6% additional reimbursement or $60.00.  One could call this overhead cost or one could call it profit.  Maybe it’s a little of both.  Under the new proposal there would be a reimbursement of 2.5% or $25.00 plus $16.80 for a total of $41.80.  Bottom-line, under the new proposed rule for every $1000.00 drug administered in the office setting, Medicare will pay the doctor $18.20 less than the current reimbursement.

The current system clearly rewards physicians for using higher priced drugs since the formula increases their compensation.  That is the reason CMS cited for developing the proposal, although it is driven primarily by a Medicare administrator looking to cut costs.   Strangely enough, the new proposal would continue to pay doctors more for prescribing more expensive drugs, it just does it at a 2.5% rate of return rather than the current 6%.  Either way there remain some ethical challenges for the physician.  Just 3.5% less challenging than before if the measure is approved.

Regarding the proposed changes, and special interests, the American Society of Clinical Oncology says “this experiment….will hinder patient-centered care and access to services.”  The Community Oncology Alliance asserts, “It is alarming that CMS is proposing to experiment on the cancer care provided to the nations most vulnerable cancer patients.” The American College of Rheumatology claims these “cuts will force rheumatologists to send patients elsewhere to get the same drugs often at increased cost and burden.”  Of course the oncologists and rheumatologists are upset, but the official statements, all this talk about hurting patient care is an exaggeration.  It really is very simple.  If approved, it’s less money in the doctor’s pockets.  They have every right to complain, why should doctor’s income go down?  Especially when everything else, including the price of gauze, continues to go up.    But I would also like to see a little more transparency about why they are unhappy.

Actually I would like to see a lot more transparency on all levels.   Above I cited an example using a drug that costs $1000.00.   There are not too many of those around anymore.  In this day and age among onco and rheum specialists it’s largely about chemotherapy and biologics.    Biologics cost upward of $50,000.00 a year per patient.  Chemotherapy can run in excess of $100,000.00 per patient.  Multiply that by Medicare’s current 6% “overhead/profit” and a physician/facility scores between three and six thousand dollars per patient per year for administering these popular pharmaceuticals.  With real numbers in that range maybe it isn’t so unreasonable for Medicare to explore cutting that “overhead/profit” figure to a little less than half

In contrast to the oncologists and rheumatologists, the American Academy of Family Physicians applauded CMS’s efforts “to apply common-sense, value-based payment principles to the delivery of physician-administered pharmaceutical and biological treatments.”  Of course very few family docs are infusing drugs in their offices so it’s kind of a non-issue for their bottom lines, but perhaps a chance to win a few points with CMS

This whole physician reimbursement debate has exposed an ethically challenging scenario and raises a number of important questions.  Why should doctors get paid more for administering a costly drug over a more economical one, especially if it’s the same amount of work effort?    Where is the logic in physician reimbursement more for a more expensive drug?  From a purely ethical perspective, I feel the CMS proposal doesn’t go far enough.   What would be wrong with a fair flat fee for drug administration rather than a cost percentage?  Why aren’t any of the interested parties suggesting this option?  As usual it’s all about the money and in spite of the rhetoric I don’t think it has much at all to do with quality of patient care.