Medical Ethics Corner: 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 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 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 reimbursing physicians 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.

2 thoughts on “Medical Ethics Corner: CMS Pay Cut Controversy

  1. Dear Dr. Schillinger,
    Thanks for highlighting this topic and for your comments.
    As a rheumatologist I have a few comments that may help with transparency.
    Firstly, the statement that “The current methodology reimburses providers the average sales price (ASP) plus a 6% add-on fee” is inaccurate because with sequestration the current add on fee is actually 4%. If one personally administers these drugs in a small office setting, one will know very clearly the expense of staffing required to administer the drug and also to ensure proper buying, storing and reimbursement for these medications. Always, these are two different people hired to do two different tasks. Administration also requires equipment, education, supplies and taking on risk both economically and clinically. As well this incurs significant loss (time and money) when payors incorrectly, irregularly, and inappropriately deny payment after therapy has been administered.

    It is arguable that this will result in ‘cutting costs’ (according to Medicare) particularly when, currently, 25% of disability payments through social security already are for patients with rheumatologic disease. To render, through lack of proper treatment, a patient unable to perform, not only their job, but also simple tasks of daily living will certainly lead to higher costs over all. It is as if we will need to make a choice between:
    a. treating a patient so that they can be a working, participating member of society or
    b. allowing them to become disabled
    I have to wonder if the powers that be feel that paying out disability is more affordable than to pay for medications that actually support and individual and a community to function more efficiently?

    I am not sure that “all this talk about hurting patient care is an exaggeration” when studies comparing efficacy, reduction in morbidity and mortality clearly show benefit of these medications. As well, Medicare patients do not often have the luxury of choice of medication (again due to patient costs) and the part B drug option is the only means by which they can receive a medication which appropriately treats their disease.
    Please also remember that in rheumatologic conditions, choices for treatment over all are limited.
    These ‘economical’ alternatives available do not show the same benefit in slowing disease progression, or the ability to reduce dependency on other potentially dangerous medications such as steroids and daily use of NSAIDs.
    Also as a family physician, do you prefer that a patient be treated lifelong with daily NSAIDs and prednisone? These can certainly, at least short term, be economical alternatives. Many patients on traditional DMARDS continue to require these medications for adequate symptom relief due to disease burden.

    In a perfect world, we would certainly prefer cheaper and equally effective medication and our focus should be to look to industry and insurance companies to allow better access and cost for these life-changing drugs.
    As well, our patients are prescribed these expensive medications only after failure or toxicity from these other ‘economical’ alternatives. I have had the opportunity to see the dramatic improvement in patients’ symptoms and the fulfillment they experience in their lives with adequate treatment.
    I am confident if you delve deeper into this issue, you can understand that it is not as simple an argument to make.
    Dr. Reddy, Rheumatologist

    • Dear Dr. Reddy,

      Thanks so much for your thoughtful comments. I totally agree with you that patients should have access to the most efficacious and safety proven medications. It is our responsibility as physicians to do our best to connect our patients, who put full trust in us, with the appropriate therapy. My concern is strictly with the funding mechanism. Both the current and the proposed reimbursement schemes for in office administered medications reward physicians for prescribing more expensive medications. Whether it be an add-on of 6% (or 4% with sequestration as you point out) or the proposed 2.5%, in each case the physician is paid a fee that goes up as the cost of the drug increases. In the case of an infused drug for example, the actual overhead for “administering the medication” is certainly no more for a drug that costs one hundred dollars than for a drug that costs fifty thousand dollars. Doctors are entitled to fair compensation but from an ethical point of view the compensation for administration of a pharmaceutical product should be a reasonable flat fee, not a sliding scale reimbursement based on the cost of the drug.

      The transparency that I refer to is that all players should be honest and admit “we just want to get paid as much as possible.” If CMS decides to lower the reimbursement percentage doctors will be paid less, in some cases a lot less. I’m not sure however how this will directly hurt patient care, and for that reason I refer to this threat as an exaggeration. Certainly if the reimbursement dips unreasonably low perhaps physicians will stop administering the drugs or perhaps stop seeing patients altogether. I believe this can all be avoided by establishing an across the board flat rate rather than one that is perversely linked to the cost of the drug.

      Brent Schillinger MD

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