Medicare Reimbursement Insufficient, Community Cancer Clinics Are Struggling

Roxanne Nelson

April 14, 2009

April 14, 2009 — Among other issues, the Medicare Modernization Act (MMA) of 2003 sought to modernize reimbursement for cancer drugs and essential cancer-care services by reforming the payment systems for oncology. However, many feel that instead of fixing a "broken system," the situation might have actually worsened.

Because of changes in reimbursement, Medicare is no longer able to cover the basic necessities in cancer care, according to the Community Oncology Alliance (COA).

Because cancer care encompasses a large part of the nation's healthcare resources, it is critical to address the issues surrounding Medicare reimbursement. The COA has therefore called on the Obama Administration and the 111th Congress to focus this year on passing legislation that will stabilize the country's cancer-care delivery system.

"Most cancer patients receive care in the community, even though there's a perception that most care is delivered in large medical centers," said Patrick Cobb, MD, an oncologist in private practice in Billings, Montana, and president of the COA. "But community clinics are not being adequately reimbursed."

We have the best cancer survival rates, but we are now seeing that infrastructure beginning to crumble.

Over the past 2 decades, cancer care has successfully evolved from inpatient treatment to community-based outpatient care. Currently, 84% of Americans with cancer are able to receive high-quality accessible cancer care on an outpatient basis, and this has been a tremendous success, explained Dr. Cobb. "We have the best cancer survival rates, but we are now seeing that infrastructure beginning to crumble."

Although there are no specific numbers available, there have been reports of outpatient oncology clinic closures. In Las Vegas, Nevada, the only public hospital closed its chemotherapy outpatient clinic, and Dr. Cobb reports that his own practice has had to close one of its offices in Sheridan, Wyoming, where 62% of the patients were Medicare recipients.

"We are seeing this all over the country because of the increasing cost of staff and the financial risk you have to take in providing chemotherapy drugs," he said in an interview. "Oncologists have to purchase the drugs ahead of time and it is a huge economic risk."

MMA Changed Reimbursement System

A typical community cancer clinic must outlay a considerable amount of money to purchase chemotherapeutic agents that are then administered on an outpatient basis. Drug costs are set by the pharmaceutical manufacturer and the wholesale distributor. "The largest expenditure in oncology practice has been the cost of drugs," Dr. Cobb explained, "and [the physicians] don't have any control over the cost. We have to bear the burden of that if physician reimbursement doesn't keep pace with inflation."

Under the MMA, reimbursement for cancer drugs changed from the average wholesale price to a system based on average selling price. Under the average-wholesale-price system, community clinics and practices were "over-reimbursed" for cancer drugs, which helped subsidize them for nonpayment and underpayment of a variety of essential cancer-treatment services.

But the new payment mechanisms that were supposed to cover unreimbursed services never materialized, explained Dr. Cobb. Instead, the Centers for Medicare and Medicaid Services (CMS) provided stopgap funding with cancer-care demonstration projects during 2005 and 2006, but that funding expired in 2007.

According to the COA, the cuts had a profound effect on reimbursement. Cancer drugs are reimbursed at less than cost in many cases for example and, on average, payment for drug administration has been cut by more than 25%. Many essential cancer-care services, such as treatment planning, receive no reimbursement at all.

The Congressional Budget Office estimated that Medicare reimbursements to oncologists would be reduced by $4.2 billion from 2004 to 2013, but an independent audit by PricewaterhouseCoopers estimates that reductions will reach $14.7 billion. That number far exceeds the original intent, and this reduction will have a debilitating effect on the ability of oncologists to provide adequate care to Medicare beneficiaries in the community setting, contends Dr. Cobb.

Physician Reimbursement Tied to SGR

Another issue is the "sustainable growth rate" (SGR), which affects not only oncologists, but also any physician who accepts Medicare patients. The SGR, which is part of a budget bill that was passed in 1997, is a component of the formula that CMS uses to calculate physician payments for providing services to Medicare patients. However, it is based on the gross domestic product, not on actual healthcare practice. If actual expenditures exceed the SGR, physician reimbursement is cut.

"There is another 21% cut that is supposed to happen at the end of this year," said Dr. Cobb. "It would be a disaster and I don't think Congress will let it happen, but there hasn't been any move to change the system."

What we'd like to see is physician reimbursement decoupled from the SGR.

In the past, Congress has temporarily blocked cuts that were due according to the SGR formula, without adopting a new system. But this is something that they have to address, explained Dr. Cobb. "What we'd like to see is physician reimbursement decoupled from the SGR."

The major physician organizations, including the American Medical Association (AMA), the American College of Physicians, and the American College of Surgeons, have been asking for a change to the underlying system, and all testified before the House Committee on Small Business on March 18.

AMA Board of Trustees chair Joseph M. Heyman, MD, stated that "the AMA strongly supports the use of a realistic baseline as a foundation for Congress to move forward with a permanent solution to the flawed SGR physician-payment formula, and urges the Committee and Congress to ensure that a new Medicare physician-payment baseline is adopted in the 2010 fiscal-year budget resolution."

These steep cuts would be unsustainable for any business, especially small businesses, such as physician practices.

In his testimony, Dr. Heyman also pointed out that Congress has repeatedly had to scramble at the 11th hour to forestall steep cuts in Medicare physician-payment rates, as a result of the flawed SGR. Despite this, physicians still face cumulative cuts of more than 40% in the coming decade, including a 21% cut that is scheduled to go into effect on January 1, 2010.

Practice costs are expected to increase by at least 20% at the same time as rates are being cut. "Data released by the Centers for Medicare and Medicaid Services show that, even before these cuts, physicians are only being reimbursed for two thirds of the labor, supply, and equipment costs that go into each physician service," Dr. Heyman said in his statement to Congress. "These steep cuts would be unsustainable for any business, especially small businesses, such as physician practices."

HR 1392

At the moment, HR 1392 has been introduced into Congress. It is a bipartisan legislation that would eliminate prompt-pay discounts from the calculation of average selling price, which is the basis for Medicare drug-reimbursement rates for community cancer clinics. Prompt-pay discounts are provided by pharmaceutical manufacturers to drug distributors, explained Dr. Cobb, but because they are financing agreements between manufacturers and distributors, the discounts are not passed along to the clinics. As a result, they artificially reduce Medicare reimbursement rates by about 2%.

"We have been working with staff and members of Congress to let them know what it really takes to deliver cancer care," said Dr. Cobb. "The system is not perfect, but cancer care is an enormous success and we don't want to see that reversed. We understand the economic stress that is ongoing right now, but we just want to make sure that we can improve the process, and that we don't dismantle what has evolved."


Comments on Medscape are moderated and should be professional in tone and on topic. You must declare any conflicts of interest related to your comments and responses. Please see our Commenting Guide for further information. We reserve the right to remove posts at our sole discretion.