How Medicare is Gambling with Cancer Care

Medicare announced in February 2016 that it is going to create a “demo project” that can randomize how cancer doctors are paid depending on what ZIP code they are in. (If you’re curious, or unfamiliar with how Medicare payment for cancer care works, I explain it as a post-script to this article.*)

If this demo project goes through, doctors in certain ZIP codes are likely to receive massive cuts to the payments they get for providing cancer care. As a result, where patients get treatment might start to dictate how much treatment they get, or even whether they get certain medications at all. Medicare claims this will lower costs. I explain why it probably won’t, and why this is a capricious gamble with the health of cancer patients.

The abbreviated background on how Medicare pays for cancer care is this: Doctors set up practices, complete with pharmacists and nurses who prepare and administer cancer drugs, with space for patients to sit and receive infusions (sometimes for many hours), and with all kinds of support staff. Running a cancer treatment center is expensive. Cancer practices buy drugs up front, prepare and administer them, and invoice the patient’s insurer, whether Medicare or otherwise. In about 60 or 90 days, they receive a drug reimbursement plus a small administration fee. Together, this money is meant to cover the drug purchase cost, the pharmacy and nursing staff salaries, and the practice overhead for the pharmacy equipment, infusion center, and similar. Medicare’s reimbursement level got slashed a few years ago (for reasons I explain below), and many cancer centers are already operating at a razor thin margin, or even a financial loss, on Medicare patients.

How this demo could become a repeat of the “Postcode Prescribing” scandal

If Medicare continues with this demo project, I predict that we’ll see a version of the “Postcode Prescribing” scandal that rocked the UK’s National Health Service over a decade ago, and with potentially disastrous results for the health of vulnerable seniors.

The “Postcode Prescribing” scandal occurred when patients discovered that certain medicines were available in some localities but not in others because of how drug budgets and payment were set up in different areas. As a result, cancer patients in parts of London might have had access to a new, high-efficacy drug, but the same patients in Newcastle or Liverpool might be told the drug wasn’t available. (I happen to be very familiar with the postcode prescribing scandal because I was an intern in the UK Parliament at the time, working with members of parliament who were helping to bring this issue to light.)

Throughout this scandal, it unfortunately was the poorest, oldest, and least educated patients who suffered the most. In the United States, as in the UK, rich and highly educated patients can always figure out how to get around the system — by changing doctors, pressuring their insurance company, or paying out-of-pocket for better care — but the most vulnerable patients are often shortchanged.

For the doctor’s offices that are randomized to receive lower payments, the negative results are fairly predictable:

  1. Staffing Gets Cut to the Bare Minimum

First, support staff will be cut to the bare minimum, which might put patient safety and continuity of care at risk, and thus lead to more hospitalizations.

2. Offices Turn Patients Away — so that patients travel to expensive hospitals

Second, patients will be sent elsewhere to receive treatment, most likely to hospitals. Some offices might stop treating certain types of cancer all together. Ironically, cancer care in the hospital costs Medicare much more than in doctor’s offices, so this actually achieves the direct opposite of Medicare’s aim with this project.

3. Treatment Options for Cancer are Reduced

Third, practices may stop using certain high-cost drugs, even though those drugs may be more effective than cheaper drugs and might lead to fewer side effects or hospitalizations. Hospitalizations and side effects are very expensive to manage.

These three things have occurred every time cancer doctors’ payment has been cut, and these factors all contribute to higher costs, not cost savings, in the system.

More and more, cancer patients and survivors such as myself are seeing a cancer care system that, in a misguided effort to blame the rising cost of health care on cancer drugs, is risking people’s access to the best care available. Projects such as this erode the trust between doctors and patients, disproportionately harm the poor and less educated, and create complicated ways of cutting small costs only to recognize large expenses on the other end — what might be called “robbing Peter to pay Paul” or “Penny wise, Pound foolish.” True savings in cancer care will come from pushing ahead with scientific innovation: focusing on saving lives, not saving pennies.

Jennifer Hinkel, MSc is a cancer survivor, a health economist, a Partner at McGivney Global Advisors, and the Founder of Resilience Racing, the all-cancer survivor sailing team.

Postscript: Explaining How Medicare Currently Pays for Drugs

“Physician administered” drugs, such as chemotherapy, are paid under a system called “Buy and Bill.” The physician practice or hospital buys the drug up front. Once the drug is used, the doctor or hospital sends a bill to Medicare, and gets paid a benchmark Average Sales Price (ASP) for the amount of drug used, plus an add-on that covers the overhead of the pharmacy, chemo nurses, and infusion chairs. That add-on used to be 6% of the ASP, but because of the Congressional-gridlock-caused Sequestration budget cuts, it’s now roughly 4%. So, for a drug that costs, on average, $100 for a dose, the doctor gets paid $104. For a drug that costs $1000, the doctor gets $1040. This reimbursement holds true even if a solo practicing doctor buys the $1000 drug at $1020 (because they aren’t part of a volume purchasing group), or if a hospital with a big discount pays only $600 for that $1000 drug.

For years, Medicare and some members of Congress have argued that this percentage-based markup encourages the use of more expensive drugs. However, in practice, that doesn’t make much sense. It’s not as if equivalent drugs are available for $100 and for $1000 and a doctor can choose between the two. In most cases, there are older, generic chemotherapy drugs that might cost less than $100, but still require a lot of pharmacist work and chemo nurse effort, as well as “chair time” in the infusion center. Some newer, cutting-edge drugs cost several thousand dollars per dose, and in some cases require expensive and specialized pharmacy equipment to handle and prepare. The 4% add-on isn’t big, but among the mix of cheaper and costlier drugs, it averages out and covers most of the overhead associated with treating all of these Medicare patients (who, consequently, make up the vast majority of cancer patients, because Medicare covers people over the age of 65 and cancer mostly strikes older people). Important to note that the pharmacist time, nurse time, and the like isn’t separately billable to Medicare or any other insurers, so cancer centers need to find a way to cover these services and staff, who are essential to patient safety and health.

What the demo changes

Medicare’s proposed project will set up groups of ZIP codes that will no longer be paid on the “ASP plus 4%” basis. (In an disingenuous twist, the memo that Medicare sent out called it “ASP plus 6%” even though everyone in the industry knows that the Sequestration cuts have already reduced payments to about 4%.)

Some groups of ZIP codes will be paid the same way that they have been — ASP plus 4%. Other groups will be paid less. Medicare hasn’t stated exactly how much less, but has floated ideas of a “fixed” add-on, for example, where you could get ASP plus a certain dollar amount that isn’t based on a percentage, or that the add-on could be capped, so that no matter what you paid, you will only get 4% up to a certain benchmark amount. The likely result is that many practices will not be able to afford to provide a number of cancer drugs, and many cancer patients in need may go without life-saving and quality-of-life-improving innovative drugs and biologics.