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The Import of Thanksgiving Pales in Comparison with "Super" Committee Outcome

October 2011, Vol 1, No 3
Dawn Holcombe, MBA, FACMPE, ACHE
President, DGH Consulting, South Windsor, CT

All eyes are on Washington this fall, as deliberations begin on recommendations from the congressional joint “super” committee. Congress and the president failed to achieve resolution regarding the debt ceiling this summer, and now this newly created 12-person committee will recommend at least $1.5 trillion in additional deficit reduction measures through 2021, by November 23, 2011. If a majority of the committee members endorse a proposal, that proposal is guaranteed to go to a floor vote in both the House and Senate by December 23 without amendment or Senate filibuster. Because these proposals could be passed with any combination of Republican and Democratic votes that add up to a majority, despite pundit warnings that a stalemate could occur, congressional leaders could choose to move forward with the committee’s recommendations.

This leaves incredible power in the hands of the joint committee, but also great risk. The $1.5 trillion they have been tasked to cut is a paltry percent of the total debt problem our country faces. It will not make a significant impact in the long run. However, the brunt of either their action or the automatic 2% overall Medicare cuts that will be triggered if they take no action will fall on the providers who care for Medicare patients. At least half of all oncology patients nationwide use Medicare insurance, so the ripple effects for oncologists will be severe.

Already rumors are swirling of potential cuts following the first committee meeting. With many possible targets pulled off the table for the committee, one prime target for cuts that remains is physician services for Medicare patients. Oncology services and costs could be affected significantly and adversely for Medicare patients and providers if certain types of cuts happen, either driven by the joint committee or by the automated mandatory universal cuts that would be triggered should the committee not act by November 23.

Impact of Drug Pricing Changes

Oncology drugs are billed through the physician services process, so drug reimbursement to physicians who buy drugs out of pocket and seek reimbursement after treatment is vulnerable.

Oncology drugs are currently reimbursed by Medicare at average sales price (ASP) plus 6%. The ASP is calculated based on prices reported by manufactures when a drug is sold. However, each drug is not sold directly to physicians’ offices, but instead to oncology drug distributors, who collect a margin to cover their operations (usually about 2%). This means that physicians already receive a real net reimbursement of about ASP plus 4%. Oncology practices and hospital centers incur direct drug handling costs between 12% and 27% over the cost to purchase a drug. The margin over ASP is used partially to offset handling and inventory costs, but obviously not fully.

To the extent that the joint committee may decide to enact reductions on the ASP plus 6% model, it will put oncologists (who pay the lowest commercially available market rates for oncology drugs as a class of trade) in the position of paying more for drugs for treatment of Medicare patients than they receive in reimbursement.

There are some who believe that the consequences of such a policy shift will encourage physicians to stop acquiring drugs on their own and either obtain drugs from an external specialty pharmacy or shift the affected Medicare patients to the hospital setting, where they will still have access to the drugs and thus there is no harm nor foul to the Medicare program. This belief is being promulgated actively as part of the discussion of op tions for the joint committee.

The reality is that there are likely to be significant cost in creases if such a policy is enacted—the exact opposite of the savings that are intended. There are no specialty pharmacy programs now in place or available as an alternative (such a program was tried and proved to be a complete failure for both providers and specialty pharmacy organizations).

Putting aside the question of access for a moment (which itself cannot be ignored due to the much lower capacity in the hospital outpatient setting, which would be overwhelmed by a sudden large shift in Medicare patients from physician treatment sites), the hospital outpatient setting is likely to incur costs for treatment that could run as much as twice the cost of treatment in a physician office setting. Hospital reimbursement structures are quite different from reimbursement structures for physician practices, and involve higher facility and overhead costs not found in the physician office.

Because Medicare has not traditionally done a good job of correlating whether or not a policy change in the physician office (Part B) setting has affected hospital setting (Part A) costs, that question probably has not been considered by those contemplating reducing oncology drug reimbursements. The oncology community, however, should bring such discussions to the forefront of the debt reduction debate.

Impact of Making Oncology Practices Financially Vulnerable

Should the joint committee propose policy recommendations that make oncology practices too vulnerable financially, the repercussions may be a massive exodus of private oncology practices from the community into employed hospital arrangements. Again, there are those (particularly within the congressional and Medicare infrastructures) who be lieve this would be a good shift, with improvements in care coordination and oversight.

There are, however, significant adverse repercussions from such a shift, which are well recognized by the private insurance industry that closely tracks their inpatient and outpatient costs. Hospital-based care is recognized widely in the private insurance industry as costing more (as described) than care provided in private physician offices. Congress and Medicare tend to look at costs of healthcare in silos of Part A and Part B, and thus lose sight of how changes in one infrastructure can push Medicare beneficiaries into another higher-cost infrastructure and ultimately increase costs rather than achieve expected reductions. Private health insurance is watching the activities of the joint committee closely. If physicians choose to become hospital employees because of Medicare policies, the private insurance companies also will be affected because physicians would be unlikely to become employed just for their Medicare populations, but for all their patients.

Short Window for Engagement

The joint committee will make its recommendations by November 23. If it does not act, automatic acrossthe- board reductions will be triggered. Unfortunately, oncology is a specialty that was already poorly served by the actions of Congress regarding Medicare in 2003 and 2007. Despite the business and reality logic of the situation, there is a high likelihood that, by November, the nation will move much closer to a hospital-employed model for healthcare. Even though the rest of the nation seems to understand that this move is likely to cost significantly more than the current model, Congress and Medicare do not. There are only a few weeks before that date to communicate what such changes may bring, intended or unintended.

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