Tyler gives high marks to Ezekiel Emanuel’s Opinion in the NYT on reimbursement problems for generic Part B cancer drugs,* leading to shortages. Emanuel describes the problem well; I was less uniformly impressed by his solution: increasing the Part B markup paid to doctors from 6% to 30% once they have been generic for 3 years:
One solution would be to amend the 2003 act to increase the amount Medicare pays for generic cancer drugs to the average selling price plus, say, 30 percent, after the drugs have been generic for three years. This would encourage the initial rapid price drop that makes generics affordable, but would allow for an increase in price and profits to attract more generic producers and the fixing of any manufacturing problems that subsequently arose.
Increasing the Part B markup will only help the oncologists, not the generic manufacturers. If the argument is that oncologist reimbursement is too low, it was not made in this article. If he means to increase the amount doctors pay to the drug companies, make that clear and tell us why 30% over ASP after 3 years is better than a market price.
Emanuel’s “more radical” alternative solution would be to stop Medicare reimbursement for Part B generic oncology entirely, leaving it to MediGap plans. This seems too harsh for those without supplemental plans.
Better solutions:
(1) Remove the Part B price controls on generic manufacturers, allowing them to adjust their prices freely to reflect real market conditions. For example, revive the competitive bidding model for Part B that was “postponed” in 2009.
(2) Bill Medicare directly for all cancer drugs, getting the oncologist out of the drug sales business. Under current Part B, if an oncologist administers a $90,000 cancer drug, they earn a 6% commission – $5400. A generic drug, according to Emanuel, might cost only $3 per dose. The commission? – a mere 18 cents. Part B drug spending was $11 billion in 2009, implying a total commission of $620 million. The financial incentives to oncologists are all wrong here. As a Harvard team concluded in a Health Affairs study in 2006:
A physician’s decision to administer chemotherapy to metastatic cancer patients was not measurably affected by higher reimbursement. Providers who were more generously reimbursed, however, prescribed more-costly chemotherapy regimens to metastatic breast, colorectal, and lung cancer patients.
(3) Fix the 6 month time-lag on ASP reporting, as suggested in a Jan 2011 OIG report. Under current practice, newly generic drugs are reimbursed for 6 months at the full branded price.
* In general, Medicare Part B covers specialty drugs administered in the physician’s office. Historically, oncology drugs have been the largest category of Part B drugs, but now other biological molecules are growing fast. In addition, other cancer drugs are now widely available under Part D. Of course, private plans and Medicaid also cover cancer drugs.
UPDATE: CommonHealth’s coverage here; Megan McArdle here; Kevin Drum here.
