• Generic cancer drug reimbursement

    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.

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    • What part of basic economics do people not understand? If you pay physicians a commission as a percent of the $ prescription, of course they are going to prescribe high cost prescriptions. What else exactly does anyone think will happen?

      The simple solution, that’s the one Occam would suggest is that if you want Part B to reimburse physicians for prescriptions, (which is questionable) and to give them something to cover their time then just make it a flat fee per presecription or per dosage, That way they will want to select the best drugs, not the most expensive ones.

    • Why are doctors earning anything on drugs?
      They should be paid as doctors not drug salesmen.

    • It is clear, those outside of healthcare are not familiar with the inner-workings of the industry. First, most oncologist, and probably physicians in general, are physicians because they want to help people. When it comes to a patients life or a small commission, life is always the first choice. Now I know, there are dis-honest MDs out there, just like any industry, but most MDs are good and have the patients best interest at heart. Second, MDs, especially oncologist, have ratios to which they are held accountable, by the licensing boards, their employers, partners, and malpractice carriers. The main of which is the mortality rate. This is not a public number for each doctor, but it is internally shared and does affect the MDs practice. If an MD was simply prescribing a drug based on a commission vs the patients life, it would show in their ratios and would eventually cost them their practice. It is easy to formulate a conspiracy theory and blame a specific party, but this problem has a wide reach. Medicare policies, patent policies, & FDA policies are just a few of the major issues that have lead to this problem. The best solution is to do your research and write your congressperson(s) with your best educated opinion.

    • Apparently everyone has cancer cells or pre-cancerous cells in their physique and the body’s immune system disposes of these naturally. It’s only when the immune system is down that the body is unable to fight and dispose of these cells that they start to multiply to a detectable level.The malignant cells won’t show up in tests until they’ve multiplied to a number of billion and when a physician tells a patient that they no longer have cancer, it just indicates that they’ve gone back down to beneath the level of detection. It is for this same purpose that, when carrying out surgery, doctors often discover more cancer than they expected from what was seen on Xrays and MRIs – because there had been cancer cells in other areas of the physique that were still below the detectable price.