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Concerns About Average Wholesale Price-Based Reimbursement Raised Again

Concerns About Average Wholesale Price-Based Reimbursement Raised Again

Rep. Billy Tauzin (R-La), the influential chairman of the House Energy and Commerce Committee, made it clear at hearings in late September that he intends to pressure Medicare to cut reimbursements to oncologists for the chemotherapy agents they administer to patients in their offices. 

This has been a long-standing bone of contention. Repeated federal investigations have shown that the average wholesale prices (AWP) reported by manufacturers to Medicare—physicians are reimbursed 95% of the AWP—are way above what they actually charge physicians. The companies inflate AWPs as a way of inducing physicians, including oncologists (who know Medicare will pay them more than they paid for the drugs) to buy their drugs. Oncologists have argued that they need the overpayments to compensate for underpayments by Medicare for their services, such as chemotherapy administration.

Rep. Tauzin singled out cancer patients, who he said are paying much more than necessary, via copayments, for their drugs. "This means that cancer patients are paying an extra $6.56 for each dose of doxorubicin, and an extra $3.01 for each dose of leucovorin calcium," he said. "Of even greater concern to me is the evidence uncovered by the Committee indicating that these overpayments to health-care providers may be affecting the quality of care received by Medicare patients. Patients may not be receiving the most clinically effective treatments, due at least in part to the perverse incentives of the Medicare reimbursement system."

Larry Norton, president of the American Society of Clinical Oncology (ASCO), testified at the hearing. He said ASCO agrees that Medicare payments for drugs and related services should be restructured to more closely align with the cost of providing cancer care. Payments for drugs should be reduced, while payments for related services should be increased. Tom Scully, administrator at the Center for Medicare and Medicaid Services (CMS), echoed that view.

ASCO estimates that Medicare pays less than one-fourth of the total cost of principal chemotherapy procedures. Medicare payment for chemotherapy infusion (CPT 96410) averages about $62. The cost of the supplies and equipment used in this procedure is estimated to be about $29, based on the 1994-1995 prices used by the CMS for these estimates. The salary and benefits of oncology-certified nurses who furnish chemotherapy are currently estimated by the CMS to average about $35 per hour, and the total nurse time involved in furnishing an hour of infusion is estimated at about 2 hours. Moreover, there is nothing in the Medicare payment to cover the other costs of the office, including the administrative staff and the overhead, which the CMS, using American Medical Association data, estimates to be about two-thirds of a physician’s costs.

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