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Current Issues in Oncology Reimbursement

Current Issues in Oncology Reimbursement

The reimbursement policies of Medicare, Medicaid, and private insurers can have a major impact on the ability of oncologists to deliver care to their patients. This article explores current issues of particular interest to oncologists, including coverage of off-label drug uses, reimbursement for drugs used in clinical trials and for costs of care for patients in trials, the effect of DRGs on the introduction of new technologies, attempts by Medicare to develop a fixed-price payment system for hospital outpatient department services, new methodologies for determining fee schedules for physician services, bundling versus separate payments for chemotherapy administration, and whether payments for drugs administered by physicians should be based on the average wholesale price (AWP) or some other methodology.


This article provides an overview of current issues in oncology reimbursement, with a special emphasis on Medicare/Medicaid policies. Topics included are coverage of off-label drug uses, possible changes to Medicare payment methods affecting hospitals and physicians, and the effect of reimbursement on the dissemination of new technologies.

Coverage Issues

A number of coverage issues recur in oncology. These coverage limitations can be the source of much difficulty for patients seeking treatment and for the physicians who provide it.

Off-label Uses of Drugs

The Food and Drug Administration (FDA) approves drugs based on the proposed labeling submitted by the manufacturer, and the indications for use included in the FDA-approved labeling are those that the manufacturer has demonstrated are safe and effective to the FDA's satisfaction. Once a drug has been approved by the FDA, however, physicians are legally permitted to prescribe the drug for any purpose without limitation to the indications set forth in the approved labeling.

Consistently available reimbursement for "off-label" uses of cancer drugs has been a major problem in the past. Legislation and changing insurer practices have, however, significantly improved the situation.

Medicare-For a number of years, Medicare's policy has been to allow its carriers to reimburse for off-label uses of approved drugs "taking into consideration the generally accepted medical practice in the community." [1] Under this long-standing policy, Medicare covered many cancer chemotherapy drugs, but coverage lacked uniformity across the country because it depended on local assessments of generally accepted medical practice.

To remedy this lack of uniformity, Congress enacted legislation effective in 1994 for drugs "used in an anticancer chemotherapeutic regimen." [2] Under this law, Medicare is required to cover any off-label use that is listed in any one of the three major drug-use compendia (the United States Pharmacopoeia-Drug Information, the American Hospital Formulary Service, or the American Medical Association's Drug Evaluations) or that is supported by articles in certain peer-reviewed journals. The list of approved journals includes the major cancer-related journals, as well as the important general medicine publications [3].

The Health Care Financing Administration (HCFA), which administers the Medicare program, has interpreted this law as applying only to drugs used as part of the chemotherapy regimen itself, and not to drugs used to treat the toxicities or side effects of the chemotherapy [3]. There is no official list of which drugs are contained in each category.

There is a potential difference in Medicare coverage of an off-label use that is listed in a compendium and one that is merely supported by the literature. In the case of a compendium listing, Medicare is automatically required to cover the listed use. In the case of a literature-supported use, each carrier remains free to evaluate the literature and determine whether the published articles in fact support the use. Since there is a lag between the time that articles are published and the time that the compendia are revised to take them into account, it is likely that there will continue to be some lack of uniform coverage during that period.

Medicaid-Medicaid's policy on coverage of off-label uses is more complicated. Generally, state Medicaid programs are required by federal law to cover all off-label uses that are listed in one of the three drug-use compendia identified above. A state may, however, establish a formulary and exclude from the formulary any drug that does not have a "significant, clinically meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcome," compared with other drugs that are included in the formulary [4]. Any excluded drug must nevertheless be available to patients on a case-by-case basis if authorized by the state prior to use.

Currently, Congress is considering major reforms to the Medicaid system, such as converting the program to block grants, under which the states will have great flexibility to design their own rules. This could result in greater diversity of state policies on coverage of off-label uses.

Private Insurance-In general, private insurers look to the major drug-use compendia and the peer-reviewed literature, and will pay for uses that are supported by those sources. In addition, a number of states have recently enacted legislation requiring insurance coverage of recognized off-label uses.

Medicare Drug Coverage

Many of the new injectable biologic drugs, such as the hematopoietic growth factors, can be self-administered subcutaneously but are also administered by health care professionals. This results in a potential issue of coverage under Medicare, which excludes coverage of drugs that "cannot" be self-administered. Medicare policy, however, is to cover drugs that are not "usually" self-administered [5]. Under this policy, Medicare is paying for growth factors except in those cases where the drugs are, in fact, self-administered.

Although Medicare does not have a drug benefit as such, there are three circumstances in which the program covers drugs. First, drugs, including oral drugs, are covered as part of the benefit for inpatient hospital or nursing facility services; therefore, drugs provided to inpatients are covered. (As discussed below, however, when there is a fixed payment for all services furnished to a hospital inpatient, there is no extra payment to cover drugs.)

Second, drugs that cannot be self-administered are covered by Medicare when they are furnished incident to a physician's professional service and included in the physician's bill. Chemotherapy and other injectable drugs furnished in the office are covered under this provision. For this coverage to apply, Medicare requires that the physician be present in the office suite and immediately available to provide assistance and direction, although a nurse or other assistant may actually administer the drug. In addition, if a nonphysician administers the drug, that person must be employed by the physician, rather than by the hospital or other entity [6].

Third, drugs are covered as part of the durable medical equipment benefit when they are administered through pumps that are reimbursed as durable medical equipment [7]. This coverage applies to both ambulatory infusion pumps and stationary equipment used in the patient's home, but it does not extend to disposable pumps, which are not considered to be durable medical equipment.

In addition to these injectable drugs, Medicare covers a small number of oral drugs, including (beginning in 1994) several anticancer chemotherapy agents. Coverage of oral chemotherapy agents is limited to those drugs that have an injectable counterpart used for the same indication. Currently, four drugs qualify under this provision-cyclophosphamide, etoposide (VePesid), melphalan (Alkeran), and methotrexate.

New Technologies

A persistent issue, under both public and private health plans, relates to the coverage of new procedures and technologies. Since all health plans exclude coverage of items and services that are considered "experimental" or "investigational," any innovation faces an obstacle until it is regarded as standard practice. These provisions have proved troublesome to oncology because so many patients undergo nonstandard treatment.

Coverage in such situations can vary considerably among insurers. Some insurers will deny coverage of the patient care costs for any service designated as investigational, and may take the use of an informed consent form as evidence that the service was investigational.

Obstacles to coverage may be especially formidable in the case of expensive technologies. Even though cost is generally not explicitly a factor in determining whether a procedure is covered, a high-cost procedure will generally be carefully scrutinized with respect to its investigational status, whereas a new low-cost procedure may draw little attention.

A number of formal programs have been established to evaluate new technologies to determine whether they should be covered by insurance. Among private insurers, the most active may be the Blue Cross/Blue Shield Association's Technical Evaluation Program. This program, which provides nonbinding advisory opinions to local Blue Cross/Blue Shield plans, does not rely on community practice standards or consensus, but only on scientific evidence [8].

In the case of all insurers, the best route to obtaining a determination that a procedure is no longer experimental is usually the publication of articles in peer-reviewed journals supporting its safety and effectiveness. Physicians who are developing new procedures should be mindful of the importance of literature to insurance coverage, and should seek to publish studies involving new procedures as quickly as possible.

Clinical Trials

The most disadvantageous situation for insurance coverage is a clinical trial, since the very existence of the trial is often viewed as conclusive evidence that the procedure being furnished is experimental. While it may be justifiable under the limiting language of insurance plans to deny coverage of the aspects of the trial that are truly experimental, when coverage is denied, it often extends to all aspects of the patient's care, including patient care costs that would have been incurred even if the patient had undergone standard therapy. Effective coverage of clinical trials will probably be available only when there is state or federal legislation requiring it.


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