Concerns About Average Wholesale Price-Based Reimbursement Raised Again

November 1, 2001

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

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

This has been along-standing bone of contention. Repeated federal investigations have shownthat the average wholesale prices (AWP) reported by manufacturers to Medicare—physiciansare reimbursed 95% of the AWP—are way above what they actually chargephysicians. The companies inflate AWPs as a way of inducing physicians,including oncologists (who know Medicare will pay them more than they paid forthe drugs) to buy their drugs. Oncologists have argued that they need theoverpayments 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 morethan necessary, via copayments, for their drugs. "This means that cancerpatients 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 greaterconcern to me is the evidence uncovered by the Committee indicating that theseoverpayments to health-care providers may be affecting the quality of carereceived by Medicare patients. Patients may not be receiving the most clinicallyeffective treatments, due at least in part to the perverse incentives of theMedicare 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 drugsand related services should be restructured to more closely align with the costof providing cancer care. Payments for drugs should be reduced, while paymentsfor related services should be increased. Tom Scully, administrator at theCenter for Medicare and Medicaid Services (CMS), echoed that view.

ASCO estimates that Medicare pays less than one-fourth of the total cost ofprincipal chemotherapy procedures. Medicare payment for chemotherapy infusion (CPT96410) averages about $62. The cost of the supplies and equipment used in thisprocedure is estimated to be about $29, based on the 1994-1995 prices used bythe CMS for these estimates. The salary and benefits of oncology-certifiednurses who furnish chemotherapy are currently estimated by the CMS to averageabout $35 per hour, and the total nurse time involved in furnishing an hourof infusion is estimated at about 2 hours. Moreover, there is nothing in theMedicare payment to cover the other costs of the office, including theadministrative staff and the overhead, which the CMS, using American MedicalAssociation data, estimates to be about two-thirds of a physician’s costs.