How the Sequester Cuts Are Harming Oncology

The Sequester

In August 2011, Congress passed the Budget Control Act, which required Congress to agree to reduce the deficit by $1.2 trillion over a 9-year period-or if Congress failed to do this, automatic cuts known as “sequestration” would be implemented. Political gridlock ensued and the sequester cuts were enacted at the beginning of March 2013.

David Eagle, MD

The sequestration agreement predetermines varying levels of cuts for different sectors of the economy. Defense spending is affected the most. Separate areas of healthcare are now suffering differing levels of cuts. The National Institutes of Health have been mandated to make 8.2% across-the-board cuts for the remaining fiscal year. A 2% reduction will be applied to Medicare.[1]

Michael Diaz, MD

The Centers for Medicare and Medicaid Services (CMS) has applied the sequestration cuts to oncology in a drastic manner that grossly amplifies the magnitude of an already-problematic 2% cut. While CMS claims it is “unaware of any authority” to exempt cancer drugs from the sequester cuts,[2] it is likely that the agency could have mitigated the impact. CMS used its discretion to apply the 2% sequester cut to the entire amount that oncology clinics are reimbursed for drugs. This is despite specific guidance from the Office and Management and Budget (OMB) to “use any available flexibility to reduce operational risks and minimize impacts on the agency’s core mission in service of the American people. . . ”[3]

To comprehend the true impact of CMS’s decision requires an understanding of the formula for private office oncology drug reimbursement and the impact this formula has already had on private oncology groups. In 2003, the Medicare Modernization Act (MMA) directed that oncology drugs be reimbursed at average sales price (ASP) + 6%. Included in this formula is a “prompt pay” discount; this discount is provided to distributors by drug manufacturers and is not passed on to oncology practices. The net effect, for oncology practices, is that ASP + 6% functionally becomes ASP + 4%. In addition, manufacturer price increases are not adjusted in the Medicare payment formula until after a 6-month delay. Since many manufacturers do raise prices, the margin on chemotherapy is further reduced. This margin is important because it covers the cost of operating chemotherapy preparatory facilities, as well as of ordering and managing a drug inventory; the cost of storage, waste, and disposal of drugs; and otherwise uncompensated services necessary to operate an oncology clinic.

Under sequestration, CMS applied the 2% cut to the entire 106% drug reimbursement, not to the 6% margin as would have been more appropriate. As a result of this and other technical details, the 2% cut lowers ASP + 6% to ASP + 4.3%. Thus, the 2% cut is magnified to 28%, a huge economic blow to already struggling community practices. As previously outlined, practices do not truly receive a 6% margin on drugs to begin with, so the proportional 28% reduction is an underestimate for the vast majority of practices.

What Will Be the Consequences?

In exchange for lower reimbursement for drugs under the MMA in 2003, Medicare was supposed to pay more for oncology services such as chemotherapy infusion. However, since 2004, CMS has reduced infusion code payments by more than 35%. In addition, CMS never enacted treatment planning codes mandated by the MMA. On the record, CMS and other payers state a desire to pay oncologists for “what they do.” This stated desire has been far more rhetorical than real. Over the past several years, private insurance payment amounts for drugs have been reduced without compensatory increases in payments for oncology cognitive services or the facility costs through which oncology offices coordinate care and provide supportive services to frail seniors.

FIGURE

Community Oncology Practice Impact Report

Internal server error