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As we heard last week from Robin Zweifel, senior vice president of revenue capture services at Panacea Healthcare Solutions, the Centers for Medicare & Medicaid Services (CMS) has proposed to adjust the payments for Part B drugs administered in a physician office or outpatient hospital clinic from average sales price plus 6 percent to average sales price plus 2.5 percent plus $16.80 per day.

CMS has indicated that this is intended to encourage physicians to choose the most effective drug for the patient rather than the drug with the most potential profit. The agency noted in its press release that with its proposed payment method, administering a $5 drug will increase the physician’s profit over 300 percent. But unfortunately, it is not that easy.

First, this payment is based on the average sales price. Where does that number come from? Each quarter, the drug manufacturers report to CMS the average price they charge for each drug they sell. But intrinsic in the concept of averages is the fact that some will pay less and some will pay more.

And who do you think will be getting charged the amount over the average? Physicians in small practices who purchase limited amounts of medications. So if they pay 3 percent over the average sale price, that 2.5 percent means a loss with every dose of drug purchased. And hospitals, with their large volumes and purchasing agreements, are being charged the lower-than-average price and then get further discounts through the 340B program. Second, there are few $5 drugs.

Generic drug prices are rising astronomically these days. And brand-name injectable drugs for diseases such as lung cancer, melanoma, rheumatoid arthritis, and ulcerative colitis can cost from $2,000 to tens of thousands of dollars a dose.

Next, if a physician regularly prescribes one of these drugs, first he or she must purchase the drug and keep an adequate supply so it is available when needed. With these costs, that is a lot of money required to maintain inventory. Second, while getting paid by Medicare is relatively easy, collecting the 20 percent copayment from the patient or the supplemental plan can be daunting. If a physician is unable to collect one copay on a single Remicade infusion, that is $500 lost. How often can a physician afford to administer a drug when they have to pay more the average sales price and then not be able to collect the copay? That extra $16.80 is not going to cover their losses.

So, will this new proposed policy help with doctors who choose medications based on profit? Absolutely.

And those doctors need more done to them than just a reduction in reimbursement. But it will also mean that many physicians will stop administering medications in their offices, and many patients will lose convenient access to their life-saving medications and be forced to travel to a hospital infusion center, if there is even a hospital nearby.

This will benefit many hospitals with increased volume and revenue in their outpatient centers and allows them to enhance their service lines, but aren’t we supposed to think about the patient’s well-being first?

It will be interesting to review the comments on this proposal and to see what CMS ultimately does.

About the Author

Ronald Hirsch, MD, FACP, CHCQM is vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the Advisory Board of the American Case Management Association and a Fellow of the American College of Physicians. 

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