Sequestration Mania Hits Physician-Administered Drugs

So, the federal government’s mandated spending cut took effect. The world didn’t end, consistent with the Wall Street Journal’s prescient February 6 editorial titled The Unscary Sequester.

Physician-administered drugs under in Medicare Part B will get a 1.6% payment cut, because of a reduction in the reimbursement rate from ASP+6% to ASP+4.3%. (Check the math. It’s a cut from 106% to 104.3% of ASP.)

While I view the sequester as incredibly poor public policy, let’s keep some perspective. As I explain below, total drug revenue per full-time equivalent hematology/oncology physician will drop by less than $27,000.

Even President Obama is busy walking back his administration’s comments of complete disaster. KCCO.

MEDICARE PART B

For those who don’t know, the Medicare Part B program covers a limited number of outpatient prescription drugs. These include injectable drugs administered by a physician; certain self-administered drugs, such as oral anticancer drugs and immunosuppressive drugs; drugs used in conjunction with durable medical equipment; and some vaccines.

Medicare uses Average Sales Price (ASP) as the basis for reimbursing physician-administered injectable drugs and some self-administered medications, such as oral anticancer drugs and immunosuppressive drugs. Average Sales Price (ASP) equals the volume-weighted, per-unit average of manufacturer sales prices for each product that falls within a single Healthcare Common Procedure Coding System (HCPCS) billing code. ASP is computed using actual sales revenues to a manufacturer, i.e., list price minus all price concessions (volume discounts, prompt pay discounts, cash discounts, free goods, chargebacks, rebates, etc.).

HOW BAD?

As many pundits have noted, the sequester’s indiscriminate cuts, all of which come from discretionary annual spending, are a crazy way to get the country’s debt problem under control.

Putting aside politics, here’s how I estimate the typical impact per physician:

• Oncology practices purchase about $3.4 million of drugs per hematologist/oncologist, per Benchmarking Pharma Economics in Oncology Practices. 

• Medicare accounts for about 50% of practice revenue, per the Genentech Oncology Trend Report. (Great report, BTW.)

Thus, a 1.6% reduction will reduce Medicare practice revenue from $1.7 million to $1.67 million—a reductions of about $27,000.

As far as I know, commercial payers are not planning similar cuts. Plus, 36% of oncology drugs are handled by specialty pharmacy providers, and are not paid via buy-and-bill. See Specialty Pharmacies Keep Gaining on Buy-and-Bill.

Sadly, these cuts could encourage more physicians to sell their practice to hospitals, which can then jack up the drug prices. So much for sensible health care policy!