Statement of Paul Bunn, M.D., Director, Cancer Center, University of Colorado, Denver, Colorado,
and President, American Society of Clinical Oncology, Alexandria, Virginia

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

Hearing on Medicare Payments for Currently Covered Prescription Drugs

October 3, 2002

Chairman Johnson and Members of the Subcommittee, thank you for the opportunity to appear before you to discuss a topic of great importance, not just to the physicians whom I represent, but also, more importantly, to the patients with cancer whom we treat.  That issue is the means by which the Medicare program pays for cancer treatment services for our senior citizens.  This has been a technically complex and difficult issue, but ASCO is committed to working with you towards an appropriate solution.  What is at stake is the quality and accessibility of essential services for cancer patients.

My name is Paul Bunn.  I am a medical oncologist who specializes in the treatment of patients with lung cancer.  I am Director of the Cancer Center at the University of Colorado and currently serve as President of the American Society of Clinical Oncology (ASCO).

I want to thank you, Chairman Johnson, for your leadership not only on this issue but in quality cancer care generally.  We recall your early and consistent support for Medicare coverage of patient care costs in clinical trials, leading up to the eventual National Coverage Decision in which Medicare agreed to extend such coverage in late 2000.  And we are very grateful that you championed legislation to require the General Accounting Office (GAO) to conduct studies that would give critical answers to questions about the cost of providing cancer care in physician offices.  As you indicated in your Advisory for this hearing, “it will take congressional action to ensure that our seniors continue to have access to high-quality cancer care.”  We agree completely with that goal.

Let me make clear at the outset that neither my income, nor the revenues of the Cancer Center that I head are influenced by the controversy involving reimbursement for office-based treatment that I understand to be the focus of the Subcommittee today.  I am based at a Cancer Center that provides cancer treatment mostly in its outpatient department, therefore I do not anticipate that changes in the payment mechanism for drugs in physician offices will have any direct impact on me or on my institution.  Moreover, my entire oncology career has been spent either at the National Cancer Institute or at an academic medical center, neither of which is directly affected by this reimbursement matter.

Necessity for Comprehensive Reform

Nevertheless, I am quite concerned that sudden or sharp changes in reimbursement levels in any part of the comprehensive cancer care system in our country might have a ripple effect that could influence all other parts of the system and, in turn, all cancer patients.  For example, in my own position at the Cancer Center, I know that we could not readily absorb a significant influx of new patients from physician office practices, nor could we continue to provide quality cancer care if our own drug reimbursement were reduced.  Any reform must ensure that quality care remains accessible to the approximately 80% of cancer patients who receive chemotherapy in physician offices. 

With that background, I first want to make clear that both I personally and my organization ASCO favor reform of the current system.  We do not relish being targets for those who correctly point out that some drugs are reimbursed by Medicare at a rate that exceeds the acquisition cost.  It is particularly troublesome when one focuses on the fact that the drugs where such excess payments occur are not usually the new sole-source drugs that are the cornerstones of modern chemotherapy, but instead they are older multisource or generic drugs that are less important to cancer care but still useful and necessary in patient care.  While physicians are targeted for harsh criticism when such drugs are overpaid by Medicare (and by beneficiaries through their copayments), we should recognize that it is the payment system itself, not wrongdoing by physicians, that perpetuates any overpayments.

What can be done to fix that payment system?  We believe, as we have previously testified before congressional committees, that reform must be comprehensive, encompassing both overpayments for drugs and underpayments for the costs of administering the drugs.  In that regard, Chairman Johnson, we assume that you have signaled your agreement by crafting legislation in both the Balanced Budget Refinement Act of 1999 and the Benefits Improvement and Protection Act of 2000 specifically requiring GAO to study shortcomings in Medicare practice expense payments. 

Unfortunately, the GAO consideration of these issues failed to get to the core issue of the cost of administering chemotherapy in the office setting and the chronic Medicare underpayment of those costs because GAO, contrary to the statutory instruction, conducted no “nationwide study” and collected no new data regarding “resources necessary to provide safe outpatient cancer therapy services and the appropriate payment rates for such services.”

Practice Expense Reimbursement

Although the GAO failed to produce the most useful type of data, ASCO recently contracted with the Gallup Organization to conduct a survey of oncology practices in order to determine their practice expenses per hour of physician work.  This survey employed the methodology of the American Medical Association SMS survey used by Medicare to set payment rates.  Practice expenses per hour does not directly indicate the cost of furnishing any specific service, but it is a component of Medicare’s methodology for setting payment rates.

ASCO has long asserted that past survey results were inadequate to capture true costs of oncology practices because they included only a small, unrepresentative group of oncologists.  Therefore, in order to address the paucity of data, ASCO engaged Gallup to conduct a new survey of oncology practices that would provide more reliable answers.  Gallup has now completed its survey, and the resulting data were forwarded to the contractor of the Centers for Medicare & Medicaid Services (CMS) for evaluation.  The CMS contractor, the Lewin Group, has completed its analysis of the data and forwarded its conclusions to CMS.

As analyzed by Lewin, the survey data show that CMS dramatically underestimated oncologists’ practice expenses per hour; the survey, adjusted for inflation, reflects that oncologists’ actual practice expense is roughly 90% higher than CMS’ current assumptions.  Additional analysis, still underway, may increase the gap between actual expenses and what Medicare assumes to be the case.

In view of the complexity of the CMS methodology for converting practice expenses per hour into actual payment amounts, we are uncertain how Medicare reimbursement will be affected by these new data.  We are, however, hopeful that we will be able to work with CMS to determine whether the current methodology, after taking into account this important new information, will result in adequate payment amounts.

Aside from consideration of the new data, we believe it is also necessary for CMS to revise its current methodology to eliminate its bias against services that do not involve physician work – a very substantial part of oncology services.  Both GAO and the Lewin Group have independently concluded that the current CMS methodology is biased against zero physician work value services and thus leads inevitably to lower payment amounts for those services.  In addition, once the methodology is revised to result in an accurate determination of the costs involved, Medicare must actually pay these costs in full.

With the availability of new data to support the longstanding assertion of oncologists that their practice expenses are under-reimbursed, and hopefully with the willingness of CMS to eliminate its bias against certain categories of services, the time may be ripe for comprehensive revision of Medicare payment for cancer care in physician offices.  ASCO looks forward to working with CMS and the Congress to find the right resolution of an enduring debate over appropriate payment levels for these services.

Drug Reimbursement

Assuming meaningful practice expense reforms can be implemented, it is essential also to change the way in which drugs are reimbursed by Medicare.  Our preferred approach would be to conduct market surveys in an effort to identify true market costs.  Through such a mechanism, the system could eliminate the large disparities between Medicare payments and acquisition costs that occur when generic or other competition drives the price down over time while the Medicare payment remains fixed. 

I am aware that the Ways & Means Committee has developed a general concept of competitive bidding for purchase of drugs.  Personally, I am in favor of a competition-based approach to just about any business endeavor, but I must admit I have questions about the practical applications of competitive bidding in this context.

Those questions largely revolve around the fact that physicians, or clinics, or hospitals or anyone purchasing cancer drugs, will most likely be purchasing for both  Medicare and non-Medicare patients.  It would be extremely difficult, if not impossible, for providers to segregate Medicare drugs from those purchased outside the system, presumably through the normal market mechanisms.  

The implications of an overarching drug purchasing authority that might eventually exert influence on private as well as public purchases have to be resolved by high-level policymakers.  Because we have serious reservations about the underlying concept, we would like to focus on the elements that we think should be incorporated into a reimbursement system for drug purchases that would be an alternative to the current average wholesale price (AWP) approach.

Perhaps most importantly, we must recognize the tremendous variation in ability of different purchasers to obtain volume- or other-discounts.  Any fixed payment, whether derived through competitive bidding or otherwise, should allow for the fact that small market purchasers may be unable to obtain the designated price.

It is also important to recognize that maintenance of an inventory of expensive and toxic chemotherapy drugs has its own attendant costs.  These costs include spillage, wastage, the opportunity cost of investment in an expensive drug inventory, and unpaid patient coinsurance, or bad debt.  In some states, sales or other locally imposed taxes must be covered.

The general principle that should be applied with respect to drug reimbursement is that Medicare payment should cover the full and actual costs of acquiring and maintaining the drugs in preparation for treatment of cancer patients.  Drugs should not be a profit center for physicians, but neither should they suffer loss as a result of maintaining a drug inventory for the benefit of cancer patients.  With your help, I am certain that we will be able to develop a system that satisfies these simple requirements.

Maintenance of Quality Cancer Care

The preeminent concern for all of us should be maintenance of quality care for beneficiaries with cancer.  Over the course of the past several decades, there has been a revolution in the ability to deliver life-saving cancer care to patients.  Once life-threatening toxicities of chemotherapy can now be managed, and newer therapies are more targeted and feature fewer and less serious side-effects.  These advances, however, do not come without their costs. 

Many of the practical advances in cancer care are now realized in the physician office setting, often far from urban or academic medical centers.  Science has made this technology transfer possible, but it is not impervious to being undermined if financial support is withdrawn.   Patient advocates in the cancer community feel strongly that any solution to this problem should maintain the current quality care for cancer patients. 

Cancer patients now fare much better than just a few years ago.  Tremendous progress in cancer treatment has made it possible for cancer patients to experience the same quality of care whether it is in a community doctor’s office or a hospital department.  Quality care, however, can be placed in jeopardy if payment for services is precipitately reduced, regardless of the treatment setting. 

I urge you and your Subcommittee Members to consider carefully the potential impact of any changes in payment for cancer chemotherapy drugs or services, and take those considerations into account before pursuing any legislative action.